208 CHAPTER 9 MEASURING RELEVANT COSTS AND REVENUES FOR DECISION-MAKING REAL WORLD VIEWS 9.1 10.4 billion Kenya Shilling

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208 Chapter 9 Measuring Relevant Costs And Revenues For Decision Making Real World Views 9 1 10 4 Billion Kenya Shilling 1 (140.9 KiB) Viewed 125 times

208 CHAPTER 9 MEASURING RELEVANT COSTS AND REVENUES FOR DECISION-MAKING REAL WORLD VIEWS 9.1 10.4 billion Kenya Shillings (about $104 million). They had previously worked on the Thika highway mentioned above. Questions O Stockr/Shutterstock Special pricing decisions - pricing highway construction contracts Most developed economies have well-developed road and highway networks. From time to time new highways are built to relieve congested cities, but by and large most developed countries are not embarking on major road building projects. Reduc- ing government expenditures in developed coun- tries post the 2008 economic crisis prohibited many major new projects. The opposite happened in many developing countries, with foreign contrac- tors doing most of the work. One project in Kenya delivered 50 km of four-lane highway from Nairobi to Thika at a cost of 27 billion Kenyan Shillings (about $270 million), which was completed in early 2012. In early 2015, the Kenyan government announced a plan to double the paved road in the country within 5 years through public-private partnerships. The total value of these contracts was noted as approximately $3 billion. While some money came from exchequer funding and Kenyan banks, some was provided by foreign development aid partners. Therefore competitive tendering and cost controls are an integral part of the bidding and construction process. Contractors are required to submit ten- ders and cost reports to government departments or agencies, which in turn are likely to be closely monitored by funding providers. Based on a report from the Standard in mid-2016, Chinese firms had successfully bid for a highway project valued at 1 Assuming a non-African construction company is submitting its first ever price to bid for a road construction project in Africa, what special considerations might it need to consider in forming the price? 2 Assuming less profitable road maintenance projects are available in its home country, how would the firm evaluate, on the basis of costs/ revenues alone, whether or not to pursue a project like those described above? References Doya, D.M. (2015) Kenya beckons banks with $3.2 billion of road-building deals. Bloomberg Business. Available at www.bloomberg.com/news/articles /2015-03-16/kenya-beckons-banks-with-3-2 billion -of-road-building contracts (accessed 28 April 2020). Lugaria, P (2012) Thika Road construction project overview. Kenya Construction Business Review. Available at www.constructionkenya.com/1676/thika- road-construction-design/(accessed 28 April 2020). Omondi, D. (2016) Chinese firm wins yet another lucrative project. Available at www.standardmedia.co.ke/ business/article/2000207244/chinese-firm-wins-yet- another-lucrative project (accessed 28 April 2020).