Seven new estimating ideas to try

We’re all looking for an edge to win a bid or make a project more profitable.  Estimating is a profession with deep roots going back through history.  It stands to reason that many of our current problems were familiar to our ancestors.  As with all human endeavors, we’re trying to improve on old problems, and sometimes a “new” idea is really just a rediscovery of a forgotten gem.  With that in mind, I hope the following seven ideas are at least new to most contemporary estimators.

#1 Provide constructability review for fee instead of conceptual competition for free

Conceptual estimating provides financial feedback on incomplete designs.  Since the complete design-development process can take months or even years, it’s important for clients to have a way to maintain alignment between their design and their budget.  There are many situations where a conceptual estimate can help the client to make an informed design decision.  General Contractors (GC’s) have traditionally extended this professional courtesy to assist and encourage upcoming projects.

Some GC’s believe they can make themselves indispensable to a project by providing extensive conceptual estimating.   They hope to secure a contract award before the design is completed.  This is commonly known as “client capture” and it’s the reason some firms will spend a considerable amount of time on conceptual bidding.

Seven new estimating ideas to try

“Scott does a lot of conceptual estimating and it’s starting to show.”

Since neither the Architect nor the Client pays for these conceptual estimates, they are naturally enthusiastic about soliciting bids from GC’s.  In some markets, it has become common to solicit competitive conceptual estimates from several GC’s without any intention or obligation to work with the “winning” GC on the final project.  The request for proposal (RFP) on such projects  encourage GC’s to provide design solutions, while studiously avoiding any reference to contract award.

GC’s with more optimism than caution end up as unpaid design consultants.  Some truly callous Clients will  “refine by bid” which is where all the estimators best ideas from one round of bidding are incorporated into the plans before they’re put back out to bid with their competitors.  This process is repeated until the client is satisfied that they’ve got the cheapest contractors building the best ideas.    I encourage estimators to find less frustrating ways to help their competition!

Clients may be unwilling (or unable) to award a contract to a GC on the basis of the conceptual estimate.  Nevertheless, these clients need budgetary feedback on their designs.  An unspoken detail of complimentary budgeting services, is that you can’t hold anyone responsible for bad information.  Clients who solicit several bidders are hoping to work around this problem by putting their trust in a budgetary consensus.  This encourages bidders to game the uncertainty to their advantage.  The bidders goal shifts from providing insightful conceptual estimates worthy of contract award, to landing an invitation to the final round of bidding.

Since Architects act as gatekeepers to new project opportunities, the GC’s will favor the Architects interests wherever they can.  This means that GC’s aren’t as interested in finding budget-blowing design choices as they are in delivering a plausible-sounding number.  GC’s who mostly chase conceptual work won’t attract market-leading subcontractors (subs) who have real opportunities to pursue.  Firms that cannot attract market-leading subs must often cut corners to be competitive.   All of these conflicting motivations serve to move the outcome of a conceptual estimate further from its purpose.   Many clients end up blind-sided by a budget blowout on their final bid as a result.

Estimates are not free.  Competitive bidders submit their estimates in a good faith exchange for either contract award, or bid results which help them to win their next bid.  Competitive conceptual bidding with no obligation to award or even select a contractor is a terrible practice that’s harmful to all parties excepting the Architect.

GC’s should offer clients an alternative.  A constructability review would furnish the client with not only the conceptual estimate, but a comprehensive report on the constructability of the plans.  Furnishing the client with a list of outstanding budgetary issues provides a way to track changes and guide progress.   The fee for these services should be commensurate with the labor involved in meeting the client’s needs, including recompense to any subcontractor consultants involved.

#2 Include sample subcontracts with every invitation to bid

It’s impressive that with the incredible amount of information that’s being effortlessly transmitted via email, and bid-letting software that one crucial document is virtually never shared before the bid deadline; the subcontract.   Many GC’s provide the sample contract under Division 1: General Conditions in the project specifications.  However that sample contract is only between the Client and the GC.  Most GC’s include subcontract terms that are much more stringent than those in the General Contract.  The most common are the “pay when paid” provisions which allow a GC to deny or delay payment to a sub because the client hasn’t paid them.  Some GC’s restrict the allowable percentages of overhead and profit on change orders on subcontractor’s change orders as well.  Other GC’s require every subcontractor to provide several hours of daily cleanup.  These are just a few of the many contractual requirements that Subs are expected to agree to after they’ve bid the job.  GC’s factor the general contract terms into their estimates as part of the project risk.  Providing a sample subcontract with every invitation to bid (ITB) shows the subs what the GC is expecting of them.  This avoids unnecessary arguments and negotiations for the Project Manager trying to get the project started.

Seven new estimating ideas to try

“Here we see a project manager fixing problems with the estimate… “

#3 Provide bidder responsibility matrix to delegate trade overlaps and identify sole-sourced vendors

Building on the concept of telling Bidders what you want from them, it’s a good idea to provide a bidder responsibility matrix.  There are tons of situations where several trades will overlap, yet nobody knows which trade the GC expects to do the work.  Rather than leaving these things to chance, it’s far better to actually provide direction so there won’t be any bid-day surprises.

Sole-sourced vendors are companies that must be hired for the project.  Sometimes they sell an exclusive material, other times there are proprietary systems that require specialist training.  The most common sole-sourced vendors will pertain to systems like; Security, Access control, HVAC Control, Fire Alarm, Elevators, Point of Sale (POS) systems, and Telecom.  Many of these vendors are “ghost trades” who only operate in a sub-tier-sub relationship.  If the affected trades don’t know who to call, they’ll just exclude the work entirely.   It’s absolutely incredible how much time gets wasted by all the subs trying to figure out who these sole-sourced vendors are.  GC estimators that provide leadership and information will quickly earn the loyalty of their subs.

#4 Provide “sellable” target budgets for individual trade solicitations on design-build estimates

GC’s who pursue competitive design-build bids rely on subcontractors to fill in a great deal of information.  These projects typically provide a narrative along with a rudimentary sketch of the work.  Lacking a target budget, the subcontractors have no context to interpret the design intent of the project narrative.  As a result, a lot of work is wasted in developing proposals that don’t meet the client’s needs.  Getting the subs dialed in to the GC’s expectations gives the whole team a cohesive plan of action.  Providing leadership and perspective is vital to successful bidding in a competitive market.

It’s worth pointing out that GC’s who have a Project Manager (PM) “bidding their own work” should make sure they adhere to estimating best practices .  Lots of PM’s “estimate” by collecting subcontractor bids and tallying the total of the lowest bids in each trade.  These PM’s have no idea what things should cost because they’re not actually estimating their projects.  GC estimators looking for an edge against their competitors can set themselves apart from the “bid collectors” by proving they are the firm that knows what a winning number should be.

In tight markets, this knowledge can undermine the hack GC bidders by giving the sub market a way to know when a GC hasn’t shared all the project requirements.  Transparency leads to trust and trust leads to cooperation .  The subcontractor market’s frustration with bidding practices that obscure, delay, and misrepresent what’s really going on shouldn’t be underestimated.  Being timely, honest, and forthright with important information will provide a sustained competitive advantage in most markets.

#5 Improve in-house estimating by hosting “lunch and learn” sessions with a market-leading subcontractor

Good leadership is difficult without good information.  Market-leading subcontractors can be a great source of trade-specific information for a GC estimator.  Understanding what drives the costs in complex system can open up options that would be overlooked.  GC estimators should strive to improve their knowledge by inviting a market-leading sub to a lunch hour session where they can present on some specific area of their trade and answer estimators questions.  These meetings can explore new materials, techniques, and technologies that estimators could potentially use for value engineering exercises.  Don’t forget that subs have extensive market knowledge about Architects, clients and competitors.

Reciprocity is a vital component of fair-dealing so GC estimators should share whatever they can that would help the sub to win more work.  Feedback on how proposals are scoped on bid-day can greatly improve a sub’s understanding of how their bids look through the GC’s eyes.  Poorly written proposals may end up on the “war room” floor when time is short, and the prices are close.   GC’s may lose the bid by these small differences so it’s very important for subs to have well-written proposals.

#6 Provide a team strategy that goes beyond simple pursuit.

The very nature of competitive bidding means that the majority of bidders will lose.  Many professionals assume that bidding is like a lottery, where your odds may improve in proportion to the amount you participate.  Their favorite slogan is “you can’t win if you don’t bid“.  If clients merely picked the winning GC out of a hat, this reasoning would have merit.  The reality is that the market-leading price for the proposed work isn’t generated by random chance.  Market leaders will consistently deliver higher value at lower cost than their competitors.  It therefore follows that any GC capable of attracting the best subs on the market will have a profound advantage in quality, pricing and profitability over their competitors.  When these firms pursue an opportunity, it’s incredibly hard to beat them without an excellent plan

Eagles and moths share the gift of flight, but moths squander their gift by banging against windows.

GC estimators should sincerely develop a strategy that plays to not only the GC’s strengths, but to their best subs’ strengths.  Winning  a bid has more to do with targeting the right opportunity than anything else.  Blindly pursuing every opportunity leads to consistent losing.  This tells market-leading subs that the GC is a participant rather than a contender.  GC’s that can’t attract market-leading subs won’t be competitive on dearly needed projects without sacrificing profitability.  Eventually this spirals to the point where every bid is a last-minute, underfunded, and poorly managed effort to keep the doors open.  The ever-present urgency to pursue every project is the most visible indicator that an estimator is adrift.

Seven new estimating ideas to tryEven the best teams get tired of running around

Estimating is a deadline-driven enterprise, and everyone participating knows this.  Invitations to bid that offer nothing but a strategy of pursuit aren’t capitalizing on the opportunity to communicate a viable strategy to win a profitable job.

ITB’s with statements like ;”we’re really going after this job” are presenting  their enthusiasm for the pursuit as a reason for subs to team up with them.  When these ITB’s are followed up with interns or secretaries nagging subs to bid, the tone shifts from enthusiasm to desperation.  Excellent GC’s don’t nag subs for bids.

GC’s who carefully select project opportunities based on their best allies in the subcontractor market aren’t doing themselves any favors by writing an ITB that implies the GC is desperate for company on their mindless pursuit.    If the GC’s best subs are market leaders, nothing is gained by soliciting every company in the book (or the database).  ITB’s can and should indicate when subs are short-listed for a targeted opportunity.  If it’s a great opportunity because the GC’s got a great team of subs, then the GC should clearly commit to their team. 

It’s worth mentioning that scoundrels who think “blind copy” gives them the power to misrepresent their commitments are mistaken.  Dishonesty is revealed in the supply chain just before the subs bids are due.  This is because the sales reps at distributors who sell to all the subs in a given trade have a vested interest in helping their customers to win.  Since everyone has the same deadline, the vendors can see who’s requested pricing.  Subs may have a lot of opportunities vying for their attention.  Sinking a few weeks of effort into bidding on one project may require turning down a lot of great opportunities.  Competitive bidding operates on principles of good-faith.  Once a sub knows the GC is willing to lie or cheat, there’s no reason to believe in fair competition.  Honest subs will choose to either withdraw from bidding or intentionally lose the bid so they can escape dealing with the dishonest GC.

In the decade that I’ve been an estimator, every profitless, contentious, mismanaged, and unpaid project started with some form of dishonesty.  It’s never the bid you lose that puts your business under, it’s the terrible job you won.

#7 Replace boilerplate bureaucracy with clarity of purpose

Modern construction is very litigious which is why companies call themselves “General Contractors” instead of “Builders”.   This is why GC estimators often think in terms of contractual liability.  Estimating is about controlling risk so it follows that many estimators would seek to reduce their risk by using standardized forms covered in catch-all provisions, clarifications, and exclusions.  This “boilerplate” can get so extensive that very little on the form is actually pertinent to the project at hand.

I’ve encountered proposals that were so riddled with boilerplate that they barely outlined the work to be done for the proposed amount.  Some GC estimators try to circumvent this practice by requiring their subs to use a “bid template” to standardize the format for the bid.  This is predictably unpopular with the subs because the GC’s formatting  limits the risky exclusions, clarifications, and notes.

Both of these examples illustrate how boilerplate bureaucracy swaps risk for cooperation.  The best cooperation is achieved when the risk is assigned to the parties who can best control the factors driving the risk.  Subcontractor proposals with boilerplate meant to replace a contract are false economy.  The GC’s ITB is a solicitation to bid on work under the terms of the GC’s subcontract.  While the GC’s get to set the terms of the contract, the subs are independent firms who must strike a balance between protecting their interests, and offering a useful proposal to the GC.  If the subs knew what the GC’s subcontract would require, they would have less risk to control.

Subs who don’t include the complete scope of work for their trade are generating liabilities for the GC.  The GC’s patience with those liabilities grows in proportion to their ability to find someone else to address them.  The more skilled the trade, the fewer options there will be.  This is why some “concrete” firms can get away with excluding rebar and/or concrete.  In contrast,  Electrical contractors are expected to include all wiring for the building, even when that requires a sub-tier contract for proprietary systems such as Fire Alarm, Communications, Building Management Systems, or Point Of Sale (POS).

Inexperienced GC estimator’s sometimes try to counterbalance their lack of knowledge with additional bureaucracy.  This translates to numerous and tedious bid revisions that steadily move away from a collaborative effort to win a job.  These revisions generate additional risk to the subs because risk-averse GC estimators are prone to losing bids.

Clarity of purpose is what’s needed here.  The GC estimator must understand it’s their purpose to profitably win work by controlling risk.  This is best accomplished by working collaboratively with market-leading subcontractors.  Demanding protection from all risk isn’t estimating, it’s one-sided policy that leads to profitless work.

Seven new estimating ideas to try

“I don’t know… something about light and heat, I handed it off to the estimator…”

In competitive bidding, profit may be considered to be a function of risk versus reward.  Making projects rewarding for subs increases the GC’s ability to attract top talent.  It therefore follows that reducing the risk for bidding subs will correspondingly increase the GC’s profitability.

It’s here that an engaged GC estimator can provide committed leadership to direct the best course of action.  The most common problems will pertain to what gets included, or excluded from the scope of work.  The design teams believes their primary function is to provide design intent, which the General Contractor  uses to develop a cohesive scope of work.  Design teams can successfully argue that even incomplete plans, convey the design intent.  As a result, the GC may find they’re facing a choice between losing the bid by including something or winning the bid by excluding something the design team expects you to have.

Many GC estimators are reluctant to carry subcontractor exclusions into the proposals they send to their clients. This creates a situation where the GC estimator must force their subs to remove the exclusions (pushing the risk onto the subs), or take the risk that they can be negotiated during the contract buyout (pushing the risk onto the build team).  Risk is always expensive, but problems get more difficult when there’s less time to solve them.

When a specific risk is dependent on the actions of the client or their design-team, it’s wise to clarify what’s included in the proposal based on your understanding of the design intent.  Giving the client insight into how you’ve managed the uncertainty clarifies your position in terms they can understand.  On bid day clients may interpret exclusions presented without context as inconsequential.  Yet when these selfsame issues cause a change order later on, they’ll feel cheated.  Empower the client to make informed choices by connecting their choices to project outcomes.

I hope these ideas push estimators to think beyond statistics, measurements and spreadsheets.  It’s easy to become confident in a process that has become complacent through repetition.  Estimators looking for an edge can set themselves apart by exceeding the standards of their competitors.  As Thomas Edison once said ; ” Opportunity is missed by most people because it’s dressed in overalls and looks like work“.

 

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© Anton Takken 2016 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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