Popular business methodologies evolve over time to meet the ever-changing landscape of a competitive market. Technology has allowed faster and easier communication than any time in the past. Much more work can be accomplished by fewer people which makes for better efficiency and profit.
Dedicated estimators are being replaced by Project Managers who are tasked with bidding their own work. The idea is that the overhead of a dedicated estimator is no long necessary because Project Managers can bid their next job while they’re wrapping up the last one. Estimators are vastly outnumbered by Project Managers, so splitting the work seems like it’d be easy. Plus communication breakdowns between estimating and project management are a thing of the past.
“I said I needed a Big Cat Scan, not a Big Cat CAT Scan…”
“Two for the price of one” Vs. “The cost of two for the price of one”
All of which requires that every Project Manager be just as capable as a dedicated Estimator while working as a Project Manager. Unfortunately, the working reality of these Project Managers (PM) is that they now have less time to do two jobs. Project closeout involves a great deal of administration effort to get the Operation and Maintenance (O&M) documentation, final lien releases, retainage, warranty, inspections, Certificate of Occupancy (CO), and so forth. I suspect it would be difficult to pick a more inopportune time to interrupt a Project Manager’s work than during the closeout period.
Meanwhile the Estimators work builds in intensity as bid day approaches. “Luck favors the prepared” is never more true than in the closing moments of a hard-bid. Bid day preparation requires time to investigate, to plan, to communicate, and to direct. Estimators are always working against a deadline. Despite the short deadlines, clients may take a considerable amount of time to award the contract. Winning a job doesn’t necessarily mean you’ll start right away. It’s very difficult to land a job that starts right when the last one ended. Some clients are very slow about providing bid results. The estimator must continue bidding in the mean time just in case they didn’t get the job.
A shortcut to a dead-end
We often simplify estimating to mean bidding which sounds like little more than a dollar amount on a proposal form. With that mindset, it’s understandable to think that a General Contractor (GC) arrives at their bid by simply adding up the low subcontractor (sub) proposals with a bit of overhead and profit thrown in to pay the bills. Some companies do “bid” exactly that way. I refer to this practice as “bid collecting” because the GC isn’t actually estimating anything. These GCs rely on trusted subs and blind luck to land profitable work. This doesn’t work, which is why clients don’t simply hire their own subcontractors. Without a doubt, this practice is tied to the high failure-rate of General Contractors.
Firms who don’t estimate are losing money by missing opportunities they can’t see. Imagine just barely losing a bid. It seems like you’re doing things correctly and that you’ll get it next time. Now imagine if the job in question had a fairly small amount of work for one sub who was extremely overpriced. The next bid might have more scope for that sub, and if everything remains the same, you’ll lose by a larger margin. Without an estimate to compare the subs against, you’d never know what’s costing you the wins. Many “teams” in this industry have a player (or two) who’s causing the losses.
One of these things is not like the others…
Estimating is about controlling risk. If you’re not controlling the risk, the market responds accordingly. Subs may play on the GCs’ lack of foresight to lay groundwork for future change orders. Competitors may strategically price themselves out of a risky project, leaving nature to take its course on the foolhardy.
Going down and picking up speed
By far, the most common result of bid-collecting is losing. GCs who don’t estimate tend to have a much lower hit-rate on competitive bids. Low hit-rates are typically answered with a higher volume of bidding. Losing faster is the result. In the endless search to lower overhead, these firms often have secretaries and interns “beating the bushes” to nag subcontractors into bidding ever more projects that rarely lead to contract. Every loss withers the markets faith that the GC is a real contender.
GCs who don’t estimate tend to view bidding as a function of odds, much like gambling. As a result, they don’t consider bid results important. If they didn’t win, they (wrongly) assume their odds are better for victory next time. Subs can’t get any meaningful bid results from these GCs because many of them literally throw their bid file away whenever they lose! This is just like gamblers at the racetrack, tossing their betting slips after a loss.
Subs bidding these GCs fall into two camps; the loyal and the blind. No matter how optimistic, eventually the cost of wasted bids factors into the subs calculations. Since there’s no reason to believe a bid will lead to work, the sub’s main concern shifts to providing a price quickly, so their estimator can move on to work with more potential. Unfortunately spending less time with the plans means more is unknown which raises the risk to the sub. Higher risk is met with higher prices. Pricing themselves out of the running is how “loyal” subs communicate their perspective of the situation.
Blind subs are those who simply don’t see what’s going on. Whether it’s because they lack experience, or opportunity, blind subs will chase every opportunity laid in front of them. Sadly a bid-collecting GC can run up an impressive number of losses that pull the blind bidders further from profitability. Eventually these subs “see the light” as overhead costs become all-consuming.
Bidding PM’s who are on a long losing streak can become desperate. GCs who don’t estimate are among the most likely to bid-shop. Bid-collectors often view subcontract amounts as a series of ongoing negotiations. Bid shopping is dishonest and unethical. Dishonesty is a remarkably consistent character flaw. Jobs that start with bid shopping typically end with; broken promises, sharp dealing, and unpaid invoices.
Milling gravel with the grain
Some GCs have exponentially increased the number of projects they bid by having all of their PMs bidding, all the time. Often the PMs are chasing a mixture of hard-bidding and negotiated projects where they are the only GC. This creates a client-CG relationship where one PM heads up that account. It’s here that some interesting dynamics come into play because the PM must maintain market-leading pricing if they are to retain the negotiated agreement.
Market-leading pricing is the going rate as established by competitive bidding for work done by market-leading professionals. The very best subs will be attracted to the very best GCs who will be unbeatable on competitive bids. A PM who squanders market-leading sub bids by consistently losing, will struggle to attract their attention again.
A PM with a heavy workload may lack the incentive to win a project they’re bidding. However few PM’s are given the latitude to decline a bid opportunity.
Freedom to walk away from bad opportunities makes you a potent contender
Bidding PM’s in this situation are stuck “going through the motions” until they’ve garnered a reputation for wasting sub’s time.
Many PMs pressed into estimating lack an extensive background in bidding which leaves them ill-equipped to define market prices for standard commodities. Bid-collecting firms often treat conceptual plans like “real” estimates which they expect their subs to competitively price. Such firms often heavily invest their PMs time in “helping” design teams with conceptual pricing in the hopes they will be on a short bid list when the design is complete.
Space plans… the unpaid frontier
Unfortunately, there are unscrupulous design firms who specialize in “space plans” for the purpose of lease negotiations. They rely on “free” conceptual estimates to provide market pricing to their clients. They know that none of their designs ever lead to a construction contract. There’s no actual opportunity for the GCs bidding. The GCs are simply an unpaid consultant to a design firm. The total cost to the subcontractor market is incredible. In some cases a GC can cost a subcontractor so much in wasted estimating time, that the rare win fails to make their efforts worthwhile. The only answer is to starve this terrible practice at every level.
Less to see, but more to know.
Contrary to popular assumption, conceptual bidding is more difficult than hard bidding. Missing detail can’t simply be ignored, so the estimator is tasked with filling in the missing bits, then pricing them. Conceptual estimates are often allowed a fraction of the typical hard bid time because “there’s less to price”. These are things you quickly learn by estimating, that you may never realize by bid collecting.
Economizing on estimating is still possible however it’s through knowledge, not throughput. So much of estimating is distilled into the dollar amount on the proposal. A well-done estimate is as much a price as it is a team of well-coordinated professionals, a schedule, and a plan. Bidding affords an opportunity for skilled professionals to excel in their field, and profit from their abilities. A bid list is not a simple roster of subs you know, but a pool of talent poised to make the project come together better than anyone else.
Not every Request for Proposal (RFP) is a great opportunity, and not every client is an asset. The odds of winning profitable work can be changed by knowledgeable assessment of the market. Reduce estimating costs by picking a target and hitting what you’re aiming at.
What could go wrong?
PMs bidding their own work are vulnerable to new paradigms that didn’t exist with dedicated estimators. For example, subcontractors are now aware of which PM will be running the job. This means the subs can factor the PMs’ reputation into their bid. PMs who can’t win a competitive bid may find themselves with plenty of spare time to consider how their legacy led to unemployment.
Adding to this problem, the PMs of a single GC may not coordinate their bid deadlines which forces subcontractors to choose which opportunities they can bid, and which they must decline. As mentioned above, conceptual estimates masquerading as real opportunities, may leave the real jobs shorthanded.
With each PM bidding their own work, there is less consistency in how estimates are conducted. New and talented subcontractors may struggle to get in front of a firm when each PM has their own subcontractor list. Making the situation worse, PMs stop bidding when they’ve won work so they only update their subcontractor list sporadically.
Projects can keep a PM busy for months or even years which means they can experience huge lags in their knowledge of current market conditions. A great deal can change in a local market over the course of a few months. Seasonal rushes can generate shortages in labor or material can have huge impacts on market value. Most RFPs allow less than 30 days from invite to deadline. That’s not a lot of time to bid the job, to say nothing of catching up on half a years’ worth of market changes.
Clients with lots of projects like retail chains may be put off by the inconsistency in GC pricing as several of their PMs bid nearly identical work. Few GCs can afford to lose profitable work due to estimating deficiencies.
Some clients will negotiate an agreement with the GC to assist from conceptual drawings on to actual construction. The early conceptual efforts are “on the record” and the GC must show how design decisions impact the project budget on an ongoing basis. Mixed in with the typical time-wasters, these conceptual estimates may fail to garner the attention they deserve. PMs who are bid-collecting may fail to recognize trade-overlap issues, incomplete design implications, and unstated client intent. All of the conceptual design risk lies on the PM conducting the bidding. Subs bidding to such a PM often pad their numbers because they know the PMs estimating mistakes will eventually become their problems to solve.
Pro tip: Peek through the window before answering every knock on the door.
PMs seeking to shift their pre-construction responsibilities to subcontractors, often find their clients budgets are consistently blown. Subs are loath to give up their padding because design-assist projects are often interpreted by clients to mean change orders are impossible. Subs know the PM will expect extras they won’t be able to pay for. Preserving the relationship, or simply escaping a bad job requires extra money in the bid. This is the risk of working for a GC that doesn’t estimate.
Sadly I’ve borne witness to projects that were run this way. The client overpaid for work that wasn’t well-organized or executed. The subs ended up eating so many estimating oversights that the work wasn’t profitable for anyone. Absolutely everything about what was wrong with the job had its origins in a half-baked pre-construction effort. Whatever labor savings the GC made in having the PM bid the work was paltry compared to the losses everyone took on the job. That PM hasn’t won a competitive project since then, because subs can’t afford to repeat the experience.
Just as estimating is reduced to “bidding”, so too is a PMs’ performance reduced to statistics like revenue and profits. In hard times, companies often take to comparing their PMs’ numbers. Skillful PMs whose leadership prevented costly delays, mistakes, or changes aren’t accurately reflected in these comparisons. Sadly, a dishonest PM knows they can boost their numbers by cheating the client or the subs. PMs who are better managers than estimators are suddenly struggling to retain their job when the estimator is sacked to save money. Low-cost, high-volume, bidding often leads to unprofitable work that looks good on the books …until the job is nearly done. “We’ll make it up on the next one” is the answer until the “next one” turns out to be just as bad. If nothing changes in execution, then nothing will change in outcome.
Winning profitable work is the first half of a successful project. Building the work safely and profitably is the other half. Cutting a boat in half makes it sink, therefore downsizing should be building a smaller boat. That means professionalism in estimating, no matter who’s doing it.
Some of the best firms in the market have their Project Managers involved in the bidding. In most cases, these firms have a dedicated estimator “ghost writing” the estimate. This collaborative effort allows the estimator to split their time among a greater number of projects, without leaving PMs entirely on their own. In the case of negotiated agreement projects, this approach is particularly successful in getting the job started quickly since the PM already knows what’s going on.
Estimators working in this situation must excel at collaborating with, and managing PMs. Few of these estimators communicate directly with clients or subs, so their role becomes increasingly hard to see from outside the company. It’s definitely making some PMs better at estimating, but it remains to be seen if construction estimating is improving overall for the effort.
View from the field
Generally speaking, firms with PMs bidding their own work are losing far more often than those with dedicated estimators. When PMs do finally land a job, the work is often less profitable to the subs than comparable work. PMs heading up design-build or design-assist projects tend to blow their budgets far more often than estimators. Lots of otherwise excellent PM’s are struggling to find work because they lack estimating skills. Without mentors, and training, the future is bleak for the bidding PM.
Estimators should seize the opportunity to land steady and profitable work against unskilled competition. There’s nothing cheaper than the wages of an excellent estimator.
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© Anton Takken 2015 all rights reserved