Appendix 6
Custom Fabrication Proposal
TRU has received a Request for Proposal (RFP) from Alberta, Saskatchewan, and
Manitoba to provide salt silos to all three provinces under the terms of one contract. The
stipulated volumes are detailed in the following chart.
Alberta
Saskatchewan
Manitoba
Totals

2016
3
3
3

2017
4
4
4

2018
3
3
3

Total
10
10
10

9

12

9

30

The total contract is worth a maximum of $6,075,000 over the three years for the three
provinces, and revenues would vary according to the number of silos produced each
year. There is a 20% probability that a bid of $6,075,000 would win the contract, a 60%
probability for a bid of $5,850,000, and a 20% probability for a bid of $5,300,000. The
bid acceptance is not solely based on the lowest price.
Winning and fulfilling this contract would create a working relationship with the three
provinces that would likely enable TRU to secure other design and fabrication contracts
with these and the other provinces, the territories, and large companies. TRU estimates
that, after completion of this three-year contract, revenues in 2019 would be 85% of
those in 2018, and that revenues in 2020 and beyond would show a 5% increase year
over year.
TRU would require 8,000 square feet (743.2 square metres) of space to build these
large silos. The cost of a five-year lease for a suitable property would be $12.75 per
square foot with an annual increase of 2%. In order to fulfill the requirements of the
contract, $75,000 in leasehold improvements would be necessary.
Based on previous experience with custom contracts, TRU expects a 22% gross
margin, which would include rent, materials, labour, and overhead. One administrative
support person would be needed from the beginning of 2016 at a cost of $48,000 per
year, including benefits. A sales representative would be hired in the second quarter of
2018 to start generating sales for future years. The cost of this position would be
$48,000 per year, including benefits, plus 1% commission on new sales, which are not
expected in 2018.
Engineering fees would vary from year to year, because of differing specifications, as
follows:
2016
8.0% of sales

2017
2.5% of sales

2018
2.5% of sales

2019
5.0% of sales

2020 +
5.0% of sales

Capital asset requirements are detailed in the following chart.
Capital Assets
Welding and plant equipment
Computers
Leasehold improvements

Costs
$320,000
$3,000
$75,000

CCA Rate
30%
55%

Capital Cost
Allowance (CCA)
Class 43
Class 50
Class 13
(5-year, straight-line
amortization)

The plant equipment would have a lifespan of 10 years. Software updates would be part
of overhead, and the computers themselves would not be replaced.