Why you lost a bid, is worth knowing about.
If a bid was a sure-shot at a contract, it wouldn’t require an estimator. Winning a bid is often more than a simple tally of itemized lists. Keeping current on a competitive market has many facets that can each play a role in the final outcome.
For example; the housing market’s really on the move right now!
Most GC’s benefit from public or quasi-public bid readings which give fairly immediate feedback on who won and by how much. Private bid openings are less transparent but may feature greater feedback since the clients tend to communicate directly with the estimators as they resolve or reconcile differences.
Clients may not recognize the significance of meaningful post-bid feedback. Considering the hundreds of data points in even a simple estimate, it’s desperately frustrating how often that collective effort is distilled into “you lost“. Typically you’ll be told the rankings with an odd percentage thrown in. Something like; “you came in third and the bidders were 16% apart” is not particularly helpful if there were more than three bidders. That means that you lost by something less than 16% of your bid. You can’t always expect clients to tell you how many bidders there were, who they are, or who won.
In fact, it’s entirely possible the client may decide not to award a contract at all. Conceptual bids and projects for under-funded clients have no chance of becoming a job but the client may not choose to share that information beforehand. Everyone is a “loser” as they take the bid feedback to their design team for re-tooling. In some cases, the invitation to bid will have verbiage defining selection criteria that can allow them to hire whoever they want regardless of price and/or qualifications. If a client wants to negotiate with a particular firm, it would be more ethical if they did so without the straw bid.
“His Eminence will see you now”
Some clients will interview the low two or three bidders prior to making an award decision. In the best of cases, the clients will tell you when you’re not low before the meeting. This gives you a chance to review your work, and prepare your pitch towards closing the gap. Although it may seem counter-intuitive, being told how far you were off is a serious problem. Bid shopping is unethical and in some cases, illegal. It shouldn’t be a surprise that working for someone who cheats, will lead to being cheated.
Preparing for the interview, an estimator should strive to promote the value of their firm’s skill and subcontractor pool. Offering a better service for a higher price is not necessarily a bad deal to the client. An awful lot of GC’s that enjoy negotiated agreements are not able to competitively win hard-bid work. Being best value to a client typically means insulating the client from future change orders and down-time which can be very expensive.
Getting back to bid results, every estimator must strive to pull out as much information as they can. It’s often necessary to interpret what little is provided to determine what went into losing that bid. “Getting a read” on what the client is thinking is sometimes all you’ve really got. GC’s sometimes consult with trusted subs to get the word on the street. A client who “goes silent” or ducks your calls is a warning sign. Estimators who are concerned about “nagging” or “bothering” such a client often see a competitor’s banner go up on site while they wait for their calls to be returned. There might be a legitimate and honest reason for treating a bidder this way, but I haven’t heard it. Bid results are a clients obligation to prove a fair and ethical contract was awarded which is small recompense for what they’ve cost the market.
Submitted without comment
Moving beyond just getting data, let’s focus on interpreting data. First off, let’s establish a few general guidelines with roughly define a “typical” bid. Generally speaking a given subcontractor’s proposal will have the following approximate breakdowns.
Tax <10% of material
Generally speaking, a GC’s proposal will have the following approximate breakdowns;
Subcontractor’s total 80-90%
General conditions 10-20%
I hasten to add that this is a rough approximation, to be used as a framework for comparison. With that in mind, several data points leap out as relevant. Competing subcontractor bids that are 5% or less apart signals that the competitors are bidding the same scope of work with different profit levels.
When the difference between subcontractor bids exceeds 5%, there’s often a more “structural” difference between the bids. Examples would include a bidder who is substantially larger or smaller than their competition, thereby having different overhead, purchasing power, or manpower costs. Similar contractors with wide-apart bids indicates scope inclusion differences, or a mistake. Without multiple bidders, it’s often difficult to identify which bidder is an outlier and where the trend is.
Hard- bidding firms tend to stratify according to their individual efficiencies of scale. Wins and losses are often tight for the real contenders. Small jobs in tight markets tend to go to bidders who win by mistake.
“I’d like to help you out but it clearly says here in subsection D that the dirt is on fire…”
This end of the spectrum accounts for the majority of business failures.
The entire purpose of bid results is to shed light on what you can do to improve. Huge losses indicate a more systemic problem such as chasing work that’s too big or too small. Many GC’s assume that subcontractors will bid to everyone the same. Still more believe that their “fame” in their local market is sufficient guarantee that all subs will bid to them.
Market leader subcontractors are often very particular about what they’ll bid, and who they’ll bid it to. Bidding to a GC that always loses is a costly exercise that most subs can’t afford. Truly excellent GC’s aren’t that common, so savvy subcontractors strive to be indispensable to those firms.
Shifting perspective slightly, we need to consider a few concepts. Bid results conjure the impression that the entire consideration of the project concluded during the bidding stage. This is typically the case when a GC’s estimator is giving bid results to a subcontractor after the GC lost their bid. Everything changes when the GC wins the job because most firms will have the Project Manager “buy-out” the estimate. In practice the buy-out is an error check of the estimators work. The PM is able to spend significantly more time with the proposals and may even directly interview bidders before making a decision.
After much deliberation and fact-finding, the PM arrives at their decision and their final contract relationships which may be significantly different from the bid-day configuration. It can be difficult for a PM to provide concise bid results to a losing subcontractor when there are several moving parts. Some bidders respond to a loss with bargaining, counter-offers, and bid peddling.
“Dude stop, you’re just making this awkward for everyone.”
PM’s are very aware that their conversations may be overheard and misunderstood. Listing off subcontractors and their bid amounts might be interpreted as bid-shopping, or collusion. Since much of their stock-in-trade, comes of their finessing how the subcontracts come together for the project, PM’s are reluctant to share the final outcome of their work.
Sadly, this leads to a situation where the winning GC is generally the least forthright bid result a subcontractor can get. By extension, firms who make PM’s estimate their own jobs are virtually impossible to get accurate bid results from.
The PM’s know they can’t afford to give results when they lose because they know they won’t give accurate results when they win. Their default condition tends to be meaningless responses like “you lost”, “it was close”, or “we didn’t win”.
Unless a bidder consistently wins work with that PM, they will quickly find themselves lacking a reason to continue bidding. Disengaged estimating leads to dwindling subcontractor bids.
When pressed for more accurate answers, some PM’s think it’s clever to say “2% difference” because it makes it appear as though the difference was so small that nobody’s really far off. The PM doesn’t want to actually look it up so they give an answer that will get the bidder off their back. Quick and pithy replies like these should tell the bidder that this person doesn’t have enough respect for how costly it is to bid their work. Lying is worse than not answering.
A Project Manager would call this a 2% difference
While it’s no guarantee, every bid-shopping firm I’ve encountered said I lost a bid “by 2%”. It’s interesting that dishonest people aren’t particularly creative with their lies. Your mileage may vary.
I’ve met owners of GC firms that don’t have dedicated estimators because they figure that they are avoiding the overhead of an estimator by having PM’s bid their own work. Much ado is made of the “error free” transition from bidding to project management.
My counter-argument to this view is that PM’s are rarely ever trained to be successful estimators which is why most of them aren’t. In my experience, very little is lost in transition from Estimating to Project Management. The “errors” mentioned above are often the result of the PM’s careful review of the estimators work. Having a second set of eyes with entirely different priorities reviewing the estimate has the best chance of catching an error. That’s a good thing! PM’s doing their own estimating make mistakes too. They’re in a position to fix them autonomously so it doesn’t get as much publicity.
Bidding PM’s can make mistakes that are even harder to spot. For example, bidders may know an individual PM’s proclivities and bid accordingly. Now that PM becomes part of the subcontractors risk consideration. Many, many, GC’s get different subcontractor pricing depending on which PM’s bidding the job. As a result the difficult PM loses work their firm might have otherwise won. In fact some firms have bidding PM’s that are “black-balled” by subs who won’t bid work with them at all. There’s a penalty for incompetence and making PM’s bid their own work assures the firm will suffer for it. Estimators get good and stay good by staying current. PM’s returning to estimating after 6 months afield are poorly informed of current events. Losing bids costs more than just overhead.
At the subcontractor level, it’s very obvious who’s winning and who’s losing. Bidding PM’s lose more often than dedicated estimators on hard bids. In fact, dedicated estimators are superior to bidding PMs on negotiated agreements as well. Those without dedicated estimators exceed the client’s budget much more often, and take far longer to reach resolution. I have encountered several instances where the cost of PM’s re-bidding to achieve the client’s budget consumed all the GC’s profit for the job!
“Sparky didn’t see that coming, but he took the news well enough.”
If you’re a bidding PM trying to figure out why you’re struggling to win work, this may explain why. Estimating is about selling an opportunity to be part of a successful team headed up by someone with a master plan that will make everything profitable. Success comes from pulling the best talent together for the best opportunities. Conversely, PM’s use their contracts as cudgels to enforce, extract, and otherwise influence subcontractors to do their bidding. Success comes from pushing subcontractors to perform.
The mindset and the approach are entirely different for good reasons yet few individuals accomplish this shift effectively. Pushing subcontractors to bid will not make you successful against a competitor all the best subs want to work for. Conversely a project won’t get built perfectly just because everyone wants to work with your firm. Without a PM pushing the laggards, a job becomes a liability for everyone. Total project success therefore relies upon the balance of these two disciplines working together.
Bid results are a vital resource for continual improvement. If you’re in a position to provide them its immensely important to your future successes that you get timely, truthful, and accurate answers to your bidders. The people least inclined to provide bid results are the most likely to lose their bids. The market will work around the obstinate like a stone in a river, eroding them over time. The last-minute calls pleading for quotes usually come from folks who don’t give bid results.
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© Anton Takken 2014 all rights reserved
July 5th, 2016 at 5:19 am
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