Closing the Deal

Your client has heard your pitch or read your proposal. You’re confident in your estimate, and the players involved. The client hasn’t green-lit your proposal, and the scheduled start date is looming.

Every client or design team question is a red-hot priority to get answered. Whatever else you’ve got to do will have to wait. As days creep by there’s still no contract award. What do you do?

focusing

It’s just so close!

Estimators suffer a tendency to think like…estimators. Specifically they tend to focus on measuring and pricing items rather than considering what’s been presented to the client. Adding to this problem, Estimators might be accustomed to competing against their peers in the market. This implies that a general level of knowledge and skill is present among competing estimators. No such criteria exists among clients . Clients may not understand industry practices, terminology, and jargon.

Well I’m the low bidder, surely that’s enough for them!

Consider the case of a one-time builder like a standalone retail building. The client may have little to no personal experience with the construction industry. However they have doubtlessly read about State or Federal projects that became boondoggles through mismanagement and greed. It’s a grave concern to an individual that cost over-runs could put them under before they can even start. The tighter their budget, the less likely they are to have contingency funds to pay for change orders. This is a serious commitment, similar to hiring a surgeon. Clients need the project to be successful on their terms. That means defining and addressing whatever they’re most concerned about.

The key to closing is knowing which door is open.

opportunity

Don’t be like this guy

Time Critical

Some clients will be especially sensitive to deadline delays. Retail establishments that aren’t open in time for major shopping seasons can face financial ruin as a result. Office remodels might entail renting a temporary space, effectively doubling or tripling their rent during construction. Clients like this would be looking for a firm schedule commitment in the bids they receive.

Competence with Complexity

Other Clients are primarily concerned with the functional outcome of complex systems. Factories, or manufacturing facilities might require extensive coordination between; Architects, Engineers, specialty contractors, equipment purveyors, and the build team. Clients in this case might need a General Contractor who can take the many demands of all these disciplines and direct the resources towards a successful outcome. “By the book” bidding practices won’t carry far with these clients. Problem solving, conflict resolution, and strong leadership need to be promoted to attract these clients attention.

Perfect Craftsmanship

Certain clients want perfection in terms of craftsmanship, and materials. These clients are willing to hire strong design teams with well-defined construction documents.   Top-tier subcontractors deliver the sort of performance these clients are looking for. These clients want to know you’ve vetted every tradesman you’ll have working on their project. The best indicator of future success is past performance.

perfect

“Tight fitting woodwork is our specialty.”

Proving your abilities with a portfolio of similar work is a good approach. Appearing “cheap” may work against a bidder.

Bid Packet Perfection

Municipal, public, and institutional clients often have regulations and policies they must adhere to. These regulations may give preference to specific groups like Women Owned Business, or Minority Owned Businesses. Depending on the policies, these clients might have a percentage of participation for these groups in terms of contract value. Proving the percentages with the correct paperwork, on complex jobs often leads to minor discrepancies. Winning and losing these bids can be as simple as getting the paper work correct. I’ve encountered urban city projects that were re-bid because there wasn’t a single GC who had submitted an error-free proposal the first time! These clients can’t accept an incomplete/imperfect proposal so it’s very important to prioritize accordingly.

Corral the Committee

Sometimes the client is a committee tasked with reviewing the proposals and awarding the contract. In the best of cases, this is a smooth democratic process. More often, it’s an exercise in scope creep. Questions regarding the project quickly move to the hypothetical. Before long, you’re attempting to give accurate schedule, budget, and permitting feedback on something imagined within the conversation!   Committees lacking firm leadership are long on good intentions and short on decision-making. It’s critical to understand that these clients won’t make decisions any faster once the project is underway.

traffic

Moving to item two on our agenda for today…”

Projects rarely get schedule extensions so unanswered questions can pose significant risk. Kindly rise to the situation and fill that leadership gap. Diplomatic but firm direction keeps the committee on task and gets everyone where they need to be. Done well, they’ll be satisfied that your firm took their direction properly.

All inclusive

Clients with Design-Build projects have an entirely different perspective than others. Lacking an Architect’s representation, these clients are looking for a turn-key proposal which effectively delivers them their vision of the project within the schedule and budget submitted. These clients generally perceive change orders to be impossible since “you designed it”. Whatever schematic design documents were provided will be expected in your proposal regardless of how vague, misleading, or apparently irrelevant. A history of previous successes might be significant with these clients as well.

Brass tacks

Finally, there’s the budget-conscious client. These clients occur at every tier and there’s just nothing for it but to be low bidder. Clients with high expectations and low funds often arrive at bid day to find they’ve blown their budget. Estimators are often too discreet to ask the client how far the budget is off. Lacking this information, they’re unable to determine how much needs to be cut. This leads to playing guessing games with breakouts, alternates, and value engineering. Estimating is NOT GUESSING. Throwing out whatever might save money is a foolhardy practice that consumes resources, generates risk, and lowers profitability. It’s a terrible practice that desperately needs to stop. Every number you provide can be used against you later. Many GC’s have unit-priced their way into an unprofitable project by “helping” an underfunded client.  Charitable donations should at least be tax-deductible!

lil'help

That escalated quickly!

It may help to be reminded that the Architect typically knows the clients budget at the earliest design stages. They also know the clients priorities for the project. Some features are naturally more critical to the client than others. When it comes to big budget gaps, the Architect should be involved. Working together with the Architect reduces the odds that they’ll reject your suggestions later.

“Your number was competitive, I’m still deciding which way to go.”

It’s absolutely imperative that estimators recognize the connection between time for consideration and pressure to act. The deadlines for bidding are a source of pressure for all bidders. Get it done by this day, no excuses, no exceptions. Clients who marinate on the proposals for longer than you had to bid aren’t playing fair. It can be extremely difficult to get the clients attention after the bid. Stay after it because more time translates to less pressure. Dithering clients might be approached by a competitor who captures an opportunity to revise their proposal to meet some previously undisclosed demand. Now that competitor is “working with” the client. Potentially generating inertia away from the actual outcome of the bid via trust-building rapport.

An alternative to “hard sell” tactics

If a client say’s that you were competitive but they can’t make up their mind, it’s time to get curious about that. Inquiring about your performance in the market is a modest recompense for the effort to deliver them a bid. Rather than “hard-selling” the client, I recommend professional inquiry to figure out what “doors” of lingering concern are open.

What’s driving their decision? Narrow it down with helpful options like duration, budget, experience, competence, etc.

Once you have an area of focus, you can reference your proposed answer to their concern. Very valuable feedback is often provided at these junctures. The purpose isn’t to argue or cajole the client, it’s to determine how your bid compares to your competitors*.

*Note: Bid scope comparison is not to be confused with bid AMOUNT comparison. Sharing, conspiring, or otherwise conveying the monetary amounts that are not read aloud at a public bid reading constitutes bid shopping which is definitely unethical and potentially illegal.

Sometimes a difference in proposals is easily explained. Offering polite and restrained suggestions about what your competitor did differently might help shed new light on your proposal. If your competitor’s approach on some issue was superior to yours, you have an opening to admit it. Often we’re forced to decide between options relating to scope or schedule. If the client prefers your competitors choice, you might be given an opportunity to revise your proposal because you were reasonable.

Walking the client through their concerns might open an opportunity to address something they hadn’t mentioned previously.

dragon

“Sure we can add… dragons… to the pole lights…”

Factor this feedback into the new opportunity so you can capitalize on it. Present a revised proposal that’s worded with sensitivity to the client’s concerns. This communicates a commitment to resolving the clients concerns. With all their concerns met, you can then follow-up and simply ask for the job.

Leadership

I hear a lot of folks shy away from sales because they don’t want to pressure people into a decision. If sales was strictly about approaching people at random, they’d have a point. In the context of a bid, the client extended a Request For Proposal or an Invitation to bid through their Architect. Their proposition, greatly simplified is; be the best bidder and you’ll be awarded the job. It’s therefore expected that the client will award the job to the best bidder. Clients may be overwhelmed by the amount of information to compare. They’re rarely trained estimators who are used to scoping proposals in terms of potential risk and profit.

The situation demands leadership. Staying on the sidelines because you’re too polite to provide follow-up means you’ll be awarded fewer jobs than you won. Trust is a powerful thing. A knowledgeable and seasoned professional can assuage anxiety and establish trust with a client. Clients sometimes award their project to a higher cost bidder, this is how and why that happens.

Holding ground

You won’t always be the low bidder. In some ways that’s as much an asset as a liability. I’ve heard it put succinctly like this : It doesn’t matter whether you win everything you bid or lose everything you bid, you’ll be out of business eventually.

Knowing that some folks take longer to learn than others, it stands to reason that eventually you’ll be bidding against someone who hasn’t figured out why they’re on such a winning streak. Your bid should ALWAYS be representative of your best effort to profitably win the job. Let nature take its course with reckless bidders.   Let the buyer beware.

outside line

Taking the outside line brings its own risks…

 

Clients that indulge in “comparison shopping” by crowding the line or stepping over into bid-shopping are doing so to gain a better deal for them. Many business owners view this as an opportunity to “trim some profit” to land a contract. In doing so, they invariably look toward gouging on change orders to recoup their “investment”.

It really doesn’t take much life experience to see how this ends up. The client is reluctant to hire that GC again because they were so aggressive with change orders. The GC’s potentially recovering from an unprofitable job and a scarred reputation with the client. Often they’re looking to “make it up on the next one“.

The legitimate low bidder might well have built the job for less simply because their bid included sufficient funding to keep their operation running smoothly without needing to gouge on change orders.

It’s a chain reaction of dishonest actors trying to out-fox one another to the detriment of all. Life becomes parody when such a client calls you to say they need your help because they don’t want to hire their low bidder. If they didn’t want to contract with that GC, they could have excluded them from the bid. The client started the problem by cheating the last time, now they’re doing it again. Dishonesty calls everything into question. The client’s premise is based on dishonesty, so it’s reasonable to suspect the story is false.

In fact the only thing you know for sure, is that the client is willing to be dishonest wherever it benefits them. Diseases like Yellow Fever, Typhoid, and… Greed, need to be quarantined before they spread to others.

got moves

The start is slick and graceful but it always ends with a busted beak.

Setting a precedent

The answer is to hold the line on your price. If you did everything properly, your proposal is as close to market-leader as you could make it. Bids are a lot cheaper when you’ve missed something important, like paying your overhead. That doesn’t make them market value. If the client was bluffing and your proposal was already the lowest legitimate bidder, they may award to you anyway.  You can’t cheat an honest person. Setting this precedent with the client at the outset reduces trouble down the road.

Reinforce the precedent

Entering into a contract with a dishonest client doesn’t improve their character. It merely binds you to a client who will cheat you every chance they get. The most common tactic is to demand changes to the scope right now because they’re in a hurry, verbally (off the record) promising to sign your change order. Once the extra work is done, they’re suddenly interested in disputing the change order price. Again the solution is to hold the line*. Extra work requires contract modification, full-stop. Be friendly, be motivated, be firm. You’ll be amazed at how fast they can get a change order processed when they really need to.

*Note: there are RARE times where extra work must happen without a change order first. For example if the building is flooding, you must shut off the water main THEN ask to be paid for your trouble.

Dishonesty is a form of laziness, cheaters quickly tire of losing arguments with honest professionals.

Another thing to consider; additional work takes time. In the eyes of a contract, if you were late because you were busy with not in contract work, it’s your fault even if the client benefits from your extra work. Simply put, if freebie extras make you late, they’ll punish you all the same. Little things add up quickly, especially when the client’s getting them for free.

rich

“You were late so… I’m gonna keep the extras!”

Negotiations are rarely simple

When negotiating, remember that completed work doesn’t get cheaper after the fact. Discounting, bargaining, and horse-trading are all better done BEFORE resources have been consumed.

Value reflects the balance of perceived asset and liability to a given party. If the client already has the asset, all you have is the liability. This means the client has leverage in negotiating the value because you aren’t even breaking even (earning back your liability) if they refused to pay altogether.

The whole reason that market value persists is because it’s beneficial to both parties. Looking at negotiations requires a willingness to be macro and micro in your perspective. Doing some portion of the scope at a loss is a micro perspective, doing the whole job at a profit is a macro perspective. Micro relates to Macro, because herd of little parts done for free can push the profit out of the whole job . Understanding what the client values provides a basis to work from. As silly as it sounds, a lot of clients get hung up on the value of something small. They may want a “victory” to report back to their superiors. Keep a rolling total in your mind of where things are headed. It might make sense to do something at cost to move on from a minor issue.

Some clients mistakenly believe that breakout pricing is how they’ll succeed in lowering prices. This transparent effort to demand the means to bludgeon contractors isn’t successful because it’s unfair. They can’t expect competitive bidders to reveal how they arrived at their price. Contractors proved they were market value by competitively bidding. Now they’ll prove their savvy by providing breakouts intended to diminish the appearance of profit. It’s simply a story that amounts to their total, that gives the client what they asked for without giving them anything worth taking away.

apathy

“Competition was fierce but you’ll see everything’s still in order…”

Clients should be encouraged hold up their end of the deal and work with, rather than against, the winning bidder. In a typical hard-bid, the final budget is the market-price of the project. There’s more than just labor and material going into that market price. Project risk from schedule, site logistics, seasonal workloads, worker shortages, design shortfalls, working conditions, labor disputes, insurance and bonding requirements, etc. The client may not realize that their project would be much cheaper at a different time of year, or that their project requires specialty products that are in short supply.

Very often GC’s will try to accommodate budget over-runs with Value Engineering which sadly translates to “substitute cheaper materials and cut scope”. From the client’s perspective, this is an extremely frustrating solution. They’ve paid to develop the design of their project vision. Along the way they’ve become attached to the look and feel of the design. Amputation and substitution are hardly welcome solutions to their budget problems. Presenting options to change things like; timing, site logistics, bonding requirements and design shortfalls could potentially solve their budget problem without affecting their vision of the project.

architect

“My architect is confident there are no design shortfalls…”

At a minimum, providing a sense of how these issues have calculable monetary impact on their project shows that you’re not taking advantage of them.

In my experience most GC’s resort to metaphorical hand-waving when it comes to costs outside of material and labor. Get solid on what’s going into your total and you’ll have a distinct advantage making your case to a client. There is no substitute for knowing what you’re talking about.   When clients understand the risk their project presents to a GC, they regard bids with greater circumspection.

The best jobs for clients and contractors are those where everybody wins. Winning bids profitably demands that you stay committed to being the best in your field. Get in there and make your victory count. Because losing what you’ve won is being the best, undone.

 

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© Anton Takken 2015 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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