Incomplete information is an intrinsic part of the estimators craft. Decisions on how to handle the risk created by this uncertainty can make or break your chances of winning a job. Lacking perfect information, we can still make better decisions by improving our understanding of the problem. I’ve written before about the Request For Information (RFI) process and how to go about getting plan and specification questions answered. In this article I’m hoping to expand the scope of our inquiry beyond the questions landing on an Architect’s desk.
We try not to question what goes on at the Architects desk…
Who does what?
General Contractors (GC’s) solicit subcontractor (sub) proposals for portions of the project scope according to local traditions, and individual company preferences. Sometimes there are unfamiliar or unusual products that could plausibly align with multiple trades. These products are often part of an aesthetically significant element of the overall design. This means that the oddball thing, needs to be installed with care. As a GC estimator, this situation presents more questions than answers. If a product could be installed by several different trades, it probably affects those trades as well. So even if an affected trade doesn’t furnish or install the item in question, they’ll need to accommodate it in some way. This trade overlap typically creates a lot of bid-day confusion as everyone is free to interpret the work differently.
Find the rep
Conscientious estimators might start phoning all the subs they can think to ask about the oddball item. After the inevitable delays, phone-tag, and contradictory information, they might arrive at a consensus. A better approach is to look up the manufacturer of the item and identify any local resources. Finding a local representative (rep) for the product is a vital lead because they are often involved in the Architects design process to such an extent that they know exactly what you need. The material rep can tell you who they’ll quote to and what trades they typically install their products. Some material reps will freely quote to a GC, while others will only quote to trade-specific subcontractors. In some cases the material rep will provide a list of recommended installers. Once you know who the material rep will work with, you can confidently direct your subs accordingly. Take care to provide the contact information for the reps’ quote department since that’s who they actually need to reach. Firms that don’t normally deal with competitive bidding can be bureaucratic and slow about preparing quotes. Protect your deadline by getting the wheels in motion early on.
Be advised that out-of-state design teams will often work with their own local reps. I’ve encountered such projects where my area didn’t have an assigned sales representative! Writing an RFI to the design team asking for their sales rep’s contact information may be the only way to sort things out.
Be advised that items that appear on Architectural sheets but also apply to an engineering consultant’s work like Civil, Structural, Mechanical, Electrical, or Plumbing should be checked to ensure they’re properly defined on the engineered sheets as well. Some Architects treat their engineering consultants like mushrooms; kept in the dark, and buried in fertilizer!
Incredibly expensive and hard-to-get items that are dear to the Architect’s heart are often carefully notated just once in an obscure place on the plans. It’s absolutely the GC estimators job to seek out these “one note traps” and see to it that the affected subs are notified of the sneaky scope items.
Be advised that catching a problem may present it’s own challenges…
When does the project start?
The timing of a project can have a huge influence on the bid-day price. Seasonal rushes or material shortages can raise prices for work that would have cost much less if it started a few weeks later. During especially busy times, a project opportunity may fail to attract much competition simply because the timing conflicts with previous obligations.
On the surface, it may seem like this information is provided in the Request For Proposal (RFP). While it’s true that the RFP will typically include an estimated start date for the project, it’s a rare client that actually starts when they say they will. Of all the information that’s provided to an estimator, the anticipated start date is invariably the least accurate. In order to improve on this uncertainty, we need to understand what’s driving it.
Architects are often under great pressure to finalize a set of drawings that have been in development for a long time. Clients rarely understand the magnitude of work required to translate a design scheme into a workable construction set.
Some clients are under pressure to solidify their financing which can depend heavily on providing evidence of competitive pricing, i.e. bidding. If their loans fall through with one bank, the client will need to repeat the process with another bank which consumes additional time.
It’s important to understand that even though the client and their Architect are under pressure to get the plans out to bid, both parties understand that they’ll have additional time to correct problems before construction. Neither party is entirely sure how long it will take to correct the problems.
Rafter: A group of turkeys
It’s been my experience that clients tend to pair with like-minded design teams. If the design team managed their time effectively and delivered complete plans by their deadline, the client that hired them will typically have their financial house in order as well. Conversely, if there are dozens of Addenda overhauling huge aspects of the plan between the RFP and the deadline, the chances are good that the client won’t have funding to build by their anticipated start date.
Savvy estimators should go to the job walk and listen attentively to the Architect and the client. These people have sunk a lot of time into the project, and they may be easily persuaded to talk about the various challenges they surmounted in the process. Conversations that start with inquiry about an aesthetic challenge often ramble into how prior design schemes exceeded the clients budget and what they did to correct it. Estimators should be listening for indicators of how timelines, budgets, and delivery dates align between client and Architect. You should be especially concerned about any heroic project overhauls that were completed just before the RFP was issued. Rushing leads to errors whether it was caused by an indecisive client, or an under-performing design team.
Last minute heroics; When substandard work picks up speed.
There’s an underlying lack of sincerity behind any group of professionals who are rushing to get the plans out to bid, rather than delivering plans fit to begin construction. Shoddy plans for projects that “start immediately” are common among clients who don’t have the money to build.
Estimators are always looking to find an angle to land the job. Incomplete plans are part of the challenge, which is why estimators are obliged to write a Request For Information (RFI) to get an on-the-record question and answer from the design team. It’s imperative to understand that the way you ask the question will influence the answer you receive. Design teams may perceive questions relating to incomplete plans as an indictment of their work. Engineering consultants are especially given to avoiding accountability via paragraphs of incomprehensible verbiage. These answers easily create more problems than solutions.
If the issue is obviously resolved into only a few options, the question should be phrased to communicate that the intent is largely clear, and that you think they want to do X, Y, or Z. Whenever possible, phrase the question to elicit a clear yes or no response. Estimators can capitalize on this practice by offering insights into why one choice may be superior to another. Design teams may be unaware of when one option is substantially more expensive than another.
Why is it so expensive?
Estimators will encounter a lot of opportunities to wonder why something is so expensive. You might think it’s a simple question that people would be willing to answer, but it often leads to miscommunication. To understand the complexity of this situation, we need a bit of context. First off, estimators know that absolutely every number they provide will be remembered and potentially used against them even if it’s a rough approximation.
Sometimes estimators get focused on efforts to root out the overpriced item(s) to get the costs down without considering whether the remaining work is worthwhile to the bidder. Small scopes of work are often disproportionately expensive because they still require mobilization, management, and operational overhead.
Even when the overpriced item is fairly obvious, there can be concealed relationships that simultaneously drive up the price, and block transparency. Material reps may be working hand in glove with the design team to prevent competition and enhance profitability. Even if a sub wanted to help a GC to offer a less expensive product, they’d risk supply-chain retaliation on their other work.
“Baxter expected retaliation, but the waiting was the worst part “
Corruption plays a role wherever there’s a lack of competition, transparency, and accountability. Honest estimators should carefully consider how they sound lest their inquiries be misinterpreted as an invitation to bid shopping.
The key to getting an honest answer is transparent reciprocity. For example, let’s say all the millwork proposals are much higher than anticipated on bid day. The bids have been reviewed and you’re confident that all the bidders have included the correct scope of work. You know who’s low and by what amount. Now you want to know what’s driving the price increase for all the millwork bidders.
If you called the apparent low bidder and asked “Can you tell me why your bid is $X amount more than expected?”. The sub may assume that you believe they’ve made a mistake that made them high. They might also misinterpret the inquiry as a solicitation for bid shopping.
In contrast, if you had said “I’ve reviewed your bid and everything looks spot on, but my estimate was quite a bit off. Did you notice anything unusual that’s driving the cost of your work?”
By telling the bidder that their proposal appears correct, you’re establishing that they’ve provided a valid price for the scope of work. Transparency builds trust.
By asking what’s driving the cost, you are addressing causes, not symptoms. This is important because a high price may be driven by project factors beyond a simple list of parts or assemblies.
Continuing with our example, let’s say the sub explains that this project requires almost twice the amount of laminate compared to a typical project.
Now that you’re aware of what’s driving the cost, you’d naturally want to see what could be done about it. This is where reciprocity comes in because you’re asking them for help beyond the original agreement. Estimates are “free” because the invitation to bid (ITB) promises to fairly award a contract to the lowest complete bidder, and to provide bid results to all others. Bidders provide free bids in exchange for either a contract award, or information on how to win the next time.
Asking for free consultation work isn’t part of the original deal, so you’ve got to propose a new deal. This is best achieved by promising to keep their solutions confidential and exclusive.
For example: “If you have any ideas on how we could reduce the costs to win the job, we would keep them confidential with the expectation that we would be dealing exclusively with you on this scope of work.”
Confident they can trust you, the sub explains that the reason for the price hike is due a casework dimension that’s a 1/4″ larger than the middle of one full sheet of laminate. By making the casework 1/4″ smaller in one dimension, a single sheet of laminate would cover twice as much casework, reducing the amount required for the job by half.
Now let’s take a moment to consider how different the answers might have been if we’d demanded a breakout of the expensive items. The millworker might simply provide a line item cost for the offending laminate. The GC might have misinterpreted the information to mean that this project used especially expensive laminate. The GC would then request pricing using a cheaper laminate, only to find it didn’t make much difference to the price.
The millwork sub has to be cautious about what they’re saying because they don’t know how the information will be used, and they certainly don’t want the GC to help their competitors by sharing good ideas. Plus, the GC’s fixation on simple material swapping ignores the greater leadership role necessary to bring good ideas to fruition. Convincing a design team to reduce a casework dimension by a 1/4″ to save some money on millwork may be an arduous process. Lots of thought goes into a design, even if it’s not immediately apparent. It’s only when the challenges are revealed that you really appreciate how difficult it can be. Expensive millwork might have been the cheapest solution to a complex problem.
Experienced estimators learn that it’s a rare situation where a value engineering (VE) idea is fully implemented by a design team. This means that the final project savings will be less than whatever you thought on bid day. Here again, the savvy estimator will share this insight with their sub when discussing how to present the idea most effectively. It’s often better to under-promise, and over-deliver when it comes to ideas that require design-team involvement.
“Design teams are notoriously difficult to impress”
When will a decision be made?
I’ve lost count of how many times I’ve heard a contractor ask the client or architect when they’ll make a final decision on contract award. It’s a natural question because an unresolved bid leaves you unable to fully commit your resources to other opportunities. Clients may not fully appreciate how many of your bids are affected as they take weeks to consider the proposals from a handful of bidders. As mentioned above, an awful lot of clients are finalizing their funding with banking officials who don’t care a whit about the hundreds (if not thousands) of companies that are waiting for a decision to come down.
Clients may not realize that each GC that bid to them received subcontractor bids from several companies for each trade. A typical commercial construction bid may attract several hundred subcontractor proposals for each GC that’s bidding. There will be some subs who bid to more than one GC, but it’s entirely possible for a single bid opportunity to involve thousands of firms in a local market. Even if there was only two GC’s bidding to the client, the vast majority of the subcontractors will walk away empty-handed. It’s bad enough losing a bid, but passing up other opportunities to honor your commitment to the client can be a costly choice. The longer the delay, the more opportunities will be lost.
Every proposal should have an expiration date to protect the companies interests. Clients will often stipulate how many days the proposal must be viable in the RFP. For example, government projects may require an extensive approval process involving boards that only meet on a monthly basis. This process can be extensive, so oftentimes the client will conduct an “open bid reading”, where the accepted proposals are opened and read aloud to anyone in attendance. The “apparent low” bidder is noted, and the apparent high bidders are largely free to consider the opportunity lost.
Baring a client’s stipulation, most firms allow a maximum of thirty days before their proposal expires because the vendors, suppliers, distributors, and material representatives will only honor their quotes for thirty days.
Thirty days may not sound like much, but consider that it’s 1/12th or 8.3% of a year. Many markets have seasonal rushes which define most of the revenue for the entire year. The bidding for over 90% of a firm’s annual revenue may occur in the span of 90 days. This means that dithering clients can create a disastrous situation where they finally tell you that you lost, right after they’ve cost you every opportunity to win replacement work!
Commitment and reciprocity
The key to getting faster response from a client is to ask for a decision based on commitment and reciprocity. Clients want their project to be successful and they’re particularly concerned about hiring a contractor who is committed to the job. Explaining to the client that you have committed resources to make their project successful, leads them to understand why they owe you reciprocity in terms of a decision. If you’re not “in the hunt” (low bidder) the client can easily let you (and your bidders) get on to other opportunities. If you’re their low bidder, you may be re-assured of where the process is headed. Clients may be so hung up on the formality of their contract that they forget that most of the bidders just need to know they lost.
As with almost everything in management, time that’s passed, is opportunity lost. If you’re not timely and serious about getting answers from a dithering client, there’s little chance of the project becoming successful. Making the right decision on bid day can determine whether you win or you lose. The next time you’re looking to answer a common problem, make sure you’re asking the right question.
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© Anton Takken 2016 all rights reserved