How to lower prices

A common follow-up question to “How much to build this?” is “Could it be done for less?”.  If you are losing to competitors frequently enough , the answer would be yes, yes it can.  There’s a tendency to look at a bid as if it’s simply the total of all the subcontractor quotes.  This perspective has limitations in that it implies that cheaper subcontractor quotes is the only way to arrive at a lower total bid.

But why are their quotes so high?  Risk is the most common reason.  Subcontractors must assess factors that go beyond a narrowly defined scope of work listed in their contracts.  For example market conditions may have created a labor shortage that limits the amount of projects the subcontractor can safely take on.  Bid invites for projects that are planned to start during peak seasons will create a twofold risk for the subcontractor.  First, if they win the job and labor is scarce, they will have to pay a premium to adequately staff the job.  Second, if they fail to land enough profitable work during peak season they jeopardize their annual earning potential which may leave them saddled with a fastidious low profit job, which is a very serious problem.

GC Estimators can address this risk by carefully evaluating bid opportunities that are leading up to and during peak season.  Are the plans ready for permit? Does the client have funding? Can they start when they claim they will?  Could they start earlier or later?  Lots of ambitious clients choose to break ground in the summer to reduce weather delays.  School remodeling typically takes place when the kids are out as well.

From traffic signals to hand grenades – timing is everything!

This is not the time to be optimistic and giving the client the benefit of the doubt.  If a client looks wobbly or has a history of late starts tell your subs you anticipate a later start date.  If the client is obligated to timelines for contract awards and project closeouts include that on your invitation to bid.  Specification manuals are sometimes thousands of pages long and Architects can’t be bothered to list pertinent details like start dates, completion dates, liquidated damages, bonding requirements, Taxes, or Davis Bacon Wage requirements in one place no matter how much it would benefit mankind (but I digress).  Honesty counts, I have been involved with bids that were upwards of 20% higher than the best we could do on bid day because we couldn’t count on the client to start when they said they would.

Projects that get pushed back inevitably collide with work for responsible clients. These collisions can be immensely expensive especially when small projects “just won’t end” to free up needed resources.

Order of operations

Projects with limited subcontractor scope may still require several mobilizations to the project to complete.  In extreme situations, the mobilizations are more expensive than the scope of work.  Imagine a project that requires a new doorway to be cut into an existing wall.  The painter might be tasked with painting the wall around the new opening, the door frame, and the door itself.  If the painter were allowed to paint the wall after the frame was installed ,they could get the wall and the frame painted in a single trip.  Shipping the door to the painters shop allows them to paint it when convenient and bring it with them when they come to paint the wall.  Cutting 50% of their mobilizations and allowing them to paint a door in a less chaotic environment reduces their labor and risk on the job without changing the scope of work.  Be creative and find alternate solutions.  Taking this door example a different way, let’s say the door is wood and must be stained to match the wall trim.  A painter is going to have to obtain a stain sample, mix, match, and apply that finish.  The millworker will bring pre-finished trim to the job site to install.  They have all the equipment to stain and finish the wood door and bring it with them when installing the trim.  The stain WILL match because it’s the same material from the same equipment.  Again, the staining can occur in a controlled environment at the subcontractors convenience.  The painter ends up with a single mobilization, so does the millworker.

If the work is inconvenient or likely to interfere with more profitable pursuits subcontractors will price it higher.  Don’t let dogmatic tradition dictate the schedule, look for the efficient approach.  Don’t be afraid to make things cheaper for a “little” scope of work.

House cleaning

Part of what defines the work is the GC.  Many firms are monoliths of unresponsive yet demanding bureaucracy.  Estimators who don’t have a rapport with their subcontractors are rarely well-informed as to what influences each bidders view of the job.  Giving prompt, uniform, and firm direction in reply to subcontractor questions builds a positive association with your firm.  They will be more inclined to speak honestly with you about their limitations, interests, and concerns.  Dithering, weaseling and CYA replies achieve the opposite.

Project Engineers that hastily reject submittals without explanation create administrative log jams that delay critical path deliveries.  Project Managers who fail  to develop, maintain, and manage project schedules often become “screamers” as the deadline approaches with long punch lists.  Taken together, these “dynamic duo’s” are artery clogging masses in the project’s bloodstream.

GC’s who have their project managers bid their own work often receive different subcontractor rates depending on which PM is going to run the job.  This is why.

How to lower prices

“You could say workplace tension is a factor…

 

None of which is to say that everyone at a GC must be everybody’s friend or always “play nice”.  GC’s that win work that’s run smoothly and profitably without screwing anyone will have plenty of admirers.

 Working around the situation

The modern bidding environment is very formal and compartmentalized.  The GC’s are not permitted to informally ask the design team questions.  Subcontractors are not permitted to ask questions of anyone but the GC’s.  Bureaucratic delays ensue, forcing critical decisions to the end of the bidding period (if then).  Then the bids come in and often the client is displeased with the price and all value engineering suggestions.  After all, they paid the design team to get everything this far,now they’re forced to choose what to amputate from their vision of the project.  The client doesn’t see much value in the ritual of the Request For Information (RFI) exchange.  So take the opportunity to push the project back on track by providing leadership BEFORE the job is off the rails.

“An appeaser is one who feeds a crocodile hoping it eats him last” Winston Churchill

Many GC’s seek to avoid exposing an Architect’s mistakes in hopes that “playing ball” will naturally resolve complex issues.  Assuming the Architect will fully grasp all the issues and costs of a problem is how we get half answered questions, cost over-runs, and project delays.  Often these problems are apparent at the bid stage.  Cost additions post bid are change orders that the owner doesn’t appreciate.  Ambiguity in the plans can raise moral dilemmas that unscrupulous competitors exploit to snag a job.  Closing the gaps BEFORE the bid levels the playing field and protects the client.

Subcontractors may feel the same way only they must rely on often feckless GC’s to get direction from the design team.

Start on the right foot by writing RFI’s in a professional manner.  Reference an actual drawing that you’ve cropped to the area(s) affected.  Wherever possible ask Yes/No questions to simplify things.  Offer reasonable solutions and imply that you think that’s what they intended.

Here’s an example:  Detail XYZ has a note requiring process X  however detail PDQ has a note requiring process Q.  ABC Construction believes the intent is to use process X at only West facing openings and process Q at all other openings.  Is this correct?  If not, please define the desired process for the openings in question.

If the architect writes “yes” on your RFI and sends it back to you, you’ve generated an easy to follow instruction for subcontractors to bid on.  Legalese or weasel wording makes for ambiguity which is risk.

Now most estimators will just send this RFI to the Architect and steadily grow their frustration as the bid date advances without a reply.

Get what you need as soon as you can

It may be possible to call the Architect off the record before sending the RFI.  Phrasing and tone are important.  Portray your efforts as striving to make an easy to answer RFI.  The intention is to establish your desire to honor their design, not list mistakes you found in their plans.  If done with diplomacy, it’s possible to get the answers you need before you send the RFI.  Some Architect’s will formally answer all RFI’s at one time for their convenience.  Typically via addendum  just before the deadline.

Broadcast the answer’s

Knowing the answer early means you can create a bid directive for your subcontractors  well in advance of that addendum which will confirm and formalize your instructions.

GC’s that aren’t afraid to give accurate and precise direction are rare in the market.  If you make it easier to bid to your firm, there’s an excellent chance that you’ll attract bidders to your projects.  Be advised that asking for alternates for scope of work that “could go either way” depending on an Architects reply can be a sizable request.  It’s typically much harder to precisely “break out” some scope of work after the bid is complete.  Get such requests out an in front of your bidders as soon as you can.

“I’m too busy to answer you right now”…

Subcontractors bring a profound level of specialized knowledge and diverse experience to the bidding environment.  They typically have far more customers clamoring for their attention than the average GC could imagine.    Subcontractors do not have the luxury of analyzing a single project from the invitation to the deadline.  They may only be able to invest a small amount of time in bidding the work because their scope work isn’t valuable. GC’s are who are unwilling to “spoon feed” subs looking for answers are missing the bigger picture.  “It’s in the plans” is a pithy response that results in a furtive hunt for as long as their charity outweighs their frustration.  Trades with limited scope, or with scope of work that’s only shown on an obscure detail drawing are likely to come up short on bid day if you don’t let them know what you’ve found.  The interplay of alternates is immensely frustrating for subcontractors.  Items that are affected by trade overlap are likely to have conflicts when decisions are left to interpretation.  Does the roof top unit come with its own fused disconnect or does the Electrician have to supply it?  Is carpet demolition by a demolition subcontractor of a flooring sub?

A well-defined estimate should output scope of work checklists that you can send to your bidders to reduce bid-day confusion.  Try to remember that competitive bidders default to EXCLUDING anything that’s questionable in their scope.  If you don’t know enough about the item in question you should call trusted subs and get their input.  Not everything with pipe connected to it is in the plumber’s scope, not everything with wires is an Electrician’s job.  A skylight might be handled by a Glazier, a Specialty skylight subcontractor, a roofing subcontractor or even a carpenter depending on the specifics of the situation.  Be advised that there’s more than one way to address a scope of work.  Sometimes the cheapest option is overlooked.

 Plan wrangling                

99.99% of the time bid documents are transmitted as Portable Document File (.pdf) files.  This can be a blessing or a curse depending on several factors.  First of which is the way the document is formatted.  A fair number of Architects will transmit one file with all the plan pages included in order.  The advantage is that there’s no chance that any single page will be omitted.  The disadvantage is that this makes the file large and cumbersome for the majority of bidders.  Alternately, the plans can be transmitted by sets defined by group i.e. “Architectural, Structural, Interior Design, Civil, and MEP,”.  Finally the plans can be transmitted as individual sheets.

The naming convention of the file is very important.  Individual sheet files need to be renamed to match the sheet name.  “Sheet #21” is meaningless whereas “A5-3 West Elevations” defines the page. Don’t assign this task to folks who lack construction knowledge, the results are uniformly awful.

Be advised that re-naming sheet files tends to scramble the page order if the page names aren’t alphabetical or sequential.  In those cases, I find it easier to put the page number at the beginning, followed by the sheet name.  From the example above you would have “23  A5-3 West Elevations” as your file name.  Keeping the plans organized, and accessible is absolutely critical for reducing the amount of time a bidder has to spend trying to get what they need.  Imagine you’re making highway signs for the autobahn, decisions need to be made quickly so the information must be clear.

Welcome to the FF&E Rodeo

This becomes much more challenging when you’re bidding work in certain markets.  The multi-family, retirement, and assisted living, market often use interior design teams who create “Fixtures, Furnishings, and Equipment” (FF&E) packets.  Those that have crossed my desk are a perfect storm of inefficiency.  Cut sheets for carpet, chairs, paint, wall covering, light fixtures, plumbing fixtures, appliances, etc. are combined into one continuous file that’s generally riddled with nomenclature not shared by anyone else on the design team.  Carpet types on the Architectural plans do not correlate with the FF&E types because these teams don’t coordinate.  There is no effort made to place similar materials together so it requires a comprehensive search to find all specified material for a given trade.

Start by breaking down the FF&E files into individual cut sheet files.  Use naming conventions to sort them to either Construction Specifications Institute (CSI) number or trade name.  Maintain an inventory of what you’ve found on a spreadsheet.  The next step is attempting to match the cut sheets to the types listed on the plans (a daunting task).  RFI’s need to be promptly filed where applicable.

Be advised that very complex RFI responses are often delayed.  If you break your list down to trade specific materials it should help focus the design team’s resources.  Presenting your subcontractors with a completed schedule for the material in the FF&E documents reduces their risk immensely. Avoid “narrative” responses wherever possible.  Provide highlighted drawings showing the locations you think they’re addressing.  It’s been my experience that Interior Designers are loath to use plan notation for RFI replies.  This tendency wastes your precious time. If they won’t draw a picture, draw one for them. Be advised that information like room numbers is frequently missing on consultant plan pages which compounds the confusion with narratives.

Drive the bus or get taken for a ride…

Similarly, conceptual or design/ build efforts can be based upon a hodgepodge of plans, pictures, and narratives.  It’s incredibly annoying for subcontractors to read through all the pages of a narrative looking for their scope of work.

Subcontractors are bidding to YOU, so YOU need to put your assumptions out in a comprehensive manner.  List out the presumed scope of work for every trade you’ve invited being careful to add precise direction for areas of trade overlap.  For example, if there’s a kitchen, YOU must declare if the equipment will be gas or electric.  If the client intends to furnish material, then list that too.  If you’re competitively bidding, define what you expect the budget to be.  Leaving everything up to the subcontractors means you’re riding the bus, not driving.  Define desired level of finishes using unit costs wherever possible.  If there are hard specifications or special inclusions, make sure that the affected bidders are aware of this.  List things according to trade to make it easier for them.  If it sounds as though conceptual or design-build estimates are more work than a traditional hard bid, you’re right!

To the subcontractor, missing information on conceptual bids generally equals “excluded”. Design-build presents an onerous situation for subcontractors.  They’re expected to “protect” the GC from uncertainty but they must also compete.  Exclusions are costly – limit their risk by defining what is and isn’t in their scope of work. The MEP trades are facing a significant amount of work to design-build a project.  Weak, weasel-worded, or unknown requirements will push them to simply bid high to let someone else take on the troubled job.

Bids are not free

Sometimes the reason a GC fails to attract low bidders is due to the image they’ve cultivated on the market.  Constant losses are an indicator to subs that it’s time to change horses.  Subcontractors don’t know who was second, third, or fourth low, the awarded GC is all that really matters to them.   A lot of GC’s assume that their competitors were working off the same subcontractor numbers.   In fact, it’s common for subcontractors to give better pricing to low risk or better clients.

Closed doors and open windows.

There are also a lot of cases where a GC has a low bid subcontractor  all to themselves.  GC’s that enjoy this situation have a few things in common.  First off they are aggressively promoting acceptance of qualified subcontractors.  Many firms are enormously insular about widening their list of pre-qualified vendors.  Striking  the proper  balance between competitive pricing and risky subcontractors is a process of continual refinement.    If you’re consistently not winning, you need to be widening the list of acceptable subs.  Unsolicited bids or late bids from subcontractors who just heard your firm was bidding are prime candidates for review because they are already bidding work in common with you.

 Winners pick winners

Another thing these GC’s have in common is that they are conscious of wasting subcontractor time.  It’s senseless to invite subcontractors to bid work they’ve consistently lost in the past.  Just as it’s unethical to invite a sub you wouldn’t  hire, it’s not ethical to invite a sub knowing they are going to lose.  Classify subcontractors according  to their key markets will help immensely in ensuring that they’re paired with the right work.  Too many estimators focus on “at least three” subcontractor bids per trade.  If one sub has never won similar work, it’s time to find another contender.  Be advised that subcontractors are often in “sales mode” when answering questions about their firm.  Base your classifications on their verified performance.  Keep in mind that often subs are much larger than they may appear from your desk.  A mid-sized GC employs a fraction of the people that a mid-sized subcontractor does.  It takes a lot of resources to actually perform the work.

When times are good, it’s imperative to bid Subs  on select lists.  When times are bad – it’s critical to show subs you’re picking market leaders.  Prove it by winning.

Your voice

Many GC’s employ an intern or hapless office worker to manage bid communications and invitations.  The least sophisticated firms have someone on the phone nagging subcontractors endlessly for bids.  “The personal touch” is considered a benchmark of getting things done in the bid world.  Possibly there are  subcontractors who feel this is a much-needed aspect of the bid courtship.  For most others, this is a mindless intrusion into an already hectic day.  If the project, GC, or client strikes the sub as a bad opportunity,  forcing them to explain the situation to an intern or receptionist won’t help.

Sometimes the subcontractor will ask a question intended to help quantify the job.  Inevitably the caller lacks  decision making authority to adequately resolve the issue.

Lots of businesses create customer service positions with authority but no allowance for decision making.  The Department of Motor Vehicles is a prime example.  From the receiving end one message is quite clear:

 

How to lower prices

“We don’t care, and it shows…”

 

I’ve heard GC estimators discussing this situation and several claimed that they had their lead estimators making such calls because the interns or secretaries didn’t get results. Its better to ask: “why don’t subs want to bid?”Not getting nagged enough is the least likely reason.  It’s exponentially more likely that the Subcontractors don’t see a viable opportunity.  If these GC’s were  honest about their chances on an average bid, they’d likely admit that they’re wasting their subcontractors time to an alarming degree.

Targeting specific work should entail having a select list of excellent subs who pursue the same kind of work as you.  Those subs will bid because it’s a great opportunity and they’ll have better pricing because it’s what they’re good at.

Honesty: the great amplifier!

Nagging, cajoling, withholding, and threatening are symptoms of a backwards relationship.  If you’re looking at work that’s a good opportunity for you AND your bidders, you won’t need to shout to attract attention.  I have found that voluntarily providing bid results attracted more bidders than nag calls.  It’s less work if you publish them using the same system as your invitations.  Also, it reduces the nagging phone calls you receive  from subcontractors looking for bid results.

A friend at the gallows

Subs bidding to GC’s over time will notice patterns.  If your firm never wins a certain type of work, you can’t reasonably expect help from them.  Lots of false hope is pinned on loyalty bidding.  Subcontractors may choose to bid to a GC they’re loyal to, knowing that GC won’t win.  Time is precious so they need to get on to better opportunities.  Padding the number and pushing the bid out the door lets them maintain the relationship without the GC consuming all their time.  It’s common to hear such GC’s claiming that “no subs are bidding this job” as they beg bids out of their subcontractors.  Meanwhile, the winning GC has plenty of bids.

The situation could be fixed in several ways.  First off  you must quit chasing losses because it’s senseless to repeat an action that’s failed in the past.  Second, maintain market pricing by cultivating new subcontractor bids.  Third, provide pertinent feedback to your loyal subs .  For example they may not know that you lost by $50 last time. Teamwork relies on communication.

Commitment

Just about everything in the modern bid environment is about stalling; whether it’s  commitment to relationships, contracts, using a low bidder, or even admitting bid results.  The pervasive mindset is that stalling for time is the best move since any other action might play against you.  Jobs are often advertised using terms like teamwork.  In fact, teamwork tends to mean whatever’s convenient to the GC.

For example, three bids for one trade arrive.  The high bidding sub has breakout and alternate pricing that illustrate a very high level of thoughtful detail.  The low bid sub has very little information and the inclusions don’t mention several items the high bidder listed in breakouts.  The middle sub may list all the inclusions of the high bid but without the alternates or breakouts.

Taking low bidder’s total plus the high bidders breakouts gives a sum just below the middle bidder.  Let’s say you call the low bidder and get the adds which come in  within a percentage point of your earlier tallies which tells you that they’re now complete.  Using that bid is now very low risk.

…who’s the fairest of them all?

Consider for a moment the subcontractor’s view of that example.  The high bidders proposal enabled the GC to ask the right questions of an incomplete bidder to arrive at a sound proposal.   Knowing what each answer was worth before asking is huge.  The middle bidder was the legitimate low bidder based on original proposals alone.

How would things change if all three bidders had held their proposals till the last-minute?  The first option is to disqualify the incomplete proposal and carry the 2nd low.  The second option is to take the high bidders adders plus the low bidder’s bid and accept the risk that their formal proposal may not tally as expected.  Jobs are won and lost on these terms all the time.

“Teamwork is everybody doing what I say”.

At the estimators desk, the “teamwork” here allowed the GC to hire the most irresponsible and incomplete bidder.  Without the 2nd and 3rd high bidders, the low bid proposal would lack comparison data .  This creates a significant trap to the unwary or uniformed estimator.  If this situation persists over several bids, it would become obvious that there is little incentive for bidder #3 to continue submitting proposals.  If bidder #1 is consistently missing scope items, this may be a sign that they are attempting to snag change orders. This is an insightful example of how that GC’s brand of  “Teamwork” may be perceived!

How to lower prices

“Better call in the D team…”

 

Lessons learned

It’s reasonable to compare proposals. Sometimes unexpected items will come to light on a proposal which prompt follow-up questions to other bidders.  There is a certain duality to be expected where conscientious bidders may include so many details into their bids that they drive themselves out of competition.  Likewise, the lax or harried bidder may miss something that makes their bid low.  It’s the estimators job to sort all of this out, to include calling and scoping apparently incomplete bids.

This is entirely different from maintaining a subcontractor list intended to facilitate hiring hack bidders.  The GC must offer value to the subcontractors if they are to receive bids.  If the GC will accept incomplete bids, the playing field is tilted against the professional subcontractors.  From the outside looking in, this is little different from bid-rigging since legitimate bidders cannot expect a contract in good faith.

Correcting course

Hack bidders should be directed  to submit complete proposals or risk disqualification.  The estimator must fortify the GC position by more thorough take off pricing to back-stop these risky subs.  Unsophisticated subcontractors may offer attractive pricing that’s worth the risk.  Be cautious of staffing projects with such firms.  As the saying goes, trust but verify.

GC’s must strike a balance between subcontractor sophistication and market value.  Those that do, find themselves winning competitive work profitably.  Those that don’t are either losing money or losing bids.  Don’t let it happen to you.

 

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© Anton Takken 2014 all rights reserved

About Anton Takken

I chose to focus on estimating for a few reasons. Chief among them was that it's a position that's hard to fill in most companies. Job security and advancement is easier as a result. Unique to this job is a higher vantage point over the company and its place in the market. Bids are generally over in a few weeks which keeps things from getting boring. The reasons few of my colleagues pursue estimating comes down to a few misconceptions. The first is that it's the builders version of accounting - perceived as a lonely and quiet life among the charts and plans. The second is that it's not engaged in the construction process. Lots of the appeal of the construction industry is the sense that individual effort brought a plan into reality. The teamwork and camaraderie present among tradesman seems conspicuously absent at the estimators desk. Finally, I think the last reason is that it's daunting to be responsible for setting the price of something that's never been done. The good news for folks in estimating is that it's much more social than advertised. An estimator's phone is constantly ringing. Taking the opportunity to build relationships with the bidders creates a positive atmosphere and encourages everyone to do their best. It can be too much of a good thing which is why it's common to arrive at their voicemail when you're calling with a question. A strong rapport with the bidders can be invaluable. Subcontractors have much more exposure to what's going on in the market and they're often eager to share their knowledge. Learning from these experts is a priceless opportunity that's often overlooked. More on this in a bit. I decided to start this blog because I noticed that estimating has applications in many arenas. Over the last few years I've helped estimate in fields ranging from software development to blacksmithing! The more I thought about it, the more I realized that it's not about knowing what everything costs, it's about knowing how to figure that out. I believe the very first step to knowledge is to seek it, the second is to retain it, and the third is to pass it on. I hope to share some insights into how estimating is done and hopefully have some fun doing it. My experience is mostly commercial construction, but I'll try to make everything as generally applicable as I can. There are many aspects of business that all markets share yet it's remarkable that one of the most consistent is the failure to recognize that estimating is the very first step to a successful project. So if you're frustrated that work isn't profitable, or exasperated that there's never enough time to get the job done, this blog will be worth your time. Feel free to email me at: estimatorsplaybook@gmail.com View all posts by Anton Takken

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