Category Archives: Uncategorized

Who pays the price for being wrong?

I’ve spent most of my working life in the construction industry and it’s a rare day when everything goes to plan.  Mistakes, misunderstandings, or simple lack of thinking things through causes a whole lot of negotiation about what comes next.  Change orders can be immensely profitable, indeed many businesses depend on them to be profitable.  That being said, negotiations don’t always land in your favor so it’s important to understand what’s at stake.

I’ve seen situations that escalated because one or more parties’ lost sight of the bigger picture.

“You know, I think we’re looking at this negotiation all wrong, we’d love to have you for dinner tonight”

For example, let’s say the client is on a shoestring budget.  The design team didn’t get paid to investigate existing conditions, so lots of surprises are popping up.  Further, let’s say the client decided to purchase salvaged materials that turn out to be different from what they told the design team to include.

So far, it sounds like this is all clearly the client’s fault, and they’ll have to pay to remedy the situation.

Let’s say this client is desperate to open on time because they would otherwise miss out on peak season that accounts for nearly all their annual revenue.  To protect themselves, the client required a payment and performance bond for everyone on the job and stipulated liquidated damages of $10,000 per day for being late.

The client is in a tough situation, so they’re particularly concerned about overpaying on change orders.  This leads to squabbles that go on much longer than they should.  To be efficient and productive, the work at issue needs to happen before other tasks so the job doesn’t progress like it should.  A lot of low-budget construction clients aren’t very experienced.  They’re not concerned with how this squabble is affecting the overall job because they have contract terms and bonds ensuring their deadline.

So, who pays the price for being wrong?  In situations like this, the immediate answer depends on timing.  If the squabble drags on long enough, the client may call in the bonds to replace the contractors and get their project built.  The replacement contractors aren’t going to be cheap because they’re getting paid for by the bonding agency who can (and likely will) seize assets to settle the exorbitant tab.

Now I’m not a lawyer, nor do I play one on TV, so none of this should be misconstrued as legal advice.  I suppose it’s possible that a contractor could win a case against the client, but that will take a lot of time and money.  Keep in mind that said legal battle would probably take place after you’ve had assets seized by your bonding agency which likely preclude you from conducting business anywhere else.

For most contractors, getting their bond invoked is an “extinction level event”.  I’ve seen situations where a particularly malignant client drove the project into delays, then used the threat of invoking bonds to demand extreme discounts.  Over the years I’ve had several situations where it was considerably cheaper to pay for the clients mistake so we could avoid more costly problems.  That’s something to consider the next time the client wants to change something on the project.

I’ve found that more contractors go out of business because of problems with a job they won, than from all the jobs they lost.  Don’t let it happen to you!

For more articles like this click here

© Anton Takken 2019 all rights reserved

 

 

 

 

 

 


The market changed, what do I do?

The daily tasks of an estimator involve a lot of repetitive measurements, processes, and conversations.  For some, the estimators job is almost a ritual, complete with the enduring faith that “this time it’ll work”.  A losing streak  sends estimators in search of answers.  The most common conclusion is that the market has changed.  Ok, now what?  Sadly, many estimators figure they should do whatever they usually do just faster and cheaper.  If that sounds familiar, you probably know what comes next.

The Bid mill

Bidding more leads to winning less because there’s never any time to focus on the opportunities you could actually win.  High-speed cost-cutting generally comes down to lowering your personal, professional, ethical and moral standards.  Many of the most significant problems in our industry have roots in this practice.

Advancements in estimating technology are still in testing… 

Obviously this approach isn’t a solution to the problem.  Now what if I told you that we’re trying to solve the wrong problem?

Estimators have an image problem

On the surface, it seems pretty simple.  Estimators are supposed to win work.  When they don’t, it seems reasonable to focus on production.  After all, what else can you measure?

This is where estimating bites itself.  Everyone outside of estimating figures that the estimator should be able to “count stuff” and report back with a semi-obvious answer.  Another way to phrase this would be to say that an estimators credibility is directly tied to the generation of “charts and graphs”.

Summing up, estimators are perceived as process drones whose credibility is directly proportional to how much they prove their faith in the aforementioned processes.

Did you ever get the feeling that people just weren’t listening to you?  This is probably why.

OK, so everyone thinks we’re drones. What can I do about it?

Well, for starters we could consider the credibility of the information we are working with.  I typically check in with the trade publications for RealtorsArchitects and Contractors to see what’s going on at least once a month.  In my experience, the most accurate information is bad news which is typically reported in retrospect.  Construction trends track over time from Realtors to Architects to Contractors as clients move from speculation to occupancy.

The American Institute of Architecture’s past reports have suggested that an average commercial project takes a design firm six months to get to construction documents.  This is a particularly important factor to the construction estimator because downturns are bad news which aren’t prominently reported when they happen.  What I have found, are articles published months after the downturn began, predicting growth in comparison to the first month(s) of said downturn.  By the time an estimator is reading actual figures on the downturn, they have effectively lost six to nine months of prospects.  I’ve read Realtor reports indicating several months of stagnation on the very same day that contractor publications were predicting a boom.

From the estimators desk, none of these problematic trends will be visible until there’s suddenly a whole lot more competition for whatever is bidding.

We’ve got competition coming in HOT!

People in hard times tend to present their favorite excuses to explain what’s going on.  False conclusions will limit your options.

Please keep in mind that it’s entirely possible that the aforementioned Realtor’s report and the contractor publications prediction will prove to be true.  That’s difficult to act upon without context which is why it’s important to track the trends from Real Estate, to Architecture, to Contractors over time.

You can’t plan without strategy

So everybody’s got a plan to trade work for money.  We like consistency so we tend to repeat whatever worked last time.  No matter what the break-room poster says, in most companies the “plan” is one part repetition, and several parts reaction.  The success of the plan is dutifully tracked in accounting, scheduling, signed change orders, etc.  Process is built around those metrics, bureaucracy happens, next thing you know, everyone is in meetings reporting on the metrics of the processes.

With thinking like this, it’s inevitable that market shifts will be a huge problem.

Priorities are the foundation of strategy

Estimators often overlook one of their most significant skills; prioritizing information.   Measuring stuff generates a lot of data points.  Some of it is really important, some isn’t.  There are often relationships between data points that pull out a unique circumstance that influences everything that follows.

For example, open to structure ceilings.  When the Mechanical, Electrical, Plumbing, etc. trades are all exposed to view, the installation will be more expensive.  HVAC return-air lines have to be ducted with attractive material, exposed electrical is generally required to be in costly conduit compared to inexpensive cable.  Structural supports for these systems have to be better-looking which takes more time and material.  In some cases, the total cost impact would exceed the price of a ceiling.

A savvy estimator anticipating a budget blowout might suggest adding an acoustical ceiling to save money.  This naturally leads to bargaining against the design intent.  “How much (or little) ceiling would it take to save money?”  That’s a tough question to answer for your competitors.  In this example, prioritizing cost-effective options gave the estimator a viable strategy to succeed.

Priorities should be defined, ranked, and consistent.  

I’ve encountered a lot of construction marketing that placed three words below the logo suggestive of priorities such as “Integrity, Excellence, Vision”.

Nobody working for such a business could prioritize integrity over excellence without guidance from whoever picked those words.

The estimator trying to fill in these gaps should start by doing something uncommon.  The estimator should determine what the company is actually good at.   In most of the companies I’ve worked for, the leadership overlooked the successful nature of boring, difficult, or small jobs.  Next, determine what makes them good at that work.

“Chris is a snazzy dresser but that’s not what makes him a good boy”

It may sound counter-intuitive but working from successful outcome to requisite priorities is a more productive approach.  If so, consider what you’re likely to get by asking why pure intentions and brute force were unsuccessful!

With clear priorities, the next step is ranking.  If every priority has equal standing, there’s no strategy beyond placation to whoever set the priorities. Consistent priorities encourage accountability because everyone is working with the same standards.  Inconsistent priorities are a major source of conflict between marketing and estimating.  Everyone has to be pulling in the same direction.

Growing pains

In many companies, growth is a major priority.  A lot of contractors in a boom figure they can pay today’s bills with tomorrows growth.  When times get harder, there’s a huge push on estimating to “grow” into new markets as the old ones falter.

Much harm can be done in blind pursuit of a single priority.  It doesn’t get mentioned very often but the majority of contractors fail because of contract work they wonbut couldn’t complete. This happens in good times and bad.

Many firms find it’s relatively easy to land work in a boom so they simply add staff to pursue more contract work.  Every addition increases the overhead.  Most construction contracts include a retainage provision which withholds 10% of the contract total until the project is completely finished.  In most cases the contractors profit margin is below 10% which means that every active job is contributing to an overhead deficit for your firm.  An average commercial ground-up construction project has a six month duration. Which means…

We need more work to pay for all this overhead!

Now the firm will have to fund the retained portion of their overhead out of their earnings to date for the duration of each job.   Every job added to the ongoing work queue has the potential to magnify a cash-flow problem.  The smart way to proceed, is to increase the overhead on all bids going out during a boom, before additional staff are hired.

That includes interns

This leads to a lot more work for fewer people.  Growth is slower but it’s “paid for”.  So when the market changes (as it always does), the firm isn’t running a line of credit to fund cash-flow issues with overhead.  I’ve witnessed market downturn situations where firms that grew exponentially during a boom laid off entire estimating departments without notice.  One week they were hiring new people, the next they laid off 30 percent of the firm.  “Growth” is not a sustainable plan.

Strategy is neither a task, nor a goal.

Earlier I outlined how an estimator could determine the priorities that guided their firms through and to their most successful projects.  Seasoned estimators with a lot of successful bids would call this “good judgment” or “wisdom”.  These estimators have incredibly valuable insights to share but as I mentioned before, their credibility is often tied to a pile of charts and graphs.  In many firms, wisdom and judgment are downgraded to opinion which is dismissed when some shiny thing captures leaderships attention.

I thought I had a lot of things worked out until I actually did the priority development for the companies I worked for.  I made a lot of surprising discoveries.  For example, the single most definitive feature of a successful project that was visible from the estimators position was client honesty.  The second was client competence. Opportunities that resembled our bread and butter work came in third.

I suspect a lot of estimators reading this figured an honest or competent client would go into the nice to have category, well behind important stuff like contract value, duration, or proximity.

This is where we unlock the real value of strategy.  Mindlessly chasing whatever is worth the right amount, at a convenient time, within range of your business isn’t a strategy, it’s a  reactionary plan that’s very likely shared among all of your competitors.  That means that every ideal job will have increased competition pushing profitability down.  We don’t have equal odds of winning bids.  That’s a loathsome myth ranking up there with “free estimates“.  There is no sense in shooting at stuff you can’t hit.  There’s even less sense in winning work that threatens your company’s survival.

“Never interrupt your enemy when he is making a mistake ”

Napoleon Bonaparte

With the right priorities, the real opportunities become clear.  Chasing the ugly little project that’s out-of-town might well be the very best strategy for your firm.  The goal is to be successful.  Estimators need to link their credibility to results rather than reports.

So what do you do when the market has changed?

The plan starts with credibility.  No amount of busy-work will offset a plan built on misinformation.  Estimators need to see market trends before they arrive.  Major trends should chart through related industry publications over time.  Think about what these trends will mean to each industry.  Follow up to see what actually happens in your market.  How these trends actually affect your situation is what matters.

Figure out the priorities that lead to successful work.  Make sure the priorities are visible from the estimators position during the bid.  Work out the ranking, and lock them in so everyone involved is pulling in the same direction.

Apply these priorities to what’s available on the market in the context of oncoming trends.  This is where strategies form.  Patience, courage, credibility and commitment will be tested. If this was easy, someone else would be in charge.  Learn from mistakes and do the best you can with what’s available right now.

“I’m just not sure the grass will be greener on the other side of the fence”

Above all, stay informed of oncoming trends.  Unpleasant (but critical) information is often delayed or downplayed which can leave little time for reaction.  Conversely, good news is reported immediately.  Keep in mind that positive changes in the market can take a long time to materialize at your level.

 

For more articles like this click here

© Anton Takken 2018 all rights reserved


Finding Mistakes

In a lot of businesses, estimating is a bothersome hang-up standing between an opportunity and a contract.  It can be painstaking and detailed work that has little resemblance to whatever the business actually does.  Making a mistake in the bid can have devastating consequences so it’s a pretty big deal to get things right.  The main problem is that there typically won’t be anything you can compare your bid against to spot if something went wrong.  For little stuff, it’s pretty easy to “see” the whole picture as a list of stuff adding to the total.

When things get more complex, the estimate can be several pages of fine print.

The bigger an estimate is, the more opportunities there are to make a mistake.  So how do we spot them?  Well a whole lot of estimators would tell you to just go looking for them.  That sounds good, but unless the mistake is fairly obvious, it won’t stand out as one entry in a list of hundreds (or thousands).  So now you’re combing through the spreadsheet looking for small deviations.  Maybe you’ll catch a few, maybe you’ll miss a few.  This is where estimators will tell you to do another review, in hopes the second dragnet will catch whatever you overlooked.  So, you start again with the fine-toothed comb, going over every entry.

By this point, you’ve probably seen everything in that estimate several times.  Anything you really analyzed has become familiar to the point where you’re memorizing figures. When people play a matching game, things only “look right” when the relationship they remember stays the same.  It’s happened to me, and I’ve basically gone “blind” to mistakes I was actually looking at.

Artistic rendering of an estimate under review.

 

If we checked in with estimators again, they’d probably tell you that they factor in a contingency to pay for mistakes they couldn’t find.  How much?  Well that really depends on how badly you intend to screw up doesn’t it?  With all that said, it’s probably not too surprising that there’s a lot of turnover in the estimating profession.

However, all is not lost.  For starters, I think it’s important to point out that wherever (mostly) normal people are working, emotions will factor into their behavior.  On the surface, estimating seems to be a strictly facts and figures profession.  People take the job and eventually the facts don’t meet the figures.  Then the estimator succumbs to the stress and seeks alternate employment.  That approach has some obvious problems.  Instead, what if we emotionally connect with the risks and the rewards?  See making a mistake is a risk, catching it is a reward.  That emotional and mental balance promotes agility, creativity, and confidence.

So how does that apply to finding a screw-up on page 6?

Well for starters, you have to connect with all the little things you’ve caught along the way.  Most of the time a little mistake gets swept aside as quickly as possible.  Maybe it seemed embarrassing, or trifling.  Take a second to consider what would have happened if you hadn’t caught it.  Chances are good that some of them would have been pretty serious.  The key here is to take this as a rallying point.

You just caught a costly mistake.  Maybe it was a decimal point, or a typo, or some other subtle detail that would have had big consequences.

Now you’re connecting an emotional reward with spotting subtle details.

Enjoy the moment.

You’re also learning to spot patterns in your work.  Consistently making a mistake you can correct is the long way around.  There’s no point in “rough drafts” that include pointless errors, so you’ll stop making most of them.  By being emotionally connected to your process, you’ll start looking where these errors are likely to hide.

Circling back to finding that mistake on page 6, we must understand that we’re not the sum of our mistakes.  Going looking for every mistake you’ve ever caught is going to doom you by experience.  I’ve been doing this for ten years.  I’ve caught thousands of mistakes in my estimates.  I once had a boss who wanted me to compose a binder listing every single mistake I’d ever found which was to be used as a “checklist” against all future work.  If every job was consistent enough that an item specific checklist was worthwhile, there would be no “estimating” involved.

Instead, I go through the estimate and I allow myself to reminisce about the processes that put each figure on that spreadsheet.  That keeps things familiar without mindlessly memorizing everything I see.  If you’ve ever reminisced about an experience, you’ve doubtlessly recalled thoughts and emotions.  Sometimes you’ll remember a thought, or a feeling that you hadn’t had in years.  As often as not, you’ll remember something tangential to the topic, like the scent of your favorite food when you reminisce about your childhood home.

It works the same way in estimating.  All those little successes in catching an error will suggest themselves as you’re reminiscing your way through today’s spreadsheet.

Bonus points if you look cool doing it!

Bystanders might see what I’ve done and attribute it to experience or painstaking diligence.  I can tell you that I’ve worked with some seriously intense people who had more experience than I do.  They work awfully hard to catch stuff that just pops out for me.

There are some downsides to my approach.  Perhaps the worst of which is that my approach requires sincerity.  You must genuinely feel a reward for finding a mistake.   People in general, and your employer in specific may tend to focus on mistakes as the source of all problems.  Tell your boss that you caught a huge mistake, and they’re likely to only hear that you’re a danger to the business.  It’s difficult to keep your chin up in these situations so you often must keep your own council.  That’s a whole lot harder than it sounds, especially when you’re working with/for insincere people.

Another downside is that it’s easy to get infatuated with your own inventions.  If any part of your process is faulty, no amount of massaging will offset that fact.  I’ve sunk lots of time into constructing elaborate error catching shortcuts that overlooked something critical.  Sometimes these shortcuts would work, other times they wouldn’t.  It was like an ambulance with a dodgy starter.

Every little thought that pops up as your reminiscing won’t be relevant.  People are capable of spotting patterns that don’t really exist.  Unless you’ve arrived at the cause of your mistake, you can’t celebrate catching it.  Playing it fast and loose with what you actually know is guessing, which is worse than being wrong because it’s irresponsible.  Again, everything here depends on sincerity.

It occurs to me that I know a lot of people I know might have read to this point and come up with an equivalency without realizing it.  See it’s super-common for people to think in terms of the proverbial carrot and stick.  Whatever incentive is proposed may be equally substituted with a sufficient punishment without affecting the desired outcome.  This may explain why so many employers cling to the notion that all estimating mistakes are perfectly obvious oversights.  To this way of thinking, an estimator should be motivated by fear of missing stuff.  There’s a huge, gaping hole in this logic.  They’re basing this assessment on omissions found in winning bids.   It’s anywhere from possible to probable that the entire reason you won the job was because of an “omission”.  Nobody (but the estimator) cares about the absolutely perfect estimate that lost the job.  This point of view encourages big contingency funds (sandbagging) which won’t win work in a tight market.

Finally, my approach has a fatal flaw for anyone who started out in a boom.  When it’s easy to win work, there’s less risk in being wrong so standards slip.  Everyone has to start somewhere, so if you’re starting in a boom, seek out an estimator who was successful during a down market.  If they’ll review your work, acknowledge each mistake as a discovery.  Challenge yourself to find them on your own and give yourself credit for improving when you find them.

Hopefully this approach will be as helpful to you as it has been for me.

For more articles like this click here

© Anton Takken 2018 all rights reserved


Power tool safety for estimators Part 2 : Headaches and Hard hats

In part 1, I touched on some of the dangers presented by estimating software along with some advice on how to work and bid safely.  In part 2, I will be looking into estimating hazards that are uniquely human.  A lot of frustrated and unsuccessful estimators get that way by overlooking human nature.  While estimating involves lots of facts and figures, we must keep in mind that we are working with, and working for, people.

Submitted without comment…

In my experience, people define organizational policies according to their outcome.  Bureaucracy generates lots of work that is peripheral to the task at hand.  In contrast, Leadership aligns people and resources with the task at hand.  Within the context of competitive bidding, effective leadership involves communicating expectations that are aligned with the interests of everyone involved.  This starts with considering the interests of parties outside of the estimators office.

The four P recipe

  • Perspective What do people expect to see? How does that compare with what they actually see?
  • Predict How could people do things differently than you might have planned?
  • Prepare What can you do to accommodate the inconsistencies, differences, and individual choices of others?
  • Perform How can you coordinate the interests of everyone involved to maximize your odds of delivering a successful outcome?

Schools, academies, and trade associations promoting “best practices” in estimating tend to put great emphasis on process uniformity, deference to design professionals and obsequious devotion to every client request.  While tidy spreadsheets and good manners are part of being a professional, they hardly define the estimators purpose.

Losing estimators are often telling me how they were “just doing their job” because “their hands were tied“.   While some contractors do micro-manage their estimators, this mindset is more common among estimators who prefer to believe their job security is a function of avoiding accountability. If they were making and communicating the right decisions, they’d win more profitable work which is why the job exists in the first place.  When a process interferes with your purpose, it won’t be the best practice to follow.

There is no more important safety rule than to wear your reading glasses

Estimates are used to compile and condense a great deal of information into a single number.  Even the spreadsheets illustrating what’s going into the single number can be densely packed with information.  Since everything must balance utility against clarity, the location of the information in an estimate is almost as important as the quality of the information.

Estimators working by hand are used to categorizing the information according to Construction Specification Institute (CSI) Masterformat guidelines.  The Masterformat assigns a unique serial number to commonly encountered building materials arranged so that the materials generally align with similar materials that broadly align with trades.  As anyone with experience in actual general contracting could tell you, the CSI divisions aren’t a good indicator of how the work is actually divided among contractors.   For example, division 9, finishes may involve a dozen or more trade-level subcontractors, whereas division 14 Conveying systems will ordinarily involve only one.

There are a lot of estimating programs which are configured to organize the Quantity Take Off (QTO) according to CSI divisions.  While this is great in terms of adhering to a standard, it doesn’t lend itself to compiling the relevant information to scope subcontractor bids.  For example, there are a lot of “flooring” subcontractors (subs) that will install vinyl flooring as well as carpet, but they won’t do any ceramic tile or wood flooring.

The CSI codes place vinyl flooring and carpet in separate areas of the estimate that are often surrounded by completely unrelated trades.  This means that on bid-day, the estimator is figuring out how to make one bid apply to two scopes of work which might be separated by hundreds of lines of information.  When the deadline is fast approaching and low bids trickle through the door, this creates an arbitrary obstacle that can trip the estimator when they least expect it.

 

Lizzy was following the instructions perfectly, but then everything went sideways

 

If you’re using a spreadsheet program to compile your estimate, it’s possible to temporarily move relevant divisions to conform with the sub proposals that are coming in the door.  Time invested in building a “working” worksheet that is linked to a “formal” estimate worksheet can make it possible for the estimator to have a streamlined layout for bid-day revisions, without sacrificing the uniformity of a formal layout.

Make sure it works seamlessly because spreadsheet errors on bid-day are serious problems.  The “old school” approach to this problem was to print separate pages for every CSI division including a row for bidders and columns to verify, add, or subtract relevant scope items.  Each of these sheets were put into binders with tabbed dividers.  “Bid tabs” is industry slang for these comparison sheets which “show the math” for how the estimator scoped the bids of every relevant subcontractor on bid day.

Combo bids: Two for one, or double the trouble?

Subcontractors rarely specify which CSI divisions they’re bidding which means the estimator must not only sort the CSI divisions being bid, but must attribute them separately to their estimate.  Despite all the heated rhetoric, the subcontractor (sub) is not an employee of the General Contractor (GC).  GC’s can “demand” pricing breakouts from subs in direct proportion to the goodwill they’ve cultivated from fair dealing.  GC’s cannot afford to ignore competitive bids from subs who are reluctant to provide breakouts that may be used to help a competitor win the job.

This means that GC estimators must be prepared to take the best subcontractor number they can get, even if it combines several “separate” scopes of work.  Estimating programs will often generate error messages for any CSI Division that is left empty.  If one bid applies to multiple divisions, most programs won’t allow the estimator to group them together.  Instead, estimators are forced to use workarounds.

Let’s say a flooring sub’s bid for carpet and vinyl flooring is cheaper than any combination of independent carpet and vinyl flooring bids.  They didn’t provide separate prices for vinyl or carpet because they want an “all or nothing” award.

The GC Estimator needs to enter the “combo” bid into the estimate but this raises several issues.  Everything they enter in as a quoted value will be documented which means the Project Manager (PM) running the job will expect to find a subcontractor bid for the exact same amount in the bid file.  If the estimator arbitrarily divides the quoted amount into plausible-looking amounts for carpet and vinyl respectively, there’s no bid in the file that actually matches either number.  Now the estimator could put the entire bid amount into just one of the CSI divisions.  That solves the problem of quoted numbers matching bids in the file.  However, this causes two new problems.  First, the default of most estimating programs is to “select” the lowest available bid in each entered quote.  If the combo bid was entered into the carpet division, it would likely be higher than the carpet-only bidders because it’s also including vinyl flooring.  This means the default setting for that division must be overridden in order for the estimate to select the combo bid.  The second problem is that the vinyl flooring division needs to have a quote entered and most programs will not accept zero as a valid bid.  Some estimators enter $0.01 for the quote as a workaround because no PM would go looking for a one penny quote for the vinyl flooring.

CSI Masterformat is tremendously helpful for design and management professionals who want a uniform system for coding information.  Many Project Management programs include estimating functionality which not only imposes the CSI structure, but also includes the accounting structure for the job that follows.  The estimating program’s lack of flexibility means that on bid-day an estimator might enter a one penny bid for a subcontract amount which later causes administrative issues in accounting and project management.

Breakouts are the leading cause of breakdowns

Alternates can multiply the estimators labor to an incredible degree.  In their simplest form, Alternates are a request to add or subtract something to the project.  In their most complex form, they’re a multi-dimensional problem that generates its own risk for the bidder.

For simple additions or subtractions, the alternate needs its own mini-estimate to address what’s going on.  When the changes become more convoluted, the Alternate essentially replaces the original bid.  Estimating programs may feature user-defined breakout tags which allow the estimator to sort, group, and compile the different breakouts into different schemes that reflect the alternate.  Unfortunately, many estimating programs with breakout functionality are unable to compile multiple breakdowns into a cohesive estimate.  This is very common for trade-specific estimating programs.

For example, let’s say there is an alternate which substantially changes the vinyl flooring scope.  Some areas grew, other areas got smaller. As there are several alternates pertaining to the vinyl flooring, the estimator would have breakouts defined by the rooms involved.

Rather than a single line item for all the vinyl tile in that alternate, the program would output each room’s vinyl flooring separately.  As silly as it sounds, some estimating programs will not compile the breakdown information into a cohesive estimate the way it does for an ordinary bid.

“With our new mirror technology you can double your horsepower!”

 

When GC estimators call the subcontractor wanting to make changes to the Alternates, the Subcontractor ends up going into intense “manual override” to answer relatively simple questions.  The sub is usually under incredible pressure to answer quickly because the deadline is rapidly approaching.   It’s much worse when the GC calls the sub whenever they are away from their desk, and unable to wrangle a simple answer from an obstinate program.  I know of at least one competitor who guessed at a breakout price on bid-day that dramatically under-bid one portion of a project.  That mistake was the first of many cascading events that ended in bankruptcy.  Learn from their mistake, professional estimators do not guess!  It’s much better to replace a lost opportunity than it is to “win” a project that imperils your company’s survival.

Bigger blocks, fewer breakdowns

One successful strategy to counteract an estimating programs clunky breakdown system is to use the definable breakdowns for complete alternates.  Picking up on the earlier tile example, the estimator would conduct separate breakdown-level QTO’s for each alternate separately.

Let’s say there were four rooms pertaining to the base bid and two alternates.

In the base bid, rooms one, two, and four get vinyl flooring.

In Alternate #1, rooms two, three, and four get vinyl flooring

In Alternate #2 rooms one, three, and four get vinyl flooring.

This means that one definable breakdown would be named “base bid” and the estimator would conduct their QTO for the rooms as normal.  Then the estimator would name a definable breakdown “Alternate #1” and would do a QTO for rooms one, three, and four.  Note that this repeats the QTO of room four.  Finally, the estimator would name a definable breakdown “Alternate #2” and would do a QTO for rooms one, three, and four.  At this point, every room has been measured twice, and the vinyl flooring has arguably been estimated three times.

However, the estimator can now output their reports by the individual breakdown with all the pertinent information correlated normally.  This means that the Alternates will display the total vinyl flooring as a single line item, tremendously simplifying the information you’re reading at Mach 6 when the GC calls.  Only in estimating do we have situations where taking the long way around gets us to our destination faster than a direct path.

Quoth the vendor: “It costs more”

Quoted goods pertain to items with requirements that influence the price such as custom-built equipment.  Some quoted goods are unique materials represented by an agent or a firm that promotes the material to design professionals to secure exclusive sales rights.  Wherever competition and transparency are discouraged, artificial pricing hikes are sure to follow.   As a result, the quoted goods can constitute an out sized proportion of the total estimate.

Quoted goods can be material exclusively, or they can be materials plus some labor or service.  “Parts and Smarts” is industry parlance for a proprietary system of components that the contractor must install themselves, according to the design and programming requirements of the quoting firm.  This is most common in fire-alarm and HVAC controls systems.  “Turnkey” proposals are generally understood to be standalone quotes to deliver a completely built system.  At the trade-level estimators desk, it’s critical to correctly attribute labor hours to the quotes you expect to receive.

Trade-level estimating program defaults can be very complex.  For example, a fire alarm vendor supplying a “parts and smarts” quote will provide the fire alarm devices which the electrical contractor must install on a dedicated system.  The electrical contractor is expected to furnish the junction boxes, conduit, and wire, for a fire alarm system that has not been designed yet.  Estimating programs might have a “helpful” default for fire alarm takeoffs however they will only quantify the quoted goods.  This means the estimator must carefully supplement the “fire alarm” takeoffs with all the parts and pieces that the fire alarm vendor omitted.  Unless the whole system is attributed to a dedicated breakout, the quoted aspects of the fire alarm will be separated from the costs to furnish and install all the stuff needed to make the vendor’s quote work.

It’s good practice to conduct separate breakout estimates for any quoted goods that involve bidder groups with inconsistent levels of scope delivery.  For example, the breakout combined with parts and smarts quotes can be directly compared to turnkey proposals.

Getting more information out of less data

Reading along, it would be easy to conclude that the best approach is “more breakouts”.  Being better informed certainly helps when making decisions.  To serve its purpose, the estimate must be a condensed explanation of what a project entails.  Specifically, the estimate should reveal what is driving the cost, duration, and risk, of the project.  I’ve encountered plenty of estimates that were so detailed that they buried the meaningful project attributes.  This can be described as the “noise to signal ratio”.  If you’ve ever been listening to a radio station when an adjacent station intruded, you can appreciate how difficult it is to understand what’s being said.

The Request For Proposal (RFP) may list alternates the owner requested alongside breakdowns the Architect wants to see.  The intention and implication of each may serve different purposes which occasionally makes them difficult to understand.

I’ve seen projects with twenty or more breakout requests on the RFP get whittled down to three alternates in the course of a single exchange with the client at the job walk.  Clients and Architects aren’t always considering the quality or the context of the information they’re requesting in the RFP.  It’s often easier to generate a long list of things they might want, than it is to consider which things they would actually be willing to combine.  There’s also a tendency to be additive rather than reductive when tasked with writing a wish list.

For example, lets imagine a project which is comprised of three connected buildings named A, B, and C.  The client asks that all buildings be included in the base bid.  They then ask for an alternate to move building B to the other side of building A, and to omit building C altogether.

Their second alternate request is to build only building’s A and B as originally aligned, omitting C altogether.

At this point, we’re up to three prices due on bid day.  To bid them separately, all the estimating for buildings A and B would be repeated for all three prices.

In contrast, we could arrive at the same answers by answering two questions.  What does building C cost? and “What cost difference is there in moving building B’s alignment with Building A?

That’s one breakout, and one alternate which is never repeated elsewhere in the estimate.  More importantly, the estimate for building C generates 100% of the accuracy with 50% of the data compared to estimating A and B together.  It’s probably a whole lot easier to review an estimate for building C against the drawings than it is to check a “combo bid” against multiple buildings.  If your process is the same for all the buildings, the check on building C will be instructive towards determining if there are issues with your estimate for buildings A and B.

It’s also very significant to note that the building alignment question is pulled out as a line item cost.  This allows careful consideration of what the result implies without the “noise” of building A and B’s total factoring in.  I really can’t stress this enough because alternates are often sparsely documented by the design team.  It’s fairly common for a complex alternate to be completely and exclusively defined in a few sentences on the RFP.  What may sound like a simple “add this” or “take away that” alternate request can generate a long list of subtle consequences to the project.  The knock-on effect for the client is sticker shock.  Estimators who’ve carefully constructed their approach to reveal the subtleties are better equipped to present a solid explanation.

Savvy estimators will have already noticed that this advice could lead to a situation where you win the job and the client selects one of the alternates.  Now when you go to hand off the estimate to a Project Manager (PM), you don’t have a single estimate which perfectly reflects the contract scope of work.

Your options will depend heavily on your software.  In some cases, an estimator can copy the Building C breakout into the base bid and “multiply” the new version by -1 thereby generating a subtraction amount in all takeoffs.  When grouped with the original total, and the relocation alternate, the output would be reconciled to the actual quantities needed.

Without question, this will require additional work, however it’s important to note that most estimators don’t win every bid.  Spending a bit of extra time on those you win is an easy trade to make when you’re sinking less time into the losing bids.  Negotiated agreement or “sure shot” bids should be done so that the estimates can be handed to a PM without confusion, rework, corrections, or delay.

Estimating is about controlling risk to secure profitable work.  We can worry about risk created by the limitations of people and machines, or we can build our operations to accommodate them.  I’ve provided a few examples to show how applying the four P’s can lead to opportunities that competitors only saw as obstacles.

For more articles like this click here

© Anton Takken 2017 all rights reserved

 

 


Power tool safety for estimators Part 1 : Software hazards

There are no shortage of software “solutions” for construction estimating.  It seems like every one is advertised to deliver greater accuracy with less effort so one estimator can do more.  Experience has taught me to be pay attention to the problems these software systems are claiming to solve.  I’ve worked with several of the most popular estimating programs and all of them exhibited basic problems that can really mess up a bid.  Speed and ease are selling points for systems that are very difficult to override when they screw up.   If we think of these programs as the “power tools” of estimating, we can easily see the need for “safety training”.

There is no more important estimating safety tool, than to wear your reading glasses…

Looking at a floor plan, it might be fairly obvious that the flooring is 60% carpet and 40%  vinyl tile.  When the quantity measurements are entered into the Construction Specifications Institute (CSI) format , it’s difficult to see the carpet quantity relative to the vinyl flooring because they’re often separated by hundreds of lines in the final estimate.  Many Quantity Take Off (QTO) programs will convert to  square yards when measuring carpet versus square footage for vinyl flooring.  This means that the numeric difference between two installations that are commonly installed in the same areas, will appear nine times less significant than they really are.

Research on perspective enhancement is ongoing…

Take the 60-40% split mentioned above with 1,000 square foot total.  1000 * .6 equals 600 square feet.  Divide 600 by 9 to convert to square yards and you get 66.66 SY.  Compare that to the vinyl at 1000 * .4 and you’ve got 400 square feet.  If you are quickly scanning the output numbers looking for obvious errors, 66 looks a whole lot smaller than 400.  Depending on the software’s report settings, the units of measure might not appear immediately alongside the measured quantity you’re checking.  Trying to check quantities and units in the software can be very tricky when the software doesn’t allow the user to highlight or increase the contrast of a particular line.  That’s a serious downside to software designed with a minimalist aesthetic.  This is why some  estimators prefer to check their work with a printout and a straight edge.

Caution, powerful settings buried below

While I’m on the topic of minimalist aesthetics in software, there are a few other issues that bear mentioning.  Program-specific terminology can be a major stumbling block.  One industry-leading QTO program conceals its ability to multiply repetitive takeoffs like hotel rooms in a multi-story building behind a two item drop-down list.  Neither item on that list alludes to this functionality.  Making things even more difficult, the relationship between floors and rooms are defined by a matrix where the rows are defined through completely different menus than those to define the columns.

The matrix menu allows changes to the rows, but not the columns.  This means that an estimator who’s discovered an error in the columns of the matrix, must close out the screen showing the matrix and return through a completely different set of menu options to fix it.  The window displaying the matrix is limited in size and is only open while a menu is active which means that an apartment building with ten or more unit types cannot display all the rooms and all the floors in a single screen.  This makes error checking much more difficult than it needs to be.  Answering simple questions like “how many apartments are in the estimate?” is profoundly difficult because the program’s design isn’t effective.

QTO programs are often bristling with options to adjust the scale, alignment (level), image rotation, image contrast, etc.  Rarely are these options identified with meaningful terminology, nor are they located to minimize the mouse movement required to operate the program.  Terms like invert, flip, and rotate are scuttled in preference to diminutive arrow icons that all look the same.

I’ve worked with a market leading QTO program that won’t allow a to scale setting change after any substantial amount of takeoffs have been done.  If you discover that the scale is wrong on a page, you have to delete all the takeoffs before you can correct the problem.  Always check that the labeled scale is correct by measuring a known feature.  Be sure to check vertical and horizontal measurements.  More than once I’ve encountered .pdf format drawings with an aspect ratio problem.  Most QTO programs cannot accommodate a separate scale for horizontal  and vertical.

Even relatively innocuous changes can be harder than necessary.  Some programs require multi page menu navigation to achieve what other programs do with a single drop-down list.  All of them get slower in proportion to the total file size of the job.  This leads to an infuriating situation where the program reduces workflow to a crawl right when the estimator has the least amount of time to wait.  The critical lesson here is to confirm that your settings are right early on.

Warning! This machine has no reverse!

Some estimating programs are only capable of importing QTO measurements that add to a takeoff smoothly.  Any sort of deduction, or change of breakout to imported quantities may require a manual import for each individual measurement.  For many estimating systems, the manual overriding triggers an overall update to the estimate which can take several minutes on a large estimate.  If that wasn’t bad enough, it’s not possible to group import several negative measurements.

To the user, this means scrolling through thousands of lines of small print text looking for items that don’t have a small check mark in the “imported” column.  There’s no “search” or “sort” functions to cull the data, nor are there any means to adjust the diminutive single-spaced fonts.  These programs are like a drag race car.  Everything is optimized for moving in only one direction.  If you need to back up, you have to get out and push!  For an estimator with an error in their QTO and a deadline rapidly approaching,  they may need to make some hard decisions.

I recommend using a proposal template that is completely separate from the estimating or QTO program.  A simple spreadsheet or word-processing program will allow the estimator to enter what’s actually needed when time is short.  If/when a situation arises where there is an error in the estimate without sufficient time to  fix it, the totals can be manually adjusted on the proposal template.  I’ve known several contractors who missed a deadline because they couldn’t generate a proposal without fixing a simple subtraction problem with their intractable estimating program.

Repetitive Stress Injuries

Some QTO programs will attribute each assembly takeoff to the plan page of the drawing set.  This gives the estimator a way to determine where the quantities are coming from.  Other QTO programs will allow for repetitive applications like hotels or apartment buildings.  Each “Unit type” can be taken off one time, then their resulting QTO can be attributed to however many repetitions the design requires.  The time savings can be profound, however estimators should be very cautious lest a mistake be multiplied throughout their estimate!

One particularly tricky aspect of this practice pertains to rooms that only appear to be symmetrical.  For example, consider a hotel with L shaped rooms running along a hallway oriented North to South.  The “L” shape intersects between pairs of adjacent rooms so that the “L” is upside down on alternating rooms.

Now for sake of example, let’s say they are all the same room dimensions.  The room finish schedule defines the walls by cardinal directions (North, South, East, and West).   Let’s say that the finish schedule defines the West wall finish as wallcovering (a.k.a. Wall paper).  It’s tempting to simply choose a unit, and measure the West wall to define the wallcovering takeoff for all the rooms.

The problem here, is that the rooms with a long axis on the West wall will have more wallcovering than the rooms with a short axis on the West wall.  Depending on the overall design, and the discipline of the Architect, the odd room numbers may correspond to one condition, with the even-numbered rooms corresponding to the other.   Estimators must  verify for themselves because they are responsible for knowing what is actually required.  Be very careful about getting these measurements correct because even small errors get compounded in repetitive takeoffs.

Transfer traffic safety

Every QTO and estimating program I’ve ever used allowed for user-customized parts/items in the estimate.  The “rules” for how these customized parts work within the larger estimate are similar to pre-defined parts with a couple of notable exceptions.  In most situations the QTO program and the Estimate program are “patched” together via an import/export relationship.  In theory, it’s possible to generate the custom part in either program.  If the part is generated in the estimating program, it needs to be exported to the QTO program to be used for measurements.  On the other hand, if the part is  generated in the QTO program, it needs to be imported into the estimating program.  Depending on the specific nuances of the programs and how the patch works, there will be one direction (import vs. export)  that works better than the other.  Generally, the provided training or tutorial videos accompanying the software bundle will present the direction that works the best.

“Sure, there’s a faster way to get where you’re going but I… wouldn’t recommend it”

Keep in mind that some exports need to happen with the receiving program closed, while others won’t reliably work unless the receiving program is open.  Training videos and software instructors often neglect to mention when the receiving program must be closed for reliable transfer.  It’s on the estimator to pay attention to whether they are opening verses maximizing the receiving program.

Savvy readers will have noticed that I emphasized reliable transfer.  I’ve used several program packages which appear to import and export without any particular issue or error message.   Yet when I check the received information against the sent information, I’ve found custom parts that were not fully transferred.  In my particular case, custom parts that are generated in the estimating program, then exported to the closed  QTO program, will work like any ordinary part for QTO, then will import properly into the open estimating program.  Any other combination leads to failures in about one-third of the cases.

It took me a long time to figure this out because the problem was intermittent.  Once when I was on a technical support call regarding another issue with the software, I mentioned my discovery to the technician.  The technician told me that was a known issue and pointed out that their training videos only depict that specific approach.  It was only after the call that I noticed that their video left out any sort of warning about doing things differently than they recommended.  There’s a lot of that sort of thing in estimating software.  If you’re using the program differently than they envisioned it, there’s no guarantee that it will behave as advertised.

Pop up windows, the Big Red Button of estimating software

Manual overrides are any kind of user-input that interrupts, or changes something during an automatic function.  An estimating program might be configured to provide a pop up window for the user to adjust a variable, or to confirm that a default is acceptable.  Very often, a user-generated custom part will trigger a pop up window during the import.  Every pop up halts the import until it is answered.

In use, the estimator has completed the QTO and has imported all the measurements into the import stack of the estimating program.  The whole import stack is selected and “import all” is initiated.  At this point the program will import the data serially which may take some time if the estimate involves a lot of measurements.  As soon as a custom part is encountered, the pop up window interrupts the import.  Nine times out of ten, the estimator only needs to press the “enter” button to accept the value and continue the import.

This means that the estimator is looking at a twitching display of all the data being imported waiting for a pop up to tap the “enter” button again.  If there are a lot of custom parts, this can mean tapping the “enter” button every few seconds as the program makes its way down the import stack.  Since this is one of the final steps of an estimate and time is always short, the estimator might get anxious for these interruptions to be over.  Woe betide any estimator who taps “enter” before the pop up screen appears!  Inexplicably, this automatically excludes the next part requiring authorization from importation.  There won’t be any error message or notification that this happened.  The program will bury that custom part next to something  in the imported stack and leave it for the user to find.

Similarly, any other manual override pop-up that is “answered” prematurely will generate unpredictable yet consistently counter-productive results.  It behooves the estimator to be patient with these lumbering pop-ups.  A word of caution, if you decide to work on something else while the import is running, be sure to minimize the estimating program entirely to keep it from responding to the “enter” button.  Just be sure to check back periodically to see if there’s another pop up holding up the import.

 Safety net, or hidden snare?  Don’t let dopey defaults do you in

Trade-level estimating programs often feature default functions meant to avoid common mistakes.  For example, an electrical estimating program might trigger an error message if an estimator tries to put an oversized wire into an undersized conduit (protective pipe for wire).  Since these relationships are based on uniform standards like building codes, the defaults here are able to catch a lot of mistakes.  The savvy reader might have noticed that the default “saved” the estimator from mistakenly overfilling a conduit which ranges from a safety hazard to a physical impossibility depending on the degree of the mistake.

Now consider the relationship in reverse.  If the conduit is oversized for the wires within, there is no safety issue.  Since larger conduit is more expensive, it’s important to use the correct size for the application to keep the pricing competitive.

The “safety net” of the defaults only protects against underbidding the job in very specific situations.  Efforts to guide estimators to “just right” assemblies generally revolve around incredibly long lists of every possible permutation.  This is a terribly inefficient approach because the programs lack the intelligence to make reasonable suggestions for what is needed. Forcing an estimator to select one item from a list of one thousand means 99.9% of what’s presented is wrong!  These default lists are tightly packed error inducing machines.

Automatic update, friend or foe?

Another aspect of defaults that can play havoc pertains to “quoted” goods versus commodity pricing.  Trade-level estimating software often features commodity pricing which is updated periodically according to national, and local average databases.  Several trades involve thousands of different parts available in dozens of sizes which means that the complete list for commodities can have 100,000+ items.  Even a modest commercial project can require a thousand or more unique parts.  If all the contractors  requested distributor quotes for every line item on every one of their estimates, the distributors would be overwhelmed and gridlock would be inevitable

Commodity tracking systems are an invaluable aid to trade-level estimators because they automatically adjust the pricing of hundreds of thousands of parts to reflect current market conditions.  Errors can and do happen so it’s important to scan the estimate for anything that stands out.  One very embedded error that occasionally pops up is in the unit of measure for a commodity price.  Some parts are priced per each, others are priced per the hundred count, and still others are per the thousand count.  Commodity price updates might have the correct commodity price with the wrong unit of measure which can shift the commodity cost in your estimate by three orders of magnitude!  I’ve encountered situations where a single unit of measure error in the commodity pricing update added several million dollars to my estimate!

 

Continued in next article:  Power tool safety for estimators Part 2 : Safety in the estimators shop

 

For more articles like this click here

© Anton Takken 2017 all rights reserved


Are pricing revisions costing you work?

Sometimes the estimators job isn’t done at the bid deadline.  Clients, Architects, or the Owners Representatives may have questions for the bidders as they review the bids they’ve received.  In some cases, the estimator will need to make revisions to suit the client’s needs, or to facilitate direct comparison against a competitor.  So far, so good.

Estimators are under pressure to respond quickly because the client is planning to award the contract as soon as they are satisfied with the winners bid.   Clients can be very difficult to reach following a bid so it behooves an estimator to make sure their attention doesn’t drift to a competitors bid.  Most contractors pack the calendar with bids so there is always another deadline looming.  This means that every post-deadline revision is taking time away from the next bid.  Leisurely clients with lots of questions rarely understand the estimators need to hustle.

Are pricing revisions costing you work?

“Sam had a terrible feeling that the client wasn’t going to let the meeting end.”

 

Making the right moves

In times of stress and pressure, it’s helpful to prioritize your tasks.  A client requesting a revision to your bid presents a significant reward for the additional work invested.  Compared to an oncoming deadline for a competitive bid, the client’s request will often take priority because it’s more likely to result in a contract award.  However it’s possible that the Client is calling about a small job with limited profitability compared to the upcoming bid.  The estimators purpose is to secure profitable work for their company by controlling risk.  When everything demands speed, accuracy and competitive pricing, the estimator will see the truth in an old adage.

“Fast, Accurate, or Cheap, you can only pick two.”

With time always in short supply, the estimator must constantly decide between delivering a cheap or an accurate revision.  It’s worth pointing out that the estimators’ wages are generally funded out of overhead.  For many firms, estimating is the only advertising or marketing for the firm.  Time sunk into answering endless questions for a client who awards the contract to a competitor is a costly proposition.  While estimators must make decisions considering uncertainty, their bosses see the outcomes as though there was never any doubt.  Post-bid work is rarely noticed unless it leads to, (or costs you) a contract award.  Many estimators have gotten into trouble this way.

Often smaller General Contractors (GC’s) and subcontractors (subs) aren’t qualified to pursue larger projects for established clients.  Smaller projects are more likely to be for “one-off” projects for sole proprietors who’ve never built anything before.  Inexperienced clients and small budgets are constant companions, which brings us to cost-effective design teams.  Here again, the above adage comes into play.  Incomplete, erroneous, and misleading construction documents (CD’s) are common with clients who have neither the time nor the money for a professional design.  Estimators may expect the number of post-bid revisions to be inversely proportional to the professionalism of the CD’s.

Building a pyramid is an iterative process

Not all client questions are  focused on arriving at a defined outcome.  For example, let’s say a client is trying to reduce cost or waste in their project.  They might ask a question intended to generate a data-point which drives their next question.  With each “layer” of inquiry, they believe they’re cutting away the unnecessary, so that each iteration is better value.  We might imagine this process to look like a pyramid where each layer is successively smaller than the preceding one.

Are bid revisions costing you work?

Above: “An elegant process leading to a difficult position”

The pleasing aesthetics of this process are based on several assumptions that seldom hold true in real life.  For starters, estimators who are competitively bidding have market pressure encouraging them to reduce cost and waste from the project.  It takes great individual knowledge and skill to win competitive bids.  Unless the scope of work, or the risk involved in the work has changed, the client is asking the contractor for information to be used against them.  Estimators know this, so the information provided takes this into account.

Providing information that would reduce profitability, or increase risk is obviously detrimental to the contractor.  As much as possible, the contractor will seek to provide answers to the client in terms of reduced scope, or reduced risk.  Clients are quick to notice that anything that can be cheaply omitted, might be cheaply expanded.  This means that every price the contractor provides has the potential to work against them. Once a price for something has been provided, it becomes a “fact”  separated from the conditions that define it.  Clients will consistently remember the cheapest price they heard for something, and woe betide any estimator who tries to change their mind later on.

In situations where the client requests revisions to revisions, the estimator and the client are poring over the same information repeatedly.  Since the earlier revisions are “fact”, there’s a built-in incentive to assume the earlier work was correct.

Are bid revisions costing you work?

“Good news! We’ve defeated the camouflage but now we’re seeing double”

Between the pressure, the drudgery and the desire to move things along, the estimator may be making quick-but-wrong revisions just to get the client to contract.   Clients obsessively focused on culling waste may talk themselves into cutting out critical project scope.  Estimators foolish enough to price their demands will be rewarded with an angry client, who feels cheated when the critical scope must be restored.

Like most things, it’s pretty clear to see where things went wrong in hindsight.  Clients may have several motivations for their actions, and it behooves the estimator to quickly identify what can be done to bring them to a decision in as few iterations as possible.  It’s my considered opinion that there are three client motivations that should inspire patience and diligence in the estimator.

  • Curiosity
  • Testing the contractors
  • Scope to budget alignment

On the contrary, I believe there are three client motivations which should be cause for concern and reservation.

  • Distrust
  • Dishonesty
  • Incompetence

Answering questions that speak to the client’s curiosity, budget, or desire to vet their contractors will give them what they need to enter a contract that’s beneficial to all concerned.  Conversely, questions driven by incompetence, dishonesty, or distrust are likely to move the project further from an honest and practical effort to award the contract.   “Helping” an incompetent client by pretending every ill-advised question is valid is how a lot of estimators end up with a profitless job and an angry client.  It makes little difference whether the client is distrustful or dishonest when their condition prevents them from awarding a contract in good-faith.   Scoundrels will sometimes feign distrust on the grounds that they don’t know enough to properly protect themselves from greedy contractors.  Demands for post-bid breakout pricing to “prove” that the bidders aren’t overcharging is a common and fundamentally dishonest practice.  The goal here is to make the winning bidder compete against the losers’ breakouts.

Imagine watching a 1600 meter race in the Olympics.  The winner is the one who finishes in the least time.  Should it matter if they were winning at the  400 meter mark?

The client intentionally misled the bidders to believe the contract would be awarded in good faith to the lowest bid submitted before the deadline.   Pretending that it’s “too close to call” is the favorite line of the scoundrel.  Extending the “competition” to continually solicit “run-off” bid revisions for better pricing quickly devolves into outright bid shopping.  It should go without saying that the construction industry’s policy of withholding bid results enables this chicanery.

I’ve awarded half-million dollar contracts that were won by less than $50.00.  I did so cheerfully because my risk of the low bidder having missed something was negligible.  While we’re on the topic, I can only think of three ethical and honest reasons to conduct a “run-off” bid.

#1 The project scope has been significantly changed following a budgetary blowout.  This means that contract award based on the original bid is not possible.   This is notably different from having a “run-off” bid where the two or three lowest bidders are asked to deliver Value Engineering (VE) proposals.  This is dishonest because any VE ideas lifted from contractors who weren’t hired constitutes a theft.  Any estimator who participates in this kind of run-off should seek easier ways of helping their competitors!

#2 A contract was terminated after the project started, but before it reached completion.  The contractors who originally bid the job are in a better position to estimate the cost of taking over the project.  Taking over a failed contract presents a lot of risk which will deter bidders.  Asking only the second and third place bidders from the original bid for a run-off bid reduces their competition which may encourage them to bid.

#3 Two or more bidders sent proposals for the exact same amount.  If this is the case, the client should be careful to disclose the actual bid amount so all the affected parties know the client is conducting an honest bid.

So how do we apply all of this?

Estimators who find themselves with a client whose revisions seem endless should create an opportunity to speak directly to the client. Emails, faxes, and messages won’t do because there is no control over the narrators tone in our reader’s imagination.  A direct conversation provides nuance that is essential to diplomacy.

It’s been my experience that offering gentle resistance by presenting questions or your own, can disrupt the iterative patterns to reveal the clients motivations.

For example, I called one client who was on their fifth iteration of the bid in as many hours.  When I was on the line with the client, I explained that whenever a client requests so many changes, I assume I’m not getting them what they need.  This little disruption shifted our dynamic from call and response, to collaboration.  From there I could help them to define their problem, along with thresholds for acceptable solutions.  Working within that understanding, I was able to bring everything to conclusion with one final revision.

That’s not to suggest that all clients will respond as well.  I had a similar situation where I tried the same approach.  This client was only interested in breakout pricing to see “who was really low”.  Everything was presented as though the decision was just one unanswered question away, yet it’s just “too close to call” the original bid.  More than one such client, added scope of work in each revision over the span of several days, then called (to avoid written record)  to say they’d like to hire me if only I would do all the extra work for my original price.

Are bid revisions costing you work?

“If you show them where to cut, you won’t like it when they do.”

I’ve also had GC’s as clients who blustered officiously about how it’s their “standard procedure” to  answer even the most perilous questions from a client.  They didn’t care that it was potentially ruinous to the trust of all parties involved.  A question was asked, and it’s their duty to answer it.  It would be difficult to imagine another situation where someone could honestly work so hard to  appear incompetent, dishonest, and lazy to their client. As a sub, it’s not “good optics” to let a GC put your name on their mistakes.  Rookies at the GC level are particularly likely to cause this problem, which is why their subs won’t follow instructions.

Good reputations can take a lifetime to earn, but only a moment to lose.

Estimators inclined towards a more charitable view of their incompetent or dishonest clients should consider how costly a failed project can be.  The people involved can either generate, or ameliorate the projects risk.  Estimators should consider their part in the projects risk.   How did the pricing revisions affect the project risk?  How did the outcome of your efforts compare to your intentions?  If pricing revisions are costing you work, look back on your efforts to identify where you might have taken a different approach.  Estimating is more than measurements and spreadsheets.  Thinking beyond the obvious process reveals opportunities to set your work apart from competitors.

 

For more articles like this click here

© Anton Takken 2017 all rights reserved

 

 

 


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“.

 

For more articles like this click here

© Anton Takken 2016 all rights reserved