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.

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© 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

 

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© 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.

 

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© 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“.

 

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© Anton Takken 2016 all rights reserved

 

 


The cost to quality fallacy

The other day I was reading a forum on estimating where the majority of the posts repeated some fundamentally flawed concepts.  The most common are variations of “Low price means bad quality”.  This concept gets applied to everything from material substitutions to subcontractor selection because everyone’s worried about the risk of making the wrong choice.

Photo by Geir Tonnessen

Photo by Geir Tonnessen

A lot of time is spent on minor differences that obscure bigger problems

When all choices are based on risk-aversion, there’s little reason to believe the outcomes will deliver quality, value, strategy or ingenuity.  I think this concept leads to a mindset that perceives any low bid as a veritable trap to the unwary.   If unchecked, the role of an estimator can devolve into little more than subcontractor selection.  On the surface, it may seem like the General Contractor (GC) does little more than hire subcontractors (subs) to actually perform the work.  If this were actually the case, clients would simply hire subs directly and dispense with the cost of hiring a GC altogether.

The GC’s role is to be responsible for the entire project which constitutes a great deal of risk.  GC’s mitigate some of the risk by dividing the project scope among subcontractors.  The remainder of the risk is mitigated by expert leadership, communication, negotiation, scheduling, accounting, and management which all fall under the heading of “Construction Management”.  All of which is to say that successful Construction Management is a whole lot more than just picking the right subs.

The fixation on avoiding low-priced work for fear it’s a trap is deeply ingrained in many construction professionals.   We often hear stories about how a sub bid low to secure the job, then pursued exorbitant change orders to restore their profitability.  The implication is that a sub was able to not only bluff their way into a contract award, but they were able to get paid change order rates for work that should have been in their original bid.

When we ask how it’s possible that a GC would write a subcontract that didn’t include the necessary scope of work for that sub, it becomes obvious that the GC relies on their bidders to define the project scope for them.  Put simply, if the GC isn’t actually estimating the project, they’re not able to tell whether the subs proposals include all that they should.

One obvious sign that this is happening is when a GC estimator demands breakout prices of their bidders so they might “prove” whether the sub knows what they’re doing.  These demands are like asking the sub to furnish the ammunition so their own proposal can be shot down.

Lets imagine we were in a restaurant looking over the menu.  If an item seems under priced, we wouldn’t demand a cost breakdown for all the ingredients of the dish because we have no idea what those breakdowns should be.

Photo by Moyan Brenn

Photo by Moyan Brenn

Demanding breakouts to save money, is like collecting watches to save time.

What we do know is what we’re hoping to get.  That’s why asking about the portion sizes, or the freshness of the ingredients will go much further towards making an informed decision.

GC estimator’s should know the project scope they’re seeking to subcontract before the bid.  Moreover, GC estimator’s should know the going rate for the work they’re intending to subcontract so they have a frame of reference to compare the bids against.  There’s no guarantee that they will receive enough bids to draw statistical certainty of anything on bid day.  Bluffing and bullying are poor substitutes for estimating fundamentals.

The importance of context

Bid day can be very stressful, with little time available to give full consideration to every proposal.  It naturally follows that the estimator must prioritize on those proposals which have the potential to reduce their risk, or increase their odds of winning the contract.

Most GC’s consider proposals from trusted subs to be reduced risk.  In some cases, the GC’s limit their bid lists to only trusted subs which naturally reduces competition.  These GC’s are trading their ability to win contracts, for reduced risk in hiring subs.

The most expensive, and least valuable work occurs wherever competition is discouraged or prevented.   GC estimator’s with bid lists that never change may go their entire career without ever seeing a market-leading subs proposal.  It’s therefore natural that those few who receive a market-leading sub proposal immediately say it’s scary low.

Is it them, or is it me?

Mistakes happen and it’s incumbent on the GC estimator to watch for signs that something’s amiss with a bid.  Once again, best practices in estimating are the ideal means to determine what you’re looking at.  GC estimators should build their estimates so that they can quickly output a checklist of inclusions, alternates, unit prices, etc. to send to a sub for scope review.  If everything checks out but the price is still worryingly low, the GC estimator can share their in-house pricing to see how their estimate compares to the bidder’s.  This alleviates any ethical issues pertaining to comparisons against their competition.  By volunteering the GC estimators understanding of the costs, the sub can show the GC where their estimate differed and why, without feeling as though they will be disqualified.  Presenting a  focus  on retaining a winning edge with a valued colleague is more likely to deliver good information.  .

But what about overpriced change orders?

There is hardly a more contentious issue in construction than the high price of change orders.  While there are a great many factors involved, the cost to quality fallacy plays a huge role in the animosity surrounding them.  Earlier I wrote that the most expensive and least valuable work occurs wherever competition is discouraged or prevented.  Obviously when applied to a project that’s under contract, there’s no competition to keep the price of additional work down.  We might take that to mean that the contractor is overcharging, and in some cases, they are.

We must consider the root of the additional work as well.  Changes to the project scope often come from the design team after the bid.  The terms of contract award are set out in the Request For Proposal (RFP) at the announcement of the bid.  The bidders are expected to include all scope defined in the Construction Documents (CD’s) at the time of the bid deadline.  Design teams can, and do, make significant changes to the CD’s via Addendum, RFI, or Bid directives before the deadline so those items will be competitively priced.  Anything that’s omitted in the design after the deadline, is a liability for the client.

In most cases anything that’s changed or added after the project has started must be accomplished in the remaining time of the original contract.  Changes that require completed work to be removed and replaced may result in a situation where production rates must be doubled, tripled, or quadrupled in order to maintain the completion schedule.  Materials and equipment may require expedited shipping to facilitate the changes within compressed schedules.

Experienced contractors know that pricing requests for change orders often lead to protracted delays while the Owner, Architect, and Contractor (OAC) discuss options, bicker over prices, etc.  I’ve encountered situations where 8 hours worth of change order work became 80+ hours of pricing exercises.  Meanwhile the window of opportunity to efficiently perform the change order work was closing fast.

Photo by simczuk

Photo by simczuk

Artistic rendering of a project with a change order dispute

When a contractor loses a bid, they’re free to pursue other opportunities with no further obligation to the client.  Change order price disputes can become a significant burden for contractors who are unable to efficiently proceed without a decision.

The fixation on the cost to quality fallacy leads many clients and design professionals to overlook the root causes of their situation.   Clients who commit to timely decision-making will reduce the contractors risk.  If the change order is too expensive, clients can request a Value Engineering (VE) solution that meets their budget for the necessary work.

Clients should expect timely and accurate estimates for changes from their owner’s rep to provide meaningful comparison to the contractors prices.  It’s not enough to merely complain about overpriced change orders.  Owner’s representatives should provide a means-tested estimate of the additional scope of work, in order to protect their clients interests.   Sharing this information with the contractors gives them a better understanding of the client’s position, and it provides the target price for change order approval.

The highest art in being the lowest bidder

While we’re on the topic of fallacies relating cost to value, it’s absolutely vital to get some clarity on our purpose as estimators.  Estimators exist to secure profitable work.  We achieve this aim by controlling risk in all its forms.  Pretending that absolutely every estimating risk is a function of forgetting to add something, or hiring the wrong sub is not only wrong, it’s antithetical to our profession.

There are dire consequences for any company that can’t land a contract for profitable work.  The purpose of estimating is not to obviate the need for construction management.  Again, if this were truly possible,  clients wouldn’t hire GC’s at all.

It’s therefore a delicate balancing-act to deliver a market-leading price for work the firm can profitably complete.  The necessary skills, knowledge, relationships, resources, and fortitude to be the lowest bidder can hardly be overstated.   As an industry, we need to move past this fallacy as it reflects poorly on all of us.  As estimators our entire profession exists to harness the competitive market to deliver quality construction projects.

The best deal

Often the best deal has an inverse relationship between cost and quality.  The best deal (for the buyer) is achieved wherever we can get the highest quality at the lowest price.  To the buyer, the value of the money spent, is less than the value of the quality achieved.  They are getting more  value for their money.

I’ve heard a lot of GC estimators making excuses for losing a bid.  One of the most common is to claim they are “best value” because they’re delivering a higher level of quality or performance than their competitors.

It’s entirely possible that one contractor may in fact deliver a more professional project because they  are operating at a higher level than another.  This is especially common in “cattle call” or “open” RFPs which accepts bids from any GC willing to submit a proposal on the job.

The extent to which this happens is directly proportional to how selective the individual GC’s are about the jobs they pursue.  A continuously successful business requires a balance where both sides are getting a good deal.

Contractors that are optimized to perform a specific type of work will find they are market leaders capable of offering higher quality, at higher profitability,  and lower prices than their less-optimal competition.  Aligning the company to the right opportunities is the most important part of winning profitable work.

The high price of a bad deal

Bottom of the market work is always plentiful.  Experienced estimators will see that underfunded clients and unprofessional design teams are constant companions.  Higher risk, lower profitability, and more competition all align to make these jobs a bad deal for the majority of contractors.

There are jobs that are a bad deal at virtually any price because the risks to the contractor are so severe.  Incomplete plans, indecisive clients, difficult phasing requirements,  site logistics, etc. can all hurt productivity.  In some extreme cases, the GC can be penalized for delays they had no way to work around.   When the project presents a bad deal, the cost isn’t driven by the required quality, it’s driven by the risk.

There are incompetent design teams with specifications explicitly written to defend against change orders from their shoddy plans.  These firms find regular employment with the clients most likely to demand a bad deal of their contractors.  The focus on blocking change orders becomes a higher priority  than accurately contracting the complete scope of work.  If greater effort was applied to the latter, the former wouldn’t be an issue.  Lax professional standards generate systemic risk and higher costs for everyone involved.

Attempting to gauge quality by its cost alone will do nothing to reveal the features that matter most.  The cost to quality fallacy has no place in the estimators playbook because it’s only useful for making excuses.

 

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© Anton Takken 2016 all rights reserved