The last hour

I’ve written about the nuances of doing a take off and building an estimate. I’ve written about proposals and addenda. I’ve even written about the hectic nature of a hard-bid deadline and how to cope. One detail I’ve omitted is the process of checking, cross checking, tweaking, adjusting, and refining the bid at the very end.

Why do an estimate if you’re just going to change your mind?

On the surface, it sounds like a decidedly bad notion to take the outcome of so much careful calculation and start moving things around. It’s certainly true that more bids are won and lost due to the final adjustments than anything else. Panic and reason speak the same language, but at different volumes. It can be very difficult to keep your head and make the right call. In that last hour won’t be time to “check everything” in exacting detail. The last hour is the time for sweeping checks through the work looking for anomalies, outliers, holes, and pivots.

Anomalies

Let’s say you got six bids for flooring and the low two were significantly cheaper than the remaining four. A normal statistical distribution would suggest that you’d see competing firms forming a bell curve around the median bid. Two or more “clusters” of bidders suggests that you may have a group of bidders who are not bidding the same scope of work. Keep in mind that its possible for bidders to mistakenly exceed the scope of work.

alpacasweater

“I don’t care what he told you, Sam doesn’t need a sweater!”

This is particularly likely on projects where each phase is bid separately. Alternately, it’s possible the “low cluster” are all missing project scope. Either way it’s imperative to make a decision on who’s right and who’s wrong. Estimating teams who split up bid scoping need to make certain that anomalies are identified early on.

Outliers

These are the low price/high risk bids that everyone thinks of in competitive bidding. The dollar difference between low and 2nd low is the risk. Carrying #2 might cost the win, Carrying #1 might cost you more than their proposal. Adjustments are proportional to the risks involved.

Holes

For GC estimators, this is a scope of work with no bid. Often these occur at trade overlaps with both sides adamantly refusing responsibility. There are fewer “holes” left after scoping if the same estimator is scoping interrelated trade proposals. At a minimum, any trade overlap exclusion should be agreed upon by all affected parties.  Sometimes a mid-pack bid will include the items in question. Bounding the price range of the hole defines your potential risk.

Pivots

The project on paper may fail to accurately convey the necessary means and methods necessary to accomplish the work. Standard unit pricing falls way short of covering the actual build cost on a job that’s phased work, completed at night, in the winter, outside, and underwater. Site logistics, client demands, Municipal requirements, and existing conditions (to name a few) can have a profound impact on bid amounts.

A carefully laid plan coordinated with the bidders can overcome many obstacles, but the unexpected or unanticipated issue can require some quick thinking to quickly handle a pivot issue.

fence sitter

After a while, all fence sitters start to look the same.

For example I once bid on a remodel of a 100+ year old building which was going to require a substantial upgrade to the roof top unit (RTU). The existing structure was getting reinforced in the new RTU location but nowhere else. This building was part of an old downtown development where all neighboring buildings were literally touching one another. The building fronted a pedestrian-only mall and the rear faced a narrow alley and adjoined metered parking lot. Three stories tall, and nearly 100 feet from front to back, the proposed location of the RTU required a crane small enough to fit in the alley, tall enough to reach over the roof, and with sufficient boom length to reach 100′ while hoisting a 12 ton RTU. The city was adamant that there would be no street closure permits for the alley and commercial vehicles were prohibited in the parking lot.

Normally “craning” the RTU onto the building roof falls under typical inclusions for the HVAC contractors.   Understandably, the complexity of getting the RTU into location drove the inclusions, exclusions, and costs of the bids we received. Bidders who were working exclusively off the drawings had no way to know that site logistics were so difficult.

As an estimator dealing with this issue, I knew that it was very possible that a competitor would carry such a proposal in their bid and beat me. Defining the pivot issue, it’s solution(s), and impact(s) on the bid outcome gives insight into what your options are to make a difference.

 

Putting it all together

The astute reader has likely noticed that all of these factors can be interrelated on a proposal. For example, anomalies can be driven by pivot issues. After all, the RTU example illustrated how the bidders who hadn’t visited the site would tend to cluster at a lower amount than those who had. There’s a lot of moving parts here and the tendency is to focus energies on protecting the firm by going with the least risky option. Estimating is about managing risk, not eliminating it. It’s critical to be circumspect about what’s changing on a micro and macroscopic level.

I call them pivot issues because the entire outcome of the project can pivot based on how that issue is addressed. I lost the bid in my earlier example over that pivot issue. The low bidder excluded specialized craning, and instead wrote a clarification stating that they’d lift the RTU onto rollers placed on the roof at the alley side of the building. Their clarification qualified their bid amount as being contingent on the structural engineer’s approval of their plan.

When I was called in to interview with the client, it was quite clear that they hadn’t consulted with their design team. My efforts to explain why I took a more conservative approach with a historic structure fell on deaf ears because my competitor successfully “sold” his approach as standard practice. I was told we were 2nd low and that the difference between our proposals was so modest as to suggest there was little risk in hiring the apparent low bidder. I knew the craning was a pivot issue worth 15% of our proposed amount, making it unlikely that the bids were as “close” as the client claimed.

not amused

You could say I had some doubts.

The lesson here is that my competitor hedged the real cost difference of craning the RTU in properly. If their proposed approach was accepted, they’d be rewarded handsomely. Conversely, they took a calculated risk in bidding less than the “worst case” scenario where they’d be obliged to crane it in should the design team shoot down their clarifications.

The difference in bids ultimately came down to how we managed the risk. It’s too easy to see an issue that impacts 15% of your bid as a do-or-die proposition. My competitor simply looked at all the influential factors and considered a very important question; “What will my competition do?”. Knowing that answer, the next question becomes; “What can I do to just beat their bid?”. Suddenly a 15% pivot issue becomes a calculated 3% risk. The only way to see these opportunities is to keep your head up and view the issues as strategic elements. Nose to the grindstone bidding won’t brute-force your way out of losing to a deft tactician.

If everything is about reducing the risk of winning a job, nothing will address the risk of losing the job. Lots of people convince themselves that losing work by a small amount is just unlucky. The thing about “lucky” people is that they tend to be observant and optimistic about the opportunities they see.

Beware the spiral

Every company is going to have efficiencies of scale that make some range of projects more profitable and less risky than work outside of that range. Companies seeking to grow will continually face projects with demands that push estimators into uncharted waters. If a normal project requires a flood of manpower in the last quarter to complete, will your firm be able to adequately staff that situation when the job is several times larger than average? If not, what will it cost to hire staff to make it happen?

Materials are often viewed as a “pass through” cost to the job without much consideration to the supply chain. Doubling or tripling the size of an average project may require working with unfamiliar distributors, suppliers, and so forth. What worked for the small project won’t necessarily “scale up” to the large one.

It’s not uncommon for huge projects to have subcontractors with more dedicated project management staff than some general contractors have employee’s!

Taking these factors into consideration, an estimator bidding a big scary job may find themselves piling money into the bid trying to contain the risk. Every issue becomes an excuse to add money until the job becomes unwinnable.

OKAY

Optimism and company growth quickly lose out to fear of the unknown. Lacking experience, bid results, and market research, an estimate becomes little more than the opening ante of a gamble against yourself.

The way to avoid this whirlpool of self-destruction is to be more careful about what you bid in the first place. Whoever is working on marketing efforts, may not be aware of how much a given project is really worth. Quick conceptual figures at the go/no-go stage help communicate what you’re up against. Marketing shouldn’t be simply solicitation, it also requires market research. Huge gaps between conceptual and market prices indicate a need to re-evaluate what you’re doing compared to the competition.

Taken seriously, it should be possible to define where the differences are and what that means to your bid practices. Some GC’s do practice estimates on publicly read bids. There’s potentially a great deal to be learned from this however it’s important to understand that it’s unethical to solicit subcontractor bids under false pretenses. Subcontractors who are bidding anyway may be willing to send you a copy if you’re honest. Earning a reputation for honesty will get you better pricing when you’re really competing anyway.

Big picture

There’s a final point of consideration left. The big picture of how this project fits into your firms future. Often its sufficient to say “it’s like all the others that went well” and let it go at that. However there will come times that a job will start or end at precisely the wrong time relative to work you’re already contracted to do. It can be devastating to a firm’s reputation to falter at a critical point in the project simply for lack of resources. Winning one too many jobs can create pinch points between jobs where it’s simply not possible to please everyone at the same time. This balancing act is particularly difficult when client-driven delays push anticipated start dates back until they collide with other commitments.

Seasonal rushes create pricing trends where market price is driven primarily by the risk of over-commitment. It would be more forthright to simply decline to bid work when you’re too busy, but politics often hold sway. During slow markets, clients enjoy freedom to delay projects without cost impacts because contractors are fearful of losing the work. These clients are well advised to be cautious since the penalties for delays during boom times can be severe.

Closing thoughts

I was once talking with the owner of a GC about the rising pressure in the final moments of a hard-bid. He surprised me by saying that he thought the total bid amount didn’t change appreciably in the last sixty minutes. His opinion was based on the assumption that most of the useful subcontractor bids had already come in by that point, so it was mostly reviewing late bidders in desperate hope of finding a new low sub. He even posited that a printout of our current estimate an hour from deadline would be virtually the same as our final number. I tested his theory and discovered that in some cases the dollar amount was similar, however traction we’d gained in terms of knowing what would decide our fate was profound. Big price changes in that last hour were driven by a change of plan made necessary by what we’d learned. Clearly the bid price was driven by more than just the sum of subcontractors quotes!

Generally speaking, once people have been told what to look for, they tend to think the problem was more obvious to everyone than it really is.

sucks

See there’s your problem.

As a result a subcontractor proposal or email message may come through with a little comment on it that exposes a profound insight into an issue. Estimators need to be more flexible and nimble than an orderly spreadsheet would suggest is possible. Opportunities and hazards may quietly present themselves with little time to react. Have faith in your work, and use your best judgment. That last hour of a bid can become the final strokes of your masterpiece.

 

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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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