What to include in your bid

It doesn’t take long for an estimator to encounter the estimators paradox: You worry you lost bids because of something you included, and you worry you won jobs because of something you missed. Estimators therefore, spend a great deal of their time worrying about what to include in their estimates.

Estimating may be based on inference, but contracts are driven by bids.

All of the uncertainty, qualifications, and hedging that makes an estimator different from say, a cashier, is often ignored at the contract award. The bids distill all the complexity, uncertainty, skill and risk into two basic numbers; cost, and duration. Obviously this facilitates the Client’s comparison shopping since they can use competitive bidding as a means to prove market value for their project. Very rarely do clients consider that the variances in bid amounts are often driven by different interpretations of the project scope.

For some reason, Bidder #2 just wasn’t competitive…

“Bid per plans and specifications” is the catch-all requirement obliging the bidder to the architects Construction Documents (CD’s). This is only useful direction to the extent that the CD’s are complete, clear, and comprehensive. Perhaps the most self-defeating aspect of construction estimating is the widespread practice of accepting contractual responsibility for incomplete, unclear, or contradictory CD’s. Most General Contractors (GCs) are so eager to chase every opportunity, that they’ll voluntarily fill in gaps that can cost them dearly. As a result, Architects face less pressure than ever to deliver complete CDs to the bidders.

Design Intent

Estimators working with incomplete drawings are forced to make a lot of decisions. From the Architect’s perspective, as long as their design intent was captured in the CD’s, it’s the GC’s responsibility to make reasonable allowances for whatever is necessary. The Architect’s design intent could be suggested by; symmetry, aesthetic/material consistency, repeated patterns, or space usage considerations. Architects expect you to “see” the reasons behind their design, even when they’re not provided. For example, if an architectural detail looks like it will be heavy, it falls on the GC to ensure that supporting materials are up to the task. Architects can’t be expected to define the length of every fastener necessary to build their vision. The GCs responsibility to know how stuff comes together is referred to as: means and methods.

Deadline driven decision-making

Often the Architect serves as the owners representative.   This gives them the contractual authority to refuse change orders for project scope they felt was clearly captured in the design intent.

It’s important to understand that Architects will generally address any inconsistencies, missing information, or clarifications brought to their attention before the bid. GC’s should get their questions in Request For Information (RFI) format and formally submitted as quickly as possible. The RFI log can be used to prove due diligence to the client who didn’t know their plans were incomplete at bid time.

A properly answered RFI will tell you what to include in your bid, sometimes you’ll be given an allowance amount when specifics aren’t available.

Read every note and RFI every trap

Estimators are strongly cautioned to read every single note on every single page of the plans. Architects believe that a solitary note buried where nobody would look for it, is sufficient to contractually bind GC’s to whatever is written there. This practice has trapped many estimators in a paradox. If you include the easily missed but terrifically expensive requirement in that note, you’ll lose to someone who missed it. Conversely, if you win the job, the Architect might successfully argue that it’s your responsibility to pay for it, since it’s in the plans. The solution is to write an RFI about the note, thereby forcing the Architect to acknowledge its existence and their intention to enforce it on the winning GC. This levels the competition and springs the trap before bid-day.

No time to ask directions

RFI’s aren’t always answered before bid-day. Estimating is about controlling risk which is done through informed decision-making. Losing a bid is a significant risk, so competitive estimators cannot afford to include the worst-case (most expensive) scenario for every problem. Generally speaking the categories of scope indecision can be described as follows;

• Professional standards: A design which will obviously fall short of professional standards constitutes a liability for a legitimate contractor to build. It would be better to lose the job, than to build a public hazard.
• Means and methods: General Contractors are expected to furnish and install everything necessary to render a complete project. This includes rental equipment, permits, shop drawings, false-work, temporary structures, taxes, licenses, required wage rates, etc.
• Defensible: Decisions you could defend on logical grounds
• Debatable: Decisions driven by who benefits the most, or the least.
• Damage-control: Decisions about pricing requests that work against you.

Do the right thing

Professional estimators working for legitimate GCs understand that there is no room for compromise on professional standards or means and methods. These scope inclusions define the very essence of “why you’re there”. If the Architect or Client won’t tell you the tax rate for their job, it’s your responsibility to figure it out and bid accordingly. There will be absolutely no lenience shown to any GC who doesn’t include these obviously necessary items. If your competitor beats you by skipping these basics, they won’t make the same mistake again.

A life spent learning the hard way has a distinct look…

Look for logic

Defensible decisions should be driven by logical arguments based on the CDs. For example: if there’s a specification for landscaping, but the project is for an interior remodel, it’s reasonable to exclude landscaping from your proposal on the grounds that the specification section was mistakenly included. The same logic may apply towards an obviously wrong requirement. Any defensible decisions should be laid out in the proposal narrative with the item in question listed in either the inclusions, exclusions, or clarifications. Be careful to explain why it’s a logical decision. Simply listing some scope item as excluded without explanation suggests a bidder was trying to be sneaky.

Validate value

Debatable decisions should be driven by the clients best interest. Does including XYZ add value to the client? If so, it’s reasonable that they will expect it to be included in their bids. However, if the cost of the debatable item is too high, the client’s budget may be exceeded. The one-note-trap items that didn’t get an RFI response fall into debatable decisions. Architects may have emotional attachment to some unique (and expensive) item. Simply cutting it out of your bid to appear low on bid day isn’t respecting the design intent and will put you at odds with the Architect. Of course trapping GCs into paying for items that would blow the clients budget is already at odds with a successful project outcome.

Estimators are seeking to land profitable work by controlling risk. Unprofessional design teams are a very serious risk to a GC, especially when the Architect is also the owners representative. Estimators facing a costly and potentially unwarranted inclusion should understand their options. If an inclusion is debatable, estimators could opt to provide that costly item as an alternate which is not included in their base bid amount. If the item in question is too poorly defined to accurately price, provide an alternate allowance to address the issue while leaving yourself room to amend the price when the details are provided. Obliging your client to do a bit of math on bid-day is hardly the same thing as disregarding their instructions. By exposing the issue and it’s cost, the client has a chance to assess the value and its impact on your bid. Suddenly it becomes clear to the client which of your competitors did, or did not include that item in their bids.

Don’t hurt yourself

Damage-control decisions are most commonly driven by breakout, unit price, and alternate requests. Breakout pricing is the attributable cost of some portion of a complete project. The most common breakout requests are for projects where the landlord and the Tenant will pay for their portions individually.   There are however, breakout requests that are poorly conceived and pose tremendous risk to the estimators trying to provide these answers. “How much to add one more office?” seems like it’d be a simple matter. An office added to a row you’re already building would likely cost less than an office isolated somewhere else in the space. The intent of their request is to limit change-order pricing.

Change orders are expensive because they require re-work and additional resources without any additional duration. Adding one office before construction starts would cost less than adding the same office a few days from completion. The client may expect that they can add an office anywhere in the project for the alternate amount, at any time. If the estimator prices this office as a “worst-case” situation, they risk the client awarding the contract based on some combination of all the prices delivered on bid day. It’s possible to submit a proposal where you’re low on everything but one alternate, but the client’s selection makes your “final” number higher than a competitor’s!

The clients doing this rarely stipulate which alternates are their highest priority because these clients are looking to spend their entire budget. Municipal clients, committees, and developers are the three most likely to request a menu of prices. Their selections will depend on how much of their budget is left over after the base-bid amount.

Estimators facing this challenge must understand that damage-control is achieved through limited risk. Any unclear/unfair request is subject to your limitations, qualifications, and exclusions. Any price you provide can be used against you, so make sure the descriptions are clear and that there’s an expiration date on every number. There’s absolutely no reason that menu or alternate prices should be valid in perpetuity. In some cases it’s reasonable to identify these prices as a courtesy, to be used for final scope adjustments made before the notice to proceed. Clients may not have considered the risk of an open-ended request. Furnishing them with decision-making information is reasonable, equipping them to damage your profitability is not.

Open ended alternates: You lock the wheels, they take the bike.

Open questions and closed answers

By all means stipulate the cheapest, and least disruptive interpretation of an open-ended pricing request. If clients were taking these potential alternates seriously, you’d have well-defined plans for each of the alternates.

While we’re on the topic of poorly defined alternates, there’s a variation of the one-note trap wherein a single note obliges the GC to provide alternate pricing. These buried alternate requests are the sneaky obligations that surprise you on bid-day. I’ve attended bid-openings where the client rejected a GC’s proposal entirely because an obscure alternate request wasn’t priced. GC estimators should be very cautious about demanding a last-minute alternate price of their Subcontractors (subs). The odds of an accurate price fall in direct proportion to the available time. If you’re caught flat-footed on bid day, it may be better to provide an alternate allowance and spend the remaining time working on getting your base bid down.

If the Architect comments about the allowance rather than a fixed price you might kindly point out that it appeared to be an informal alternate request. If necessary, you might explain that real alternate requests typically appear on the Request For Proposal (RFP), Division 1 of the Specifications (General Conditions), and the cover of the plans. Estimators should never guess on fixed pricing. If the request isn’t reasonable, you can give an allowance and direct complaints towards the incomplete/unprofessional plans.

Nuclear Option

Sometimes even an allowance amount would be too risky. I’ve encountered RFP’s with an alternate request to build the same project in a different state, several years in the future.  A GC simply may not have the licensing, connections, skills, or resources to build in a different state. Any effort to price this alternate would be guessing for that GC. Even if they guessed correctly, the GC still can’t actually do the work. Estimators should understand how a wrong guess could seriously damage their firms reputation and client relationships.

The only answer to such a request is to refuse to price it at all. To Be Determined (T.B.D.) is professional shorthand for “I’m not answering now”. It’s better to lose a bid than to damage a client relationship by guessing.

Just because the client of their design team put it on the CD’s doesn’t mean you have to act against your best interest. Market value is achieved by reaching a balancing point between competition and profitability. Client demands are equally balanced by their risk and reward. If clients want more value from their contractors, it won’t be achieved through high-risk requests.

It’s worth mentioning that a project with a small scope of work and long list of alternates is a sign of a low-budget client who won’t make decisions. Helping these clients is rarely profitable because any savings you can find for them will be squandered by delayed decision-making. Lots of diligent estimators think they’ll face less competition because the alternates are too much work. In fact, their competition moved on because their experience tells them that the job won’t be profitable.

Define, decide, direct and deliver

To apply all of this to a practical problem, the estimator needs to understand that while every competitor could make a different decision, the really good estimators will be incredibly consistent with one another. This is because consistent methods, yield consistent results.

Time spent vacillating on an issue for lack of definition is wasted. Define the issue, what is the cost, what is the risk? Low cost, and low-risk issues should be included because they won’t affect your odds of winning, and you might gain a little profitability if it turns out to be unnecessary.

Any exclusion that’s makes the project unsafe, unprofessional, or obviously incomplete is estimating malpractice. There is no decision to make here, estimators are representatives of their firms, and should never act irresponsibly or unethically.

Come to your decision based on the facts, and direct your resources accordingly. Publish a bid-directive for subs outlining the approach you intend to take up to, and including the wording of your clarifications.  If you’re protecting your firm from risk, show your subs you’re protecting them as well.

Deliver your proposal with clear and comprehensive exclusions, inclusions, clarifications, alternates, and allowances. Explain why decisions were made, and identify the limitations of your answers to their problems. Clients should be guided through a concise narrative of your proposal which alerts them to issues within their project. Making your proposal easy to understand for the client, builds their trust in you. Clients who understand the issues are better able to solve the problems and award contracts fairly.

Estimating revolves around competition which leads to thinking about how you might outmaneuver a peer. Keep in mind that the client isn’t watching a game, the outcome of the bid is a crucial step in a successful project. The client will see how decisions you’ve made, reveal your intentions. Make decisions you’d be equally proud to explain to your client and your boss.

For more articles like this click here

© Anton Takken 2015 all rights reserved