Tag Archives: conceptual estimates

Conceptual estimating, client capture or wasted time?

Where do projects come from? As estimators we’re often less concerned with the steps that came before plans landed on our desk that we should be. Everything starts with a client and their idea. There’s an awful lot that has to come together to translate a clients idea into a reality. The American Institute of Architects (AIA) has outlined the Best Practices for architectural design into three main phases.

Basic concept

Schematic design (SD) is the earliest phase and it’s where the required functions of the project are defined and refined. A lot of effort goes into the research and due diligence necessary to ensure that the project will conform to zoning, jurisdictional requirements, etc.  Estimators often refer to these as the “napkin sketches” because the intent is to convey the magnitude and orientation of major project features without necessarily providing much detail. Smaller projects may feature a narrative which can be as simple as a list of required functions, assumptions, and minimum requirements. The SD drawing set may be put out to contractors as a “gut check” to level the project requirements against the client’s budget. More on this later.

Conceptual estimating, client capture or wasted time?

“It may not look like it, but I’m here to help…”

Rough draft

Design Development (DD) is the next phase and it’s here that more detail is slowly added. Generally, (but not always) these plans lay out the Mechanical, Electrical, Plumbing (MEP) details as well as the structural and architectural details. It’s at this stage that signature elements are typically selected, often based on comparison between one or more schemes. When these plans are sent to contractors, you’ll often see them referred to as “Pricing plan” (PP) or clearly marked “NOT FOR CONSTRUCTION”. The DD phase is typically concluded with a formal presentation to the client in hopes of getting approval to proceed to the next phase.

Final plan

Construction Document (CD) phase is the final phase of architectural design. Complete CD’s are sent to contractors for final bidding and subsequent contract award. Many clients and/or architects require contractors to bid on incomplete CD’s which are marked with the percentage complete.

Concept to contract

Estimators are frequently asked to price SD and DD drawings as a courtesy to the client or the architect. It’s understood that designs must progress in order for there to be work for GC’s to do. Beyond simply aiding a design development, many GC’s seek to lay the groundwork for contract award or negotiated agreements by making themselves indispensable to the client and/or architect.

Conceptual estimating, client capture or wasted time?

Savvy bidders are quick to lock their competitors out

This tactic is called “client capture” and there’s a lot to recommend the practice because GC input early in the design can reduce prices, and increase the odds of project success.

Refine by bid

The GC’s motivation to capture the client is understandable, however their effort can stray into becoming an unpaid construction consultant.   There are clients who limit their design team’s scope of work to SD or DD level drawings, which are then sent out to bid with requests for “complete” proposals. Estimators pricing these projects balance between hard-bidding and design-build as they attempt to fill in the blanks. Each round of bidding provides the client with information to refine their drawings for re-bidding.   Bidding GC’s will find their good ideas incorporated on plans sent to their competitors to bid. It’s entirely possible to spend so many labor hours in conceptual bidding, that the subsequent contract work is no longer profitable!

Conceptual estimating, client capture or wasted time?

Window shoppers

Competitive bidding is the most reliable and consistent means to ensure market pricing. Clients who find their budget’s blown on bid day are getting valuable feedback on their projects. There are some clients who continually re-bid their projects hoping to “beat the bushes” for a better price. If the client can’t raise their budget to market-value, or reduce their scope to suit their budget, they’re not a real client. These “window shoppers” have no concern for the time and money they cost their markets. There are always more window shoppers than real clients, so estimators are well-advised to bid judiciously.

Some clients find themselves debating between two or more different addresses which require tenant improvement (TI). Metro areas often feature design firms that specialize in tenant planning for leasing negotiations. These firms specialize in drawing plans that facilitate conceptual pricing, but never lead to construction contracts. In fact, there’s little reason for these design firms to involve contractors because historical data coupled with some basic estimating skills would provide their clients with sufficiently accuracy to negotiate leasing terms.

Signs to watch for

Estimators looking to maximize their chances of success must develop judgment to pick the best opportunities to bid. There’s an old maxim that states : “Good judgment is based on experience you can only get through bad judgment”. As a logical starting point, estimators must understand that functional relationships are based on reciprocation. Bidders understand that submitting the lowest complete proposal (for free) by the deadline is their obligation, and awarding the contract to company with the lowest complete proposal is the client’s obligation. Bidding for “free” is the contractors commitment, awarding a contract on the basis of those bids, is the client’s commitment. Moral flexibility separates the window shoppers from the real clients.

Conceptual estimating, client capture or wasted time?

Here are couple examples of how life is better without gray areas.

Many ethical clients see conceptual estimating as an expected courtesy, if not an outright prerequisite for future invitations. If the client isn’t promising to select a contractor based on the outcome of a conceptual bid, the GC’s are forewarned that they can expect additional rounds of competitive bidding before the contract is awarded. Estimators are well-advised to pay particular attention to what is and isn’t promised at the “final” bidding opportunity. There are clients and design teams who expect “do-overs” whenever there’s hope of capturing some additional savings. An awfully old trick is bid the job before submitting plans to the building department, then re-bid the job after they’ve got inspector’s comments. Lots of value-engineering (VE) ideas from the bidders get rolled into that last set. This effectively gives your competitors a chance to capitalize on your good ideas for the client.

Clients who consider conceptual estimates to be a prerequisite to inclusion in the final bidding should be starting with a short list of pre-qualified GC’s. Pricing all the SD, DD, and CD revisions can range from three estimates, to dozens of pricing exercises that could take place over many months. Clients who expect this courtesy should reciprocate by limiting competition to a short list of qualified competitors.

Clients who demand extensive competition throughout conceptual bidding will generally accept any bidder on the final round. These clients may pay lip-service to GC’s making themselves indispensable but they’ll only award after they’re sure there’s nobody cheaper on the market.

Estimators should be especially wary of bidding projects which have different deadlines for participating GC’s. Sharp-eyed estimators will pay particular attention to the dates on the plans. It’s very rare for a legitimate conceptual bid to have plans that are more than a few days old at the time of the request for proposal (RFP).

Often Architects will revise the plan legend as progress is made on the sheets. “Final” or “Pricing set” drawings that aren’t quite 100% complete are fairly typical for hard-bidding, however estimators should consider the timeline of the updates in the context of the final set’s date. If there was steady design progress between updates however the “Pricing set” you’re looking at is several months old suggests that this isn’t the first time these plans have been out to bid. Especially long gaps between “Pricing” and “For Construction” sets, begs the question “why didn’t they award the job on the pricing set?”

Never underestimate the value of direct communication with the client and their design team. Job walks are a vital social opportunity to gain insight into the project and where it’s heading. Clients may freely admit that a project has been out to bid previously. Design teams may drop hints about expected changes, budgetary issues, or client expectations. GC estimators should cultivate their leads in the subcontractor community. Reputations are earned, and people have long memories when it comes to hard-earned judgment.

It’s much easier to close a deal with a client when you’re well-informed.

Tips and techniques

Conceptual estimating, even as a courtesy carries a certain amount of risk. Regardless of what qualifiers, clarifications, or exclusions you might make, the one thing that every client remembers, is the lowest number they heard. Estimators need to be VERY careful about how information might be misconstrued especially at the earliest stages of design.

We all understand that complex assemblies are built of smaller parts and pieces. Clients tend to think of these pieces as individual and uniform when it comes to cost. The cost to furnish and install any given thing seems like it’s an easy enough question. The problem with this thinking is that it’s simplifying the context, and ignoring the impact one part has on the larger system. For example, adding one more faucet may require another sink, which may require another drain which may exceed the design’s capacity in numerous ways.

To the estimator, “menu pricing” conceptual elements is not only risky, it’s potentially never-ending. It’s important to pull back a little, to get perspective on what the client is actually trying to achieve. Rather than indulging in micro-managing breakouts, the focus should be on guidance to achieve the clients project goals within their budget. Identifying cost centers and their proportional contribution to the total gives meaningful feedback on incomplete designs. Estimators looking to capture a client through conceptual pricing should look beyond pricing every request to address the clients root concerns. Helping a client with their problems should not give them the tools to hire your competitor. A pattern of brute-force low-bidding on multiple rounds of conceptual estimating isn’t a substitute for strategy either.

Conceptual estimating, client capture or wasted time?

Hitching their wagon to the wrong horse is a recurring trend in the estimating field…

Not every client will be interested in selecting a GC during the conceptual bidding. In many cases the courtesy bidders find themselves losing to firms that didn’t bid the conceptual rounds. If conceptual bidding won’t lead to client capture, it should at least lead to successful pricing strategies. There’s never an end to going-nowhere conceptual pricing requests because clients and their design teams are getting free construction consultants. It’s hard enough to win profitable work as it is without giving our best efforts away for free.

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© Anton Takken 2016 all rights reserved

 


Training

It’s been my experience that most estimators were trained on the job. In fact most professionals in the Construction industry studied at the “School of hard knocks”. Construction Management programs at Colleges or Universities will typically include a course on estimating. Speaking from personal experience, I can say that these programs focus primarily on “bean counting”. That is to say that Quantity Take Off’s (QTO) utterly dominated the lesson plan. Cursory instruction on material pricing guides like “RS Means” were provided to allow students to generate pseudo estimates. Some classes required group project presentations on the mock estimate.

The mechanics of estimating     

Quantifying the work, tabulating your results and correlating market pricing is the over-arching mechanical process of estimating. There’s a continuum for detail ranging from entirely conceptual to unit pricing. Much ado is made of the differences between square foot costs and detailed estimates.   In fact, I had a teacher who insisted that EVERY estimate should progress from conceptual to square foot, to detailed as a means to “hone in” on the “right” answer. In practice I’ve found that “free” estimating work should be proportional to design completion and client commitment.

bounce house

Sometimes hot air is a structural element.

“Pricing” and “90%” drawing sets are often budgetary exercises with no sincere client commitment to hiring the low bidder during slow markets. Design teams inundate the market with pricing exercises that rarely lead to contracts. Since most pricing exercises are quick turnaround it’s important to understand that being too cheap is a problem because the final design invariably involves costly items not present on the budgeting plans.

“Hurry up and tell me how much I’ve got to spend”

There’s an old adage that applies here; “Quick, Accurate, Cheap, you can only pick two”. As a result, most conceptual estimates strive for accuracy over low bidding.

A conceptual estimate might be done on the basis of several references. The most common is comparing the conceptual project to similar completed jobs. Rough approximations of gross assemblies are very useful here. Think in terms of ” X number of restrooms, and Y number of floors”. Square foot costs can be helpful for conceptual estimating when the area is fairly homogenous as in a large office or a warehouse building. A lot of square foot costs fall apart when decorative elements and existing structural concerns are undefined.

The ball and bucket

Lots of people confuse detailed with accurate. As a thought exercise consider the following.

Let’s say you’re trying to perfectly center a ball in a round bucket. A very small, perfectly round ball would obscure the least amount of visible area and might allow for measurement tools to gauge how well centered it is. Being small, it’s unlikely to sit still for measurements, leaving you chasing it around.

Now imagine a ball that’s the size of the bucket. It can’t help but perfectly center itself. What it lacks in fine detail, it makes up for by being error-proof.

Estimating is about controlling risk which is how centered the ball is in this example. In order to quantify the risk it’s important to work from more than one direction. Myopic focus on minute differences might well reduce risk. However the risk you’re concerned about is what can actually hurt your firms ability to profitably complete the job. Controlling that risk is about an overall process that’s scaled to fit your specific challenges.

buckleup

Pictured: Room for improvement

For example the price gap between low and second low is one means of defining the risk in a given scope of work. If that risk is too high, it’s indicative of a substantial difference in bidders, scope inclusions, or adherence to specifications.

Lots of instructors teach trainee’s to relentlessly pound through the low bidders scope looking for holes to explain the price gap. Truthfully, a great deal of an estimators time on bid day is doing just this. However, time is short so prioritizing is a necessity. A great deal of risk is alleviated by working with reliable, trustworthy and professional bidders who are committed to working with your firm.

Spending an hour on the phone de-tangling the riddled mess of a hack bidder is its own risk because it consumes time to review other more professional proposals.

clown

Warning; the clowns are out there.

The project risk is collective, so time spent firming up the bulk of your bids can have a profound impact. Balance your efforts accordingly.

If an estimator was perfectly certain they had put together the most competitive and complete bid covering all the project scope, it shouldn’t be possible to have a lower bid without making a mistake and/or losing money.

This is a crucial aspect of estimating that is not driven by detailed QTO’s or orderly spreadsheets. If your bid depends on subcontracted work, you are relying on your bidders to secure your victories. Established firms with good reputations have a profound advantage in this regard. Estimators in training must understand the absolute necessity of maintaining a good reputation.

Most training programs fail to show students how to avoid making bad impressions. There are many aspects of the bid process that revolve around pushing information. Getting the plans out to the invited subcontractors, communicating job walk dates, sharing addenda, and so forth. Faceless emails blind copying hundreds of subcontractors are indistinguishable from a computer-generated message. The information needs to be disseminated, and it’s often routine. However the reason you’re bidding is to capture an opportunity. Bids are won via group effort, be sure to communicate that you’re picking players for the winning team.

Training programs should stress the leadership aspects of estimating. Subcontractors will have lots of questions. Plans aren’t perfect which is why an estimator exists in the first place. Firm decision-making is paramount to success. CD’s are sometimes ambiguous so you must commit to a plan of action and deliver on that commitment via clear direction to subcontractors. RFI’s should be written so that even weak design-team responses generate clear directives. “Yes or no” questions are particularly appropriate even if it means you’ve got to draw a sketch to make the question clear. RFI’s should be written so that owners, contractors, and tradesman can fully understand what’s going on.

from this angle

Artistic rendering of the Architects perspective.

Going hand-in-hand with decision-making is enforcing the stated expectations. Deadlines are necessary tools of your craft. Everything has a deadline including RFI responses, Addenda postings, and proposals. Bidder instructions should provide all necessary information in an organized and readable fashion.

A quick review of “typical” invites to bid would reveal how technological reliance has eroded professional standards. Emails from anonymous addresses demanding commitment to bid jobs that aren’t defined are common. Some don’t include the bid deadline, their own company name, or even the city in which the job is located. Links to password protected websites crammed with enormous files (and long download times) are commonplace.

The “mechanics” of estimating are fairly straight-forward but won’t necessarily lead to winning work or controlling risk. Few training programs involve a developed decision-making process to get traction with your individual bids. Much like modern management training programs, a great deal of “there are many ways to achieve your objectives” is presented instead of a more compartmental (and successful) approach.

Priorities

There are some basic priorities/ directives that every estimator should have to “ground” their decision making. I’d outline the hierarchy as follows:

  • Be ethical, honest, and forthright with everyone all the time.
  • Protect your firm, your client, and your subcontractors best interests.
  • If it’s in the construction documents (CD’s), you should know about it and bid accordingly.
    • If you’ve got subs bidding, it’s YOUR responsibility to make sure they know (and include) all the scope.
    • If you know something’s missing from the CD’s, it’s YOUR responsibility to bid reasonably.
  • Bid to win. Know your market, and where you (and your team) fit. Estimates are not free.
  • If you don’t have it in writing, you don’t have it at all.
  • If you don’t know, don’t guess. RFI’s, exclusions, clarifications, allowances, and alternates offer options to reduce risk.
  • Keep track, stay current, communicate, and you’ll constantly improve.
  • A “win” is only a success if the risk is managed and the work is profitable.
  • Time is of the essence so you must;
    • Prioritize on high-value issues
    • Make your estimate system nimble, understandable and reliable
    • Communicate efficiently, effectively, and consistently.
    • Constantly seek to accelerate QTO’s.
  • Make concrete progress with every effort.
  • Get “above the fray” to see what’s really going on
    •  Job costs are driven by many factors including the schedule, client, and site logistics.
    •  Politics, relationships, corruption and institutional inertia play a role in every market.
    • Weak design teams, bad clients, and indecisive leaders add to project risk
    • Hiring a sub for work that’s too big for them is a serious risk for all concerned.
  • Check your work THEN trust your results.

Think like an estimator

So much of estimating is considered a blend of accounting and voodoo when in reality it’s just a way of thinking. Sure you could painstakingly add up everything you can think of that goes into a project. Assuming you’ve thought of everything, and that you knew what everything costs, you’d eventually arrive at a number.

faceplant

It’s harder than it sounds.

Alternately, you could look at the project as an object bounded by expectations. Training an estimator should involve teaching them what entire projects actually cost. So much time is spent memorizing the square foot cost of paint or the unit cost of a faucet. Very little time is spent developing a perspective on what market value is for the entire project.

From there, estimators need to learn what drives the cost of certain projects. Define the key players. As a surprising twist, it’s not always driven by the most costly trades. If a particular scope of work is hurting productivity, it can dramatically influence the prices of other trades. Many successful estimators capitalize on an opportunity to do things differently.

Teaching on the job

When it’s your turn to teach someone about estimating, remember the investment others made in you. The margins of error are small so it’s critical to have high expectations of anyone taking this work on. That being said take the time to explain why something must be done a certain way. I’ve spent years developing an approach that works for me. In many cases, I have tried a different way of doing things which didn’t work as well. Share those lessons right away and save them the time.

fastlearning

Hey we got you some help, just teach them how to get started…

I’ve never had a reduction in my workload when taking on a trainee. In fact, trainee’s were most likely to be hired when the work was so demanding we needed help! Despite the difficulty of meeting onerous deadlines with inexperienced staff it’s critical to maintain perspective. I firmly believe that concrete progress is the only measure of training success. To start it’s your responsibility to establish clear standards, expectations and deadlines. Correct the work as needed before moving on. Balance the need to teach the material against demanding a perfect report. Lots of estimators get hung up on any detail being wrong. This can stall the process by demanding edits, revisions, edits, revisions, and so on. Wherever possible catch everything that’s wrong on the first review, follow them to their workstation and have them correct it so you can give them their next assignment.

“Hey Chief, one quick question…”

Some trainee’s will struggle and that’s part of the process. Make sure that tasks are brief enough that there isn’t time to wallow in a problem. If you’ve struck the proper balance, you won’t be interrupted in the mean time. Be sure to gradually include more opportunities for judgment calls on their part. The goal should be to develop decision-making skills. Asking why they did what they did gives them credit for thinking things through. Explaining what you’d do differently respects their intelligence and guides their next efforts.

At each step review that you’ve made concrete progress towards what you want them to know. Too much emphasis is laid on “practice makes perfect” which leads to talented trainees counting doors for way too long. Once they’ve done it right, make it clear that you expect good work in the future. Sure it’s a lot of pressure, but remember that you’re checking their work just like someone did for you. Estimators must learn to work as though there’s no net to catch them.

“I wondered if you knew where I’d find this thing you asked me about?”

Along with judgment calls, it’s necessary to teach trainees how to find their own answers. Most firms default to “ask the person training you“. I believe it’s necessary to develop fact-finding skills early on. When an opportunity presents itself, demonstrate a question you’re looking to answer. Whether you’re calling trusted subs for insights, or internet searches for related topics, it’s important to show how you get this done. Gradually task them with new searches to guide their judgment. Lots of time can be lost looking for these answers so monitor their progress.

Firm foundations

As trainees gradually move on to active projects, make sure you’ve equipped them to do the job. Weak communication skills are best addressed before trainee’s are contacting bidders, architects, and clients. Lots of firms have shaky-voiced interns stammering their way through calls to subcontractors. Five word responses may be fine for texting friends but it’s inappropriate in business. Making the wrong impression can limit their potential.

thuglife

“No Wally, you’re not getting a promotion this week either”

Give trainee’s the direction they need to start off on the right foot. Above all, focus on outcome rather than intention because that’s how the world responds to your actions.

Lead decisively and expect trainees to act decisively. Cowardice, hedging, and sand-bagging have no place in professional estimating. It’s an honorable pursuit that can be very rewarding for those who apply themselves. Encourage trainee’s to act on principled thought, and calculated reasoning instead of fear. We’re all concerned that we’ll miss something. A sound process with solid execution silences doubts better than any amount of guesswork. Teaching others has a way of bringing clarity to what you know. Contributing your knowledge can build a legacy that will outlast all the projects you’ve won.

 

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© Anton Takken 2015 all rights reserved


Alternates

Alternates: The great scourge of a straightforward bid.  How to keep it organized, get your subs on-line, and make money doing it.

These days it’s the rare project that doesn’t include at least one Alternate request.  An Alternate may be as simple as a product substitution or as complex as an entire building.  Regardless of how complex or how many, the estimator needs to ensure that Alternates are priced correctly.

Make a list

Only the very best design teams will generate a highly visible list of alternates which are painstakingly detailed on ALL sheets showing the affected areas.  This is a rarity to be cherished, the majority of alternates will require some amount of digging to fully define.  Be on the lookout for alternates that affect any of the engineering disciplines.  Sometimes an architect or interior designer will request alternate pricing via key-note on an Architectural sheet without communicating to engineering consultants.

Create a list of ALL the alternates listed in the plans, specifications, Narratives, and Request For Proposal (RFP) documents.  Often alternate numbers are not coordinated between consultants.   Give the alternates a unique number to ensure that on bid day the subcontractor quotes align with your expectations.

Define the intent

Alternates do not occur in a vacuum.  Some projects contain so many extensive alternate requests that it’s possible to assemble a scope of work that works against a subcontractor bidding the work.  For example let’s say a project involves three alternates.  The base bid is for a building that will feature a paved courtyard.  The first alternate is to erect an out-building in the courtyard area.  The second alternate is to pave a drive-through lane on the base building.  The third alternate is to pave a sidewalk around the base building.

For a site concrete firm bidding this project, the first alternate is a credit for area NOT paved because the out-building is going up.  The second alternate is an add however the third alternate may be affected by whether or not the first and second alternates are accepted.  This bidder is forced to decide whether to risk coming up short should the alternates not be selected sequentially.  It’s common for the apparent low subcontractor to change depending on which alternates are selected as a result.

Defining the client’s intention of the alternates reduces this speculation.  When in doubt – issue a Request For Information (RFI) to get resolution.

Combine the list, intent, and subcontractor obligations

Depending on the state of the plans, the subcontractors may need additional guidance to ensure that bid day proposals are complete.  Every alternate should be a mini-estimate with breakdowns for subcontractor quotes.  This can be especially important on Mechanical, Electrical and Plumbing (MEP) plans sets that do not adequately define the alternate scope.  Remodel work can involve complex plans that use several pages to resolve the areas of work.  Consider highlighting the plans to indicate Alternate Boundaries.  A word of caution – if an alternate request is conceptual in nature, it behooves the estimator to deliver conceptual pricing.  If the client was sincere about accurate alternate pricing, they would have paid their design team to fully develop plans and specs accordingly.

Alternates need to be defined early

Generating a bid is a great deal of work.  Knowing that an alternate must be priced at the start can reduce the difficulty involved considerably.  Asking for an alternate or a breakout price on bid day can be a tall order.

Shooting a bystander

Some projects require breakout pricing for owner financing reasons.  A common example is the “Landlord scope” of a tenant leasing agreement.  The Landlord will pay for certain items that were included in their leasing agreement.  This breakout is not likely to positively or negatively affect the bidders.  Other projects will be so large as to allow entirely different construction teams for “breakout” work.  One such project involved two buildings of very different size and difficulty.  On bid day one subcontractor submitted a bid for the project as one lump sum.  This bid was second low to another bidder who had broken out the buildings individually.  The GC asked the second low bidder for breakout pricing.  Caught flat-footed and without sufficient time to accurately separate the two buildings, the subcontractor guessed at the  value of each portion.  They guessed wrong by a significant percentage – making them over priced for the small building and under-priced for the larger one.

The GC won the bid by carrying the incorrect price on the larger building and the legitimate low bidder on the smaller one.

Lessons to be learned

There are several lessons here – first of which is NEVER GUESS at the value of a substantial alternate.

The second lesson is to be aware that EVERY NUMBER YOU PROVIDE CAN BE USED AGAINST YOU.

The third lesson is that helping someone does not make them your friend, nor does it obligate them to help you in return.  The GC called asking for a breakout knowing that the subcontractor’s pricing was competitive but not low.  It’s possible that the 2nd low bidder could have priced one building cheaper than the low bidder.

The GC knew the proportional value of each building from the low bidder’s pricing.  They had enough information to suspect that the 2nd low bidder’s breakouts were wrong before they bid.

Ethics

Let’s approach this from two different directions.  Alternate requests may “set the stage” for change orders made necessary to fill in gaps the design team missed.  For example there’s a project with an alternate request to upgrade a Roof Top Unit (RTU) to a larger size.  The base bid might have the original RTU being replaced with a new one of the same size.  Often in such cases the MEP plans will include some details on the alternate.  The savvy readers are already seeing where this is headed.  What about the structure?  A larger RTU may weigh substantially more than the structural opening was designed for.  If the design team had no structural concerns in the base bid scope, they might not have hired a structural consultant.  As a competing bidder, this alternate presents an ethical dilemma.

Coming from the opposing view, an Alternate request may be worded in such a fashion as to generate unacceptable risk.  For example let’s say there’s a remodel of a very large office building and the client has not allowed a job walk.  The Architect included a key-note on the reflected ceiling plan requesting an alternate price to repair/replace all damaged acoustic ceiling tiles in the space.  Without knowing the existing conditions – this alternate becomes a risk center for all bidders.

In both cases, the ethical course of action is to pursue RFI’s to document the estimator’s efforts to resolve the ambiguity.  Another option is to bid alternates with conditions defining what is included and what is not.  Be wary of providing too much help.  Volunteering a price without a design can leave your firm vulnerable to whatever the design team comes up with after the fact.

Moving parts    

It’s a tale as old as time, the Architect produces a set of drawings with carefully selected materials that perfectly reflects their vision of the project.  The project goes out to bid and comes in over budget.  The client demands changes to meet their budget – the architect goes back to the drawing board and the process repeats until the budget is achieved.

Alternates

I’m not sure that painting the bricks you picked is what’s driving the cost…

To the GC estimator, the cost of re-bidding a job can be significant, especially when cost cutting measures are evident at the original bid.  Anticipating a budget over run and offering suggested cost cutting measures at the original bid puts the GC in a position to help secure the contract without long design delays or costly re-bids.

Making that happen requires a deeper understanding of the forces at work in the modern bid environment.  Starting with the client, design development is often a long and costly process.  Clients often rely on conceptual pricing exercises during design development to assure them the budget is in line.

Client commitment and hidden costs

Conceptual estimates are approached in three ways by the market.  The first is to simply square foot cost the project to quickly be rid of a costly obligation.  The second is to strictly price only what is shown on the incomplete plans.  The third is a painstaking blend of design-build, and plan interpretation to render the most precise estimate of the project.  A responsible design team with experience on similar projects and well-defined project scope should be able to accurately gauge the estimated budget.  For such established teams, a square foot costing should be accurate enough.  Requesting such assistance from a single GC as a courtesy is common in the industry.

Some clients/design teams put conceptual estimates out for competitive bid hoping for accurate pricing via market competition.  This generates a considerable amount of work for the bidders who mistakenly believe that construction teams will be selected based on this bid.  The second method is generally employed here on the part of GC estimators looking to lock up a job.  This method exposes the client to potentially huge cost over-runs as the design team finalizes the plans to include predictable items that were excluded from the conceptual bids.

Rarely a client may choose to contract with a GC early in the design development process to assist the design team in maintaining the budget.  These clients benefit from a GC estimating approach that strives to not only fill in design gaps, but offers constructive options to the design team as the project moves along.

Pressure on the Design team

A design team may face significant obstacles to meet their client’s expectations.  It’s common for a project to have oversight and funding restrictions from a myriad of individuals.  Some of these people may not have a vested interest in the total project cost.   A developer may demand aesthetic consistency which obligates the design team to specific finishes or vendors.  A utility provider may demand easements that force the building to a specific location.  The local Fire Department may require amplifiers for their radio equipment if they deem the project likely to interfere with their signal.  Many of these agencies communicate only when asked the right question.  The due diligence work required of the design team can be immense as the affected agencies are rarely coordinated.

A client with a poorly defined project makes the process more difficult.  Often design teams rely upon local vendors to offer solutions.  In some cases these vendors provide extensive support in exchange for a commitment to use their products on the project.  The design team must carefully weigh the cost of this obligation against the time saved in exchange.

Compounding the Architects difficulty is the market forces that affect pricing.  It’s very common for a client to schedule design development such that ground breaking on the project coincides with advantageous weather.  Conceptual pricing takes place during  the slow times of the year when contractors are hurting for work.  Final bid pricing ends up taking place during peak profitability season where labor shortages and fuel costs are highest.

Great expectations VS. institutional inertia

The design team approaches the final bid with greater commitment to their decisions owing to the work they’ve put into getting the plans this far.  The client has a more firm vision of their project replete with lots of “bells and whistles” that the design team introduced them to as the plans progressed.  It’s understandable that both groups would feel animosity towards budget solutions focused on amputating all the “frills” that gave the project its shape.  The traditional design, bid, build project development method separates the intent from the outcome until the bid which is why budget overruns are so common.  Institutional inertia is a destructive force in this industry.

Voluntary Alternates / Value Engineering

Reviewing the construction documents with an eye towards trimming costs, an estimator may find cost centers that are attributable to much of the above.  Voluntary Alternates can be used as a sales technique to guide the client and the design team depending on the situation.  The term “Value Engineering” is used for voluntary alternates that generally focus on cost-cutting measures.

Voluntary information should be balanced against client commitment.  Many GC’s have “helped” clients refine their designs only to see their ideas on drawings put out for their competitors to bid.  Generally speaking, the less complete the plans, the more voluntary alternates should be selling consulting services.  At the opposite extreme a final bid may come along with some opportunity to reduce the cost.  The GC estimator has little to lose in offering potential savings.

For example there might be costly sole-specified products pushing the project beyond its budget.  Volunteering an alternate here might expose how costly the design team’s vendor relationships are to the job.  If that’s the case, expect fierce push-back from the design team.  Subcontractors may be loath to antagonize a vendor they must rely upon for other jobs .  Proceed with caution – it’s not reasonable to demand subcontractors join in your struggle against perceived corruption.

It’s also possible the sole specification is due to a principal mandate – the design team may have no option but to require a product.  For example the door trim on a suite must often match building standards.

Be careful what you promise

Substitution alternates  benefit from cautious pricing because the Design team is given final say on whether a substitution meets design intent or not.  The client perceives the dollar savings as a fixed amount – it takes a lot of convincing to explain how partial acceptance of your alternate comes to only partial savings on their budget.  The design team may require alternate submittals be revised and resubmitted several times before they are accepted.

Alternates

This all costs time and money that will not be recovered later.  If using product X in lieu of product Y saves some amount – retain a percentage of those savings to cover these expenses.

Diplomacy required

Be cautious about causing embarrassment by how the alternates are presented.  Design team animosity is often expressed through bureaucratic delay and compartmentalization to the exclusion of meaningful interaction.  Many jobs have been delayed by a design team, however the GC will bear the brunt of client frustration up to and including legal action. Nobody gets out clean.  Pay particular attention to the exposure of subcontractors, allowing a Design Team to exact vengeance on a member of your team can have far-reaching repercussions.  “Throwing them under the bus” earns a reputation for cowardice.

Think beyond the plans

Most Voluntary Alternates focus on either substitution, addition, or subtraction of project scope.  Creatively thinking offers other options; sequencing, timing and duration.  If the project were to start during the “off-season” many subcontractors would submit lower bids.  Changing the order of operations can have immense impact on costs.  Factors that the client could change should be approached as a means to potential savings.  For example a phased project may place a restroom remodel at the end of the project schedule.  Restrooms generally require the maximum number of trades per square foot of any room in a business environment.  This can create a “log jam” in production since there’s only so many people who can be in the restroom at one time – thus prolonging the duration of that phase.  Offering the client an alternate to sequence the restroom scope for greater subcontractor efficiency could not only reduce subcontractor pricing – it could shorten the project duration – thus reducing General Conditions.  It can be great fun to find a creative solution.

Slippery slope

Alternates create administrative loose ends that must be addressed.  Notice of award forms often neglect to accept or decline the alternates submitted.  Frequently these issues are left unresolved or deferred to the “kick off meeting”.  Voluntary / Value Engineering (VE) alternates that require Design team approval may be unresolved for extensive periods of time.  Some clients attempt to defer accepting an alternate until the project is substantially under way.  Depending on the alternate, the change in scope could require extensive re-work to accomplish.  If the alternates were priced assuming that accepted alternates would be in the base contract scope – the additional cost of re-work is a valid change order.  Protect yourself and your subcontractors from unintended consequences of client dithering.

Everything in the GC’s world is a scope of work, a price, and a timeline for completion.  Clients should be able to understand that all prices come with an expiration date.  Once that deadline has passed, the scope of work in question is subject to re-pricing.  Estimators “holding” a new project before Project Manager hand-off should file individual RFI’s for each alternate provided requesting an answer.  Include the deadline and the default action that will be taken once the deadline has been reached.

For example “Please confirm that alternate #3 for wood in lieu of metal doors has been accepted.  The price quoted for Alternate #3 is good until this date whereupon this alternate is respectfully withdrawn and the base bid scope prevails.”

Architects answering RFI’s with some variation of  “wait for owner approval” should be tracked as “open” RFI’s since this is a non-answer.  Don’t be afraid to get this sorted since subcontracts need to be written and these details must be well-defined for them to be complete.  Rocky starts make for bad finishes.  Lots of clients have good intentions but fail to see how dithering hurts their GC.

Wallowing

There are some clients who come up short on financing just after the bid.  For whatever reason, they face a situation where the project cannot move forward without reducing the total price.  Value engineering is requested and the client begins bargaining about what is really necessary in the project.  Often brainstorming sessions are started and the GC’s are expected to work their magic to return with answers.  Some GC estimators begin menu pricing hoping to give the client an “a la carte” proposal that works towards hitting their budget.  The Design team may request pricing for portions of the job to justify the design or enable horse trading later on.

There is much to be cautious about here depending on how far off the budget is.  A huge miss is in indicator of problems with the Owner and their design team.

Don’t feed the stupid – it only makes them stronger. 

A weak design team and/or  a dithering client will consistently blow  budgets.  Some of them consider it “part of the process” as they re-bid the same job over and over hoping to snare a lower bid.  Winning a job with these people is a losing proposition.

Make it easy to make good decisions

If the budget is achievable via Value Engineering – present ONE option to hit their budget.  Breaking a Value Engineering solution into additive parts allows the Client to decline something critical to hitting their budget.  This approach is especially critical with projects that are severely over budget because poor decision-making is the root cause of the problem.

Clear, concise, and comprehensive

Competence brings confidence.  Solve problems by providing the direction and encourage action.  This is not the time to treat every hare-brained scheme like it’s a valid answer.   Some people struggle visualizing the moving parts of an alternate.  Giving them concrete “This or that” pricing to avoid misunderstandings.  If it’s too complicated for words, make a picture.  There are times that literally cutting and pasting plans to make a visual aide is the best approach.   Be advised that clients may not understand what drives cost in a given assembly – don’t feed misconceptions or erroneous assumptions even if they “work for you” at the moment.

For example, a client once asked how much the support structure for a mill-work counter cost on a linear foot basis.  The assembly in question involved individual cabinets which provided the support for the counter.  The cabinets are built and priced individually.  A counter installed without cabinets underneath would have to be supported in a completely different fashion.  This hypothetical situation has no decision-making value because the cost is not tied to the assembly as the client imagines it.  Helping the client to understand how things are actually priced respects their intelligence and promotes meaningful discourse.

Close the deal or close the door.

Until the client has contractually agreed to work directly with your firm – they are refining their plans at your expense.  In extreme cases a GC can end up spending so many hours estimating a job that there is no  profit from building the job.  Don’t let it happen to you.

Final observations

Alternates add or deduct scope of work which means that every alternate potentially affects the project duration, site logistics, critical path, and staffing requirements.  Take a moment to fully consider the project “in a vacuum”.  Now think about how the alternate affects the total job.  Alternates that drive duration should not be “free”.  Be cautious about deductive alternates – giving back overhead and profit on omitted work can leave the overall project under-funded.

Conversely, it doesn’t always make sense to “tack on” full overhead and profit to all additive change orders.  Simple product substitutions may end up substantially out of the client’s reach.  Additive Alternates are up-sells.  Sometimes it’s a better move to accept a lower fee on an  easy- to- earn alternate than it is to chance losing it altogether.

Be aware that clients and design teams rarely think like this.  Some feel product substitutions should only cost the difference in material costs.  Others feel that the awarded GC should meet the lowest alternate price of their competitors.  Their opinion is not necessarily your obligation – negotiate accordingly.

Finally, there are times that an alternate is so poorly defined that it creates unacceptable risk for the build team to price.  Assuming RFI’s seeking clarification went unanswered before the deadline – my advice is to decline to price the alternate it until they are.  If the alternate was truly integral to the client’s expectations the design team would have handled it accordingly.

 

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© Anton Takken 2014 all rights reserved


Types of Estimates

There are several different types of estimates which roughly correspond to design development.  The conceptual estimate is typically the most coarse.  The infamous “napkin sketch” is all you can hope for here.

Types of Estimates

So this is our floor plan for the nine story office tower…wait, why are you crying?

I’ve had a few that looked more like grease stains than a plan.  These are notoriously short notice and poorly defined.  When used purely for a rough idea of cost, the conceptual estimate is very helpful.  There is a difference between a conceptual estimate and a Design-Build estimate.  Conceptual estimates should not be used for contracting purposes.  They’re a courtesy to provide feedback to a client’s design team.

Design Build

In a Design-Build bidding a narrative of what the client wants is provided and it’s the General Contractor’s (GC) responsibility to figure it all out.  In some cases, specific trades are singled out to be Design-Build when the owner has hired an Architect but would rather not hire an Engineer directly.  Design Build projects are sometimes called “Turn-key” meaning that the client has to do nothing but pay the bill and the GC will turn the keys over to them.

Unit Pricing

Unit price bidding is popular in certain market segments.  I’ve encountered it in Civil construction, government-funded projects, large-scale commercial developer projects, and in situations where a Landlord and their tenant(s) must split the bill.  On the surface unit pricing seems like it’s an easy thing to do.  There are two reasons this can be risky.  The first is that anything you write down will be used to the owners advantage.  Unit pricing is used as often for deducting work as it is adding work.  It’s common for the final arrangement to be unprofitable as a result.

Types of Estimates

The second reason its risky is that unit pricing is rarely aligned with industry standard take offs.  For example: “Provide the unit price for a parking lot pole light.”  The client is expecting a price for a working pole light.  They aren’t considering that the light requires circuiting that’s priced by length.  Since it doesn’t tell you the length (because they don’t know themselves), the unit price becomes a judgment call.  As always read the subcontractor exclusions and carry them into your proposal where appropriate.

Hard Bidding

Hard bidding is the absolute most common format.  The plans and specifications are taken as the literal minimum.  The low bidder wins, simple as that.  Everything from garden sheds to airports are bid this way.  At every level this is a stressful undertaking.  For General Contractors, they have to be able to input all of the various trades, track the low bid, figure out if the bids are complete, compile and transmit the bid to the client.  Depending on the market, the job, and the attention that’s been drawn to it, this may result in a deluge of last-minute proposals any one of which will make or break your chance of being the low bidder.  It’s exhilarating when everything is working, and it’s desperately stressful when something breaks down.  It follows that these are the most detailed estimates.  I’ll be posting with helpful tips, tools, and techniques in the future.

Negotiated Agreement

Negotiated work is a contractual relationship between the owner and the General Contractor.  The owner has agreed not to put the work out to bid in exchange for unfettered access to the bidding information.  These are often called “open book” bids.  Since the General Contractor is not concerned with beating their competition, they can focus on doing their utmost to reduce the potential for change orders, work delays, and unspecified materials being a part of the project.  Here the General Contractor is trying to fill in any gaps left by the plans and specs.  Typically the GC will be more leisurely about reviewing the bids and they often ask more questions of subcontractors.  They “have the job” but they must price it right for it to be profitable.  These estimates are not only detailed, they often go above and beyond to offer solutions to problems found in the plans.

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© Anton Takken 2014 all rights reserved