Tag Archives: Ethics

Honesty speaks

Construction firms love to advertise their integrity, their honesty, and their commitment to doing their best.  In contrast, we don’t see a lot of advertising space used to mention on-time deliveries, site logistics, or accurate accounting.  Surely the client cares about their project’s timely completion as much as their contractors integrity, so what’s going on?

Honesty speaks

Maybe we need to put up more safety banners?

If advertising exists to encourage clients to select your firm over your competitors, it would appear that most construction advertising operates on the assumption that contractor selection hinges on the client’s perception of your honesty.  By extension, this communicates that there aren’t noteworthy differences in abilities, experience, equipment, trade-craft, market share, or purchasing power for the client to consider.  In most companies, the estimating staff is a huge portion of their marketing efforts.  Often it’s estimators who form the clients first impression of their firm.  How well does the estimators actions align with the firm’s message?

Standards versus statements

Taking another approach, if we assume that the principles of these firms are simply advertising based on their deeply held beliefs, we must then ask how they go about ensuring that their staff meet these expectations.  Without enforceable standards, these are merely hollow statements.  In my experience, most of them are.  There are discussions among various estimator groups about how to create some form of ethical guidelines or integrity-based mission statement for the vocation.  Lacking a means to enforce standards, it’s more likely to attract scoundrels seeking legitimacy, than it is to attract honest professionals seeking company.

Honesty speaks

Don’t be fooled by the diploma he bought online,  Eddy didn’t study like his classmates.

Gray areas and grease

The first stumble towards enforceable standards will come from folks who are surrounded by “gray areas”.  Absolutely every opportunity to do the right thing is carefully weighed against an opportunity to feign confusion that just so happens to lead them to a more pleasing outcome.  I’ve personally encountered estimators who thought nothing of revealing their dishonest choices, right before they asked for my help.

For example: “I know we bid this one several months back with the promise that we’d hire the subs on that round of bidding, but you only beat your competitor by a few hundred bucks so we figured we’d have the two low bidders go another round to see what we could save…”

They broke their first promise to hire the low bidder on the last round of bidding.  They’re specifically telling me that they knew that hiring me was low risk because I’d just barely beaten a competitor thereby proving the price was market value.  Now they’re telling me that they’re hoping to “save money” on another round of competitive bidding.

The GC won the job on the basis of my bid.  Now they’re pretending that it’s “too close to call” to see if they can eke out some additional profitability (at no risk) by making me compete on the job I already won.  Plus, they’ve likely provided my competitor with bid results so we both know what the GC’s maximum price is for our scope of work.

The impressive thing about this person is that they think it’s fair because both companies have an equal opportunity to win on this round.  It makes no difference if the mechanism is a formal bid, backroom bid-shopping or a verbal auction, this person won’t do the right thing unless it’s the most profitable option.

Honesty speaks

Your reputation is like a shadow that reveals the outcome before the game

Ethical obligation to win

I’ve written before about how estimators must have clarity of purpose.  Estimators exist to win profitable work.  Some folks interpret this to mean that they must win, then make the job profitable via bid-shopping, collusion, and other deplorable (if not illegal) actions.  This self-defeating approach ignores that successful businesses will need to reliably win work in your market continuously.  Cheating the subcontractors (subs) will only work until the General  Contractor (GC) burns their last bridge.  These are the GC’s who are constantly begging for bids.  They’re not calling with a great opportunity, they’re simply out of trusting subs.  Estimators should consider their reputation to be a vital means of winning work.  GC’s who attract market leading subs will not only win more, but they’ll get better pricing allowing them to achieve higher profitability than any of their competitors.

Accurate estimating, and proving the truth

Construction estimating has a paradoxical relationship with the truth.  Consider how best practices for estimating call for detailed quantity take offs (QTO’s) that are tabulated according to material, labor, etc.  Every effort is made to accurately reflect the real world costs of the project.  Upon request, the estimator can provide facts, figures, measurements, and detailed illustrations to prove any aspect of the project’s cost.  Yet when we consider estimating in relationship to the market, specifically focusing on how an individual estimator may prove they’re acting with integrity, the trail goes cold.

Bid results are supposedly provided “upon request”.  On the rare occasion that a GC provides bid results on the record, the information provided will often be stripped of accuracy, context, or actionable content.  Off-the-record bid results are far more common because there’s plausible deny-ability for the GC.

Honesty speaks

Silence and plausible deny-ability are rarely good when you’re on the receiving end…

Considering that the underlying agreement of an Invitation to bid (ITB) is to solicit free sub proposals in exchange for either the fair award of the contract, or bid results, it would seem rather obvious that proving fairness is a basic estimating necessity.

Broadcast

GC estimators are already mass-communicating project information to the sub market.  Everything is optimized for efficiency, speed, and competition before the bid deadline.  This is because even a small delay could spell defeat.  After the deadline, everything goes to silence because the winning GC will need time to check the bid for errors, and to be sure of which subs they will award.

The losing GC’s have no such obligations or concerns.  In fact, timely, accurate, voluntary, and public bid results would give their bidders the information they need to curtail any cheating.  More to the point, sharing the information as a public broadcast provides transparency and accountability.  This incredibly simple approach is much easier than answering hundreds of subs asking for bid results.  It’s just as easy to publish bid results when you’ve won, with the notable requirement that it’s delayed until the letters of intent are sent out.  Subs will happily accept this modest concession to discretion, to have proof of fair-dealing.

Meaningful marketing

If Clients are seeking Contractor virtue in terms of integrity and honesty, it’s time to have enforceable standards, made meaningful by transparency.  Estimators are uniquely able to prove they walk the talk by publishing bid results publicly.  Giving clients an insight into how the company acts with integrity to respect and protect their industry makes for a great first impression.  Perhaps more importantly, the client would be empowered to identify what an honest firm does differently.

 

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© Anton Takken 2016 all rights reserved

 


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

 


Stuff nobody will tell you about estimating

I suspect every profession has a few hidden qualities you wouldn’t discover until you’d been at the job a while. Estimating has some interesting features that can really make or break your chances of success, provided there’s somebody to point them out to you.

Speed is your friend

On the surface, estimating seems to be about careful measurements, considered accounting, and an overwhelming obsession with minute detail. In practice, successful estimating is about time management. General Contractor (GC) estimators are responsible for getting the information out to their subcontractors (subs) as well as getting the subs questions answered by the design team. Every problem needs time to resolve so it’s really important to maintain rapid communications during the bid.

Stuff nobody will tell you about estimating

Mobile office solutions, speeding you on your way to the next crash…

It’s really tempting to silence your phone and ignore your email for a few hours to get something done. Which leads to the next item…

Leadership is more important than takeoffs

If your estimate relies on sub or vendor quotes, your first priority should always be to providing direction, insight, and encouragement to those bidders. Specifically, your efforts should be directed towards finding a unique and advantageous approach to the project. Ineffective estimators tend to assume that there’s something special about their company that will ensure that bidders will give them their best efforts. In a vacuum of leadership, subs will hedge towards protecting their own interests which never means low prices.

Perspective, then persistence

Hard work and persistence are admirable qualities that absolutely will not lead to success on their own. Lots of estimators assume that bidding and winning have a cause and effect relationship. It’s true that you can’t win if you don’t bid. However the reverse is not always true because there are insincere/unfunded clients with projects bidding that have no chance of being awarded. Sadly these clients consume the lion’s share of the slow market. While they can occur at any level of the market, these clients tend towards the bottom strata wherever they appear. They can be identified by their incomplete plans, short deadlines, multiple alternates, and resistance to answering questions. Everything is supposed to start right away despite the lack of permits, or even plans that would pass building department review. These clients range from uninformed neophytes, to jaded negotiators. What they have in common is the general belief that they don’t owe the low bidders a contract award in exchange for the free bids.

In the worst cases, the client will use the proposals to inform their negotiations for bid shopping. “Helping” an unethical client to award your competitor is a destructive use of your time. Morally flexible estimators might think it’s great to be the person such a client calls to “negotiate” with. Clients who bid shop are cheating all the companies who bid in good faith.   These negotiations open with two assumptions; the client is never fair to their contractor, and they think you aren’t smart enough to see that.

Any estimate that will not lead to contract is a waste of time. Better estimators don’t make better clients. Until such time as estimators can seek recompense for time wasted on feckless clients, we must protect our companies interests by declining to bid. In hard times, the estimator must be prepared to accept that this means precious few real opportunities will exist. This reality escapes those consumed with hope that behind every half-baked set of plans lies a great opportunity. The fact remains, when the good clients exit, the market declines. Down markets always have lots of terrible clients wasting everyone’s time with profitless jobs that rarely happen. It’s the only time they can attract bidders.

Stuff nobody will tell you about estimating

“Attention everyone, ship Desperation is now boarding..”

There is no market for bad news

Estimators looking to trade publications, and mass-media for relevant information on their market are bound to discover that there are precious few articles that will admit when things are bad in the present. Unless the article is written to influence an election, you can count on the article to refer to bad markets in the past tense framed in the perspective of steady improvement since then.

Periods of intense bidding with low backlog should indicate that contractors are starving for work and are chasing whatever is out to bid. Often, these times are couched in phrases like “Bidding picked up in the 4th quarter signaling potential growth this spring”.

Once spring rolls around and the summer rush work comes out to bid, these articles will say “Despite holiday season slow-downs, construction steadily climbs”.

This optimistic world-view is on display whenever you talk to other estimators. Go to a job walk and eventually you’ll hear someone ask; “You guy’s staying busy?”. With rare exception, the response is merely a list of the most impressive sounding projects that estimator won within the last nine months or so. Nobody likes a downer but it’s important to understand that what you’re hearing is not the entire truth. Estimators must learn to look beyond what’s said, and listen for what is missing.

If you’re struggling to land work, consider what you’re hearing from others. If the projects listed at a job walk are all finishing up, that’s a strong indicator that new victories aren’t newsworthy which may suggest that your problems are shared. Subs bidding to GCs should pursue bid results aggressively. GC’s are often more candid about the client, and the market after they’ve lost a bid. Estimators who speak truthfully and share what they see often benefit from information shared in kind. GC estimators are often listening intently to the nuance of what their subs are telling them. Don’t get too involved in trying to appear strong when you’re trying to find work.  Posturing sends the wrong message.

Decisions define us

Estimators exist because it’s not possible to simply “add everything up” like a cashier. Simply put, estimators must make decisions about what to do when things aren’t perfectly clear. The lack of information is a risk, making a decision on how to handle that risk means you’re accepting responsibility for the outcome of that decision. It’s easy to see that decisions based on the worst case scenario is the most likely to add money and time to your estimate. GCs who habitually sandbag their estimates are communicating their priorities. Competitive sub bids will go where they won’t be squandered.

While on the topic of unclear plans, it’s worth commenting on motivations. Missing, incomplete, or contradictory requirements may be a symptom of design team motivations. Estimators who’ve reviewed plans from a design-build project may notice that the plans have far fewer notes, and shorter specifications than projects developed for hard-bidding. Design professionals working on hard-bid projects are primarily concerned with their liability.

Design teams know that budget blowouts are a frequent outcome of bidding. Costly items are often sparsely mentioned on plans in the hopes they’ll be overlooked by the contractors. These buried notes are an owner-placating feature that the designer is trying to buy with the contractors money.

Stuff nobody will tell you about estimating

It’s rare to see such a perfect application for existing technology

Their decision to be predatory speaks volumes on their character. Exposing these traps through Request For Information (RFI’s) is how you can control risk without losing the job.

The advantage of ethics

Dishonesty is rampant in the construction industry. Incomplete plans labeled “100%”, or unrealistic schedules, are simple examples but this issue runs deeper. Information is withheld simply because it’s less risky to remain silent.

Bid results are traditionally provided upon request.  In practice, this typically means the GC estimator plays “keep away” with the information until it’s all but assured that the sub will never profit from it. Some GC’s are so focused on their own interests that it borders on cruelty. Providing bid results is seen as additional work that only benefits subs.

The deal offered to subs is to either award them a contract or furnish them with bid results in exchange for a free bid. GCs should promptly and publicly furnish this information to recompense subs for their bids. Better informed subs deliver better bids.

Acting ethically can present huge advantages beyond good-will. Trustworthy estimators benefit from stronger relationships with their vendors and subs. There’s less risk in working with honest people, lower risk means lower prices, which means you’re harder to beat and more profitable than your competitors.

It won’t do much good to pursue the bottom of the market with high-minded principles. However an established reputation for fair-dealing has a way of opening doors to quieter opportunities. The very best clients choose to work with honest contractors. There may be fewer opportunities compared to the hardscrabble market. However the work you’ll land is more successful, and reliably profitable than the high volume of profitless work out for public bidding.

Good estimators have pull

With all the information going back and forth, it’s easy to overlook a vital aspect of an estimators craft. GC estimators rely on subcontractor proposals to help define, describe, and value the scope of work. Attracting market attention is a function of a good opportunity, minimized risk, and profitability. Market leaders will avoid unprofitable, risky, or difficult projects. As an estimator it’s easy to think that the project’s intrinsic qualities aren’t under your control. To be sure, there are definite challenges in bidding ugly work.

The estimator must understand why they’re pursuing a project. Simply grinding out bids because a Request For Proposal (RFP) landed on your desk is what I call bid-milling. Bid-milling is the practice of chasing everything in the hopes that higher volume of bidding will create profitable wins.

Stuff nobody will tell you about estimating

It’s not a good look

This never works because each firm will be a market leader for specific opportunities. A contractor with a high volume of losses communicates that they’re not a real contender. The market-leading subs won’t waste a bid on GC’s who aren’t sincere about winning.

A GC estimator needs to understand that a mediocre project with a good client can be made into a profitable and low-risk opportunity through their leadership. GC’s who habitually work for good clients naturally attract market leaders. Contractors with a history of well-managed and reliably profitable projects are able to reduce the risk of less professional clients and their design teams. All of this starts with the estimators commitment to controlling risk.

Estimators who pursue good opportunities with accountable leadership, ethical dealing, and meaningful feedback are more successful than their competitors because they are the professionals, that everyone wants to work with.

I encourage you to consider those actions carefully. These simple actions are profoundly rare in professional estimating because most folks think their situation is different, therefore some aspect doesn’t apply to them.

Success in this craft requires clarity and intent above all else. There are no shortcuts with something this simple.

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© Anton Takken 2015 all rights reserved

 

 

 

 

 

 


Relationships and their place. Push vs. Pull

A quick view of most advertisements for the construction industry will reveal a few consistencies in how they perceive their client and their product.  Trite sayings hinging upon “building relationships” abound in construction advertisement.  Taken out of context, these same marketing efforts would have more in common with personal ads than custom manufacturers.

What would you say you do here?

Most General Contractors in the Commercial market do not self-perform the majority of the work.  In point of fact, they’re called General Contractors not builders because administering contracts is really what they do.  As a result most of them lack substantial focus on what they’re really there to do which is to faithfully execute the design according to the contract.  This means that the subcontractors are where the “rubber meets the road” so to speak since the subcontractors are the ones actually building the job.  Interestingly, few if any General Contractors make mention of their relationships with subcontractors when promoting their company.

Luxury car makers don’t advertise the special relationship they have with their clients.  They emphasize that they make the best car,  period.  Construction companies seem loath to admit that they  build what is designed; they don’t get to choose the level of quality, aesthetic appeal, or social prominence of their projects.

Relationships and their place.  Push vs. Pull

“Dang it Carl, I said move the Church AFTER the wedding.”

Put your back into it.

So what is a client getting when they call a GC?  Mostly they’re getting risk management, project control, contract administration, and subcontractor “pull”.  “Pull” in this sense is the market value of that particular GC to any given group of subcontractors.  GC’s with a reputation for not paying their subcontractors have less pull than better GC’s.  There’s a lot that goes into your pull.  For example, if a GC has been on a losing streak, they’ll lose pull with subcontractors.  GC’s that chase bad clients will lose pull with subcontractors.

Bringing focus back to estimating, the amount of pull you can generate has a lot to do with how you handle your bids.  For most subs, the only thing they have to go on is how you communicate with them.

Like a lot of things in life, it’s the outcome that matters not the intent.  Some folks get hung up on sending everyone the exact same message, without actually pausing to consider how that reads to an individual.

Bid invitations are a good example of this.  It’s fast and uniform to send everyone on the bid list the exact same message.  Often these invites cover a few key points like the deadlines, site walks, and such while excluding individual trade-level details for fear of it not applying to all recipients.  It’s pathetic how frequently invitations to bid fail to evoke any enthusiasm for the project, the client, or the opportunity.  Mostly they’re a bland memo directing the bidders through the GC’s particular brand of bureaucracy.  When coupled with bid-letting services, these invitations can end up appended to a “do not reply” email that conceals everything from the recipient until they summit the mountaintop of logins, sales pitches, and file downloads.

Relationships and their place.  Push vs. Pull

As an outcome, this is counterproductive to pulling subcontractors towards the opportunity the estimator is pursuing.  A great deal of what’s wrong in business relationships comes down to pushing when it would be better to pull.

Design relationships

Design teams fall victim to this process as well.  Traditionally, the Architect brought all the engineering disciplines together to develop a cohesive and thorough plan.  Like most industries, the concept of compartmentalization rose to the fore and now its common practice for a project to have a long roster of design consultants working in degrees of isolation from one another.

I don’t know what’s existing and neither do you, but it won’t be me that pays.  It’ll be you.

Projects that must refer to existing conditions are often riddled with notes declaring that all bidders have tacitly accepted responsibility for field verification of unknowable items.  These “gotcha” requirements are used in lieu of consultants making their own site inspection and designing accordingly.

Site inspections,  coordination meetings, and construction oversight are sometimes viewed as “add alternates” to the design package.  Clients often accept or decline these services based on their budget, schedule, and professional proclivities.  Clients pre-disposed to “hurry up” work can’t spare the time for consultants to fully fledge their designs.  Noteworthy examples are property managers pushing for Tenant Improvement projects that close the deal on a lease.

To the client, the savings in design fees and duration may appear worthwhile until the market pricing reflects the additional risk imposed by an incomplete design.  During market slumps, these clients use competitive bidding to flesh out the issues with the design which they ask bidders to solve.  Once they’ve got the answers, they incorporate them via addendum and put it back out to bid.

There’s no time to do it right the first time, but we’ll find time to do it again.

This “refine-design-by-bid” tactic initiates an unfortunate dynamic in the market.  Bidders who’ve invested in “helping” the client are rewarded with several costly rounds of bidding before the project goes to contract.  They know that rolling these expenses into their next proposal will all but guarantee a loss.  They also know that every answer they provide will be used to assist their competitors in arriving at a complete proposal.  Every round of bidding further diminishes the profitability of the project.  For some bidders the “solution” is to seek recompense in overpriced change orders.

This adversarial attitude angers clients who feel they invested heavily to see their project happen and feel exploited by greedy build teams.  Clients who’ve weathered this experience often arrive at the next bid with an enthusiastic commitment to pound out the issues before they sign another contract. Very rarely do they see the connection between “refine by bid” and overpriced change orders.

Perhaps the most frustrating observation to offer here is that the total pre-construction cycle on “hurry up” projects often end up matching the duration of having it properly designed in the first place.  Complete designs mitigate change orders, and bidding once restores profitability for the build team.  There’s more incentive to actually finish the job quickly when it’s clear the only profitable path is efficiency.   A critical aspect here is that clients need to comprehend that a request for proposal is supposed to be a commitment to actually hire the winning bidder.  Distorting the pre-construction process by eliciting free design help and  re-bidding is communicating a very one-sided  and unethical view of the Client-GC relationship.  It’s unreasonable to expect fair and ethical treatment when it’s not reciprocated.

Bringing this back to relationships it’s worth pointing out that departures from traditional responsibilities can’t and won’t happen without consequences.  Pushing off design responsibilities onto the build team will corrupt their relationships with the work and with each other. It also serves to alter the consultants relationship with the project in that they move away from taking responsibility for their design and move towards evading liability for every conceivable issue.  If consultants aren’t given sufficient time and opportunity to inspect existing site conditions, they tend to think there’s little alternative but to pass the buck.

Relationships and their place.  Push vs. Pull

Engineers haven’t been the same since we took the trains away from them…

Professional conduct

Much of the hijinks mentioned above is more prevalent during recessions than at other times.  Given the choice, most professionals would rather pursue legitimate work that offers sufficient time and opportunity to do a good job.  GC’s are by definition, subcontracting the bulk of the work they bid. Viewing the Construction Documents (CD’s) as a liability, many estimators believe their role is to ensure that every scope item is included in one of the subcontracts.  When the focus is exclusively covering your hind end, it’s easy to miss opportunities to better understand where the subcontractors are coming from.  Subcontractors bidding to notorious cowards will be reluctant to offer insights into how discrepancies in the plans may offer opportunities to win.

Opportunity may only knock once

GC estimators that don’t dig in and really make the effort to know what’s going on with a project are constantly caught flat-footed when subcontractors call with questions. Whether its incompetence, cowardice, or a lack of commitment, the result is the same; subcontractors will take their best ideas to wherever they’ll profit the most.  In practical terms that can mean competing GC’s will get better pricing or it could mean that subcontractors make tough decisions about how best to “play” the situation.

For example, I’ve encountered situations where subcontractors choose to take a chance on a scope discrepancy without telling the GC estimator because they had proven themselves to be unwilling and/or unable to take a measured risk. Since the subcontractor can’t rely on protection from the GC if their gambit doesn’t work, they hedge their bet by keeping a goodly portion of the potential savings.

Don’t be an obstacle to success

The GC estimator rolls into the bid carrying that subcontractor because they’re lower than their competitors but fails to fully capitalize on what that subcontractor relationship has to offer them.  The relationship becomes more about what the subcontractor can achieve despite the GC estimator than what the team can accomplish together.  It’s a short leap from not sharing the bounty achieved through special insight, to purposely working on deals to exploit weak GC estimators.  Subcontractors who view themselves as king-makers aren’t likely to be positive force in the market.  This is how they get their start.

“I don’t know what this is, what do I do?”

None of which is to say that a GC Estimator can’t rely upon their subcontractor relationships to help them with issues and scope items they don’t fully understand.  Skilled trades require an incredible amount of specialized knowledge that a GC estimator couldn’t be expected to possess.

There is however a difference between blind leadership, and taking the council of trusted allies.  The GC estimator should be consulting with trusted subcontractors on scope items they don’t understand with the goal of building a working knowledge of the issues involved.   It’s an odd thing but it’s often possible to change the dynamic of a bad relationship by asking for help in understanding what the other person is facing.   Be a good student and retain what you’ve learned to earn a reputation as a consummate professional.  Before long you’ll likely encounter a situation where you’re relating something you’ve learned to a bidder thereby re-paying the market for its investment in your education.  Keep that in mind the next time you hear a “dumb” question.

Once again, there’s greater benefit to all concerned when professionals actively seek out responsibility to pull the project forward rather than pushing responsibility for incomplete work down the line.

Civilization is in retreat because it’s become unfashionable to do the right thing.

Understanding the critical relationship between quality outcomes and individual professionalism at every stage is the metaphorical keystone supporting the project arch.   Every buck that’s passed get’s a “vig” tacked on and when the bill comes due (and it will) the project will pay.  It’s important to break from thinking of your task as being done in a small room with a door in and a door out.  What gets passed down the line matters.  Many projects with supernaturally bad design teams get built anyway.  Just because someone passed the buck to you, doesn’t mean you must pass it on in turn.  An estimator converts the nebulous construction documents into a real and enforceable, construction contract. Some Project Managers have a well-earned disdain for estimators who’ve bound them to build a disaster with a schedule and a budget. Don’t be that guy.

Actions have consequences, make certain that you are pulling in the right direction and that everyone “downstream” is as well.  Project Management needs to keep the promises made at the bid stage, and they need to ensure subcontractors hold up their end as well.  Otherwise subcontractors may again “game” the estimator knowing they can exploit Project Management once they’ve slipped past the bid stage.

What does the client care about?

An awful lot is put out about when to invest in this or that.  Terms like “Value” become little more than boardroom chaff.  In reality the client is very concerned with value, however what they value isn’t always so obvious.  Answering questions and making them feel good about their purchase may be contingent for a sale however it’s not what they THINK they’re paying for.  In fact, most of the talking, drawing, thinking, and demonstrating doesn’t really factor into their concept of what they’ve hired you to do.

What they see

To the client, actually making the thing is where the magic happens.  Those are the skills they imagine they’re paying you for.  Since they perceive your pre-construction time as “free” they indulge in every tangential thought that comes to mind.  During a project they perceive the job site to be chock-full of workers and materials so changing this or that seems easier than if they imagined that change as a separate job going out to bid.  Design teams are keenly aware that their mistakes, oversights, and mis-communications are costing time and money.  During construction the client typically views the design team more as an adviser and quality control enforcer than anything else.  GC’s’ are generally loath to expose design team shortcomings for fear of retribution.   Diplomatic efforts to price necessary change orders stemming from design shortfalls can devolve into bickering about cost legitimacy versus design integrity.

The client and design team camp may shake their heads at the gall of the build teams prices while the build team shares their exasperation with projects that are changing direction while the clock runs out.

The pattern of pushing project responsibility down the line without each tier pulling their own weight is the root cause.  Returning to the opening of this article; “Building relationships” need not be a vacuous and misdirected approach to success.  Clients are not in a position to actually know that decisions to short-change a fully developed design will cause the problems they sought to avoid by hiring a design professional if nobody has the courage to tell them so.

Relationships and their place.  Push vs. Pull

“Sure you’re attracting lots of attention, I’m just saying you might take a different route next time”

 Making mediocrity acceptable through placation, participation, and proliferation of stupidity is not “worth it if you get the job”.  Lowering standards and passing the buck are the stock in trade of hacks.  Blurring the line between hacks and pros from the clients perspective represents a strong deterrent to future business.

Be better, be honest, and don’t be afraid to speak up.

 It’s in everyone’s best interest to speak truthfully with the client.  Many incomplete designs are put to bid by design teams who are deeply (and silently) frustrated by the client’s miserly haste.  GC estimators often succumb to pressure from marketing and pre-construction directors to bid risky designs.  Pushing rather than pulling.  If instead the GC Estimator took the opportunity to present solutions before bidding, they might persuade the client to make changes that profoundly improve their odds of an ideal outcome.  At worst, the estimator could articulate the issues that could hurt the client, pulling them in the right direction.

Now it’s time to bring this all back to relationships.  In my experience, there’s a contingent of dubiously moral folks in the market who rely on “relationships” to cover or offset the fact that they’re neither a good value, nor a market leader.  They are “connected” and often use their connections to exploit or extort the industry.  It’s foolish and dangerous to allow these people to “do you a favor” because they’ll be sure to demand what you “owe” them.  Working around them will incur their wrath as well.  It’s bad business wherever they’re involved so pick your path with care.

At the opposite end of the spectrum are the people who are a veritable institution of good value, straight dealing, and integrity.  It’s a privilege to work with these rare individuals.  The sad truth is that they are rare no matter how common it is to read an advertisement extolling these virtues.  I hope this article has inspired you to choose that legacy for yourself.

 

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© Anton Takken 2014 all rights reserved


Why are we bidding this anyway?

Hard lessons on hard-bidding for the hard-headed.

Most estimators are working for someone else.  For simplicity’s sake I’ll refer to that person as the boss.  The boss often weighs in on pre-construction decisions to include what makes the bid list, what margins to carry, and what jobs they don’t want.  It’s their company and they call the shots.

As an estimator, you’re looking for low risk, high profit, easy wins to keep the company working.  That seems like something the boss would be after as well.  A lot of estimators end up wondering to themselves why it doesn’t always seem like it.

Everybody’s coming from somewhere

Entrepreneurs are remarkable people who see opportunity in adversity and often move in opposition to safe, secure, and easy ideas.  These traits help define why they’re successful and also explains why they’re often not…  The point here is that the opposition to an estimator’s priorities is a natural one.  They hired you to provide the counterpoint to their perspective, not that it’s a guarantee you’ll change their direction.

Why are we bidding this anyway?

Sure boss, I see exactly where you’re going with this…

What is the mission?

Despite repeated failures, the boss is pushing for yet another bid just like those before it.  Nothing’s changed and the outlook is bleak, why won’t the boss see the obvious?  Sometimes the answer is frustrating: the boss doesn’t have the same definition of success as you do.  Some bosses don’t view estimating as pre-construction so much as an amalgam of marketing, posturing, testing, and placating.  The endless marketing pitches about “building relationships” dissolve into playing head-games with the market.

Here are a couple of examples to illustrate how this can happen.

Imagine if you’d spent half a year getting on to a new clients bid list. You can hardly turn down the first invite when the job turns out to be a stinker. 

Going another direction, imagine you have a valued client who’s added a disreputable competitor to their bid list.  A good client will only need a few bad experiences before they reject disreputable firms.  Depending on how frequently they bid projects, you may have to lose several jobs before the client has learned their lesson.

What if your current market sector is shrinking?  A boss would need to find new sources of work which means trying out new things.  Not all sources of work will have the same profit margins so they might need to test the waters in several markets to see if regional differences change anything.  In effect they’re generating bid results.

Conversely, what if your market is expanding?  Does it make sense to chase work in new areas with local staff, or should a satellite office be opened?  Is there an existing subcontractor base capable of supporting the venture?

Planning for success      

Few companies have a corporate culture where the long-term planning is accurately and convincingly presented to the estimating staff.  A boss who views bidding as “turning the crank” on the estimating machine is unlikely to harbor much sympathy for anyone asking why they’re bidding bad jobs.  As an estimator you may not have much latitude on the decision-making but that’s not a reason to give up trying to improve the situation.  Bid results when presented properly can reveal constructive options that the boss may have overlooked.  Some estimators feel as though they must reflexively apologize for every lost bid. This fosters the notion that every bid was really an opportunity.  It should be obvious that many factors influence the likelihood of a profitable win. Unless all the jobs are literally the same, the odds must be different.  Learning to define, to accurately define what influences winning should be the cornerstone of your craft and the basis of your counsel. Be advised that excuses are not a substitute for knowledge or fact.  Some losses will be your fault and some wins will be too.  Credibility builds on honesty.

Getting to the wheelhouse

If you don’t have an impartial and informed insight, you can’t reasonably expect corporate planning to be shared with you.  Respect is often earned through consistently knowing what you’re talking about. Depending on the individuals involved, you might be able to help steer towards better opportunities once you understand where the boss wants to end up.  Understand that the people in charge may be reluctant to divulge their plan, especially when they lack one!  Go with caution.

Why are we bidding this anyway?

What you’ve gotta do is make sure everyone’s on the same level, then you’re home free.”

Learning by erosion

It’s a fact of life that some bosses are better than others.  Despite our dearest hopes to the contrary, sometimes life brings unqualified people to leadership positions.  The boss may have irrational, uninformed, emotional, and philosophical reasons to do something stupid and most of the time, it’s their right.  Estimators dealing with this frustration should take heart.  Incredibly hard-headed bosses can learn by erosion.  The Grand Canyon wasn’t carved in a day.  Erosion is slow but it’s sure.  To be effective, it’s important to understand that you’re seeking to avoid “I told you so” moments where you become the lightning rod for their frustration.  The goal should be to give a high level analysis of the situation including a survey of the project’s high and low points.  Try to deliver them in equal detail and enthusiasm but be sure to define how a stack up of low points creates a failure mode.

For example: “This job is a remodel of a very large building which means we’ll be busy for the next six months out there.  We’ve got strong competition on it so our number needs to be tight.  The design calls for a bunch of new roof top equipment and the architect put a note on the plans calling for us to field verify and design as needed.  There was no job walk or as-built drawings and the building’s currently occupied so we can’t just get in and see what we’re up against.  The client requires all bids on their forms which don’t allow for exclusions.  Our competitor did one just like this last month only it didn’t have the roof equipment and the note’s buried on an elevation drawing so they’ll probably miss it.  If we include money for engineering and structural support, we’ll surely lose.  If we bid without the structural revisions, we may win but we’ll have to pay for it leaving us stuck on an unprofitable job for half a year.”

The idea is to patiently explain how the influencing factors are pointing to bad outcomes. If the boss decides to pursue it anyway and it goes as you predicted, they’ll remember your insight even if they won’t give you credit.

Sometimes it’s not the bid that’s the problem, but the client.  Here’s another example.

Following the bid, the client sends additional pricing requests for items that were not on the plans claiming it’s necessary to make a snap decision.  It starts with one or two items, then grows to a long list of several items that the client wants priced separately.  After some delay the client calls and says that the project is over budget $X amount but that they “really need” all the items you’ve priced.  The client says they’re hoping you can “find savings” to hit their budget and do the extra work for free.

This is a textbook example of how unethical clients begin a job.  It’s been said that “you can’t change human nature, you can only change how you feel about it“.  Bid shopping is unethical and serves as an insight into the clients values.  These clients are telling you who they are, only the most  naive or foolhardy interpret this as anything but a promise to screw you over every chance they get. There are few guarantees in this world, but you may rely on this: a bid shopped job will eventually cost you money, and diminish the standing of your profession.

Nevertheless, your boss may elect to take that bait.  These are the jobs it behooves you to warn Project Managers about.  No change order work should be priced without documentation from the design team.  No additional work should be started until a signed change order has been physically produced.  Informalities and “trust me” moments cannot exist.  Any gap will hemorrhage losses with unscrupulous clients.

Teaching by evaporation

Some bosses stubbornly refuse to admit when one of their initiatives is failing.  A pattern emerges where the work isn’t profitable and there’s never enough of it.  The boss answers this by demanding more bidding of the same kind of work.  The estimator is putting in considerable hours fruitlessly landing a small percentage of terrible work.  This is like being knee-deep in a swamp where continued struggle only traps you further.

There are a few things to get clear on.  Number one: the swamp is killing your business. There is no opportunity and it’s consuming resources that could be successfully applied elsewhere.  Hard headed bosses who learn by erosion are often “swamp dwellers”.

Number two: You must find somewhere to be successful while you’re stuck in the swamp.

Why are we bidding this anyway?

Pro tip: STOP DIGGING!

Landing a low risk, profitable job, for a good client is like having the sun dry out the swamp.  The boss wants success – giving them something more likely to be successful is leading by example.  The difficultly about an exemplary action is that it’s really, really difficult to do.  Some bosses will be willing to concede to a pitch where you might say “hey instead of bidding swamp-thing, let’s try this job instead”.  It’s more likely they’ll allow you to bid swamp thing and the new thing.  This means you’re required to invest your own effort into your idea.  Uncool bosses will mercilessly undercut you if your idea doesn’t pan out.

Try anyway

A consummate professional rises above the challenge.  Your job is not only to bid jobs, your job may also be to protect your company (and your job) by performing above your pay-grade.  Life is long and you never know who’s watching.  You can be helping an unworthy boss and furthering your career.  It’s important to remember who you want to be regardless of where you are.

Remember that wherever you are on your way to the top, turds float.

Leadership

Poor morale can be like cancer to a company.  Dissent grows until it overtakes all motivation and positivity.  The economy won’t always be on your side and making headway can feel like you’re swimming against the tide.  A subtle feature of depression is that it saps motivation to change course which threatens its existence.  It’s a parasitic mindset that feeds off the status quo by believing everything would improve if only life were fair.

Life isn’t fair which is why market constructs are so complicated.  Contracts seek to protect parties from undesirable outcomes.  Which is another way to contain risk.  The risk eventually boils down to life not being fair.

An estimator must maintain perspective.  The unavoidable risk is why you’re there.  Make the most of the opportunities and lead with enthusiasm.  Act with wisdom and follow your conscience knowing that not every invitation to bid is an opportunity, not every win is a success, and not every job is a career.

Communication

There’s an old proverb that reads: “If you want to go fast, go alone.  If you want to go far, take a friend.”  Long term plans should be clear and inspiring to everyone.  Effectively communicating the long-term plan and the enthusiasm to everyone builds trust and commitment so the group moves in unison.

However when things are going wrong, a company can be like a stampeding herd. There are only two ways to affect the course of a stampede.  Be an immovable force like a mountain, a cliff, or the person who signs everyone’s checks.  The second, is to outrun the herd and make your path the one they want to follow.

In practical terms this means building a personal plan to bring new opportunities to the front.  Research what’s out there, who’s winning it, and how you can emulate their success with your firm.  This also means adding more bids to the workload as mentioned above.

Stay focused on fixing the situation through sound decision making and things will improve.

Why are we bidding this anyway?

 

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© Anton Takken 2014 all rights reserved


Patterns, Pitfalls, and Practicality

Looking back over the years I think the most important things I’ve learned about estimating come down to reading the situation and responding accordingly.

If estimating is only about containing risk, the pursuit of a risk free job will all but guarantee that you’ll never be competitive.  There must be some balancing point between acceptable risk and staying competitive.  Really often this balancing point rests on the design teams alignment with owner requirements.

Whoa!  That’s expensive!

There are a host of reasons why a design team would choose an especially expensive product or assembly.  Some are more valid than others.  The American Institute of Architects position is quite clear;  Architects should never be responsible for cost outcomes.  In reality, if the budget is blown by an inefficient design something needs to change to make the project happen.  In my experience, weak design teams blow their clients budgets regularly.

Breakout till you break down.

Here’s where we get to some pitfalls.  Lots of General Contractors will attempt to demand breakout pricing of the project from their subs.  On the surface this seems like a decent first step since you might find some big numbers that could be trimmed.

In reality it’s much harder to just lop off a section of the project free and clear.  Engineering concerns, aesthetic issues, and final usability all come into play.

I suppose some GC’s are hoping to get enough information from their subcontract bids to drive down the subs overhead and profit.  This is a game they won’t win because it’s cheating.  Market value was established by competitive bidding.  As hard as it may be to accept,  it doesn’t matter if the low bidders markup is obscenely high because they proved they are the best value.

Lots of times GC’s will push out a laundry list of “what if’s”.  Often these are generated by a frantic client during a meeting with the GC, and Architect.

Patterns, Pitfalls, and Practicality

Here’s the thing: as an estimator it’s on you to know what will and won’t make the budget overrun disappear.  Putting your subs through endless exercises that you know can’t/won’t achieve that end is a waste of your time.

Poorly crafted or worded “what if’s” all but guarantee that you’ll be arguing about scope inclusions for ages.  Be especially careful about What-if’s that hinge upon engineering input.  Architects rarely seek their consultants input at the negotiating stage.  It’s incredibly common for weak design teams to put a GC through several rounds of pricing before issuing a final “construction set” that includes a new and costly engineering necessity.

Most subcontractors view the “what if” stage as a risk generator.  I’ve seen some who seek to exploit the confusion hoping to gain profit, and I’ve seen others who fall victim to their own honesty when a GC uses the information to strip the value out of the job.  It’s very important to maintain perspective here.  These subs got you into the winners circle.  Exploiting subcontractors for information to “close the deal” is not your birthright.  Threats, cajoling, or short deadlines are the tools of the foolish and shortsighted.

Patterns, Pitfalls, and Practicality

Sure Mikey, I’ll get RIGHT on that for you…

If your client really needed to move forward with their project, they’d have taken steps to ensure their design team would perform within budget before the bid.

None of which is to say that it’s not reasonable to pursue a job that’s over budget.  The main aspect that makes an approach successful is sound strategy.  Simply put, if you don’t know how far off they were, you can’t really help them.  The AIA advises its members to conduct extensive interviews with potential clients.  These interviews go  deep into the client’s budget, the approval process, advocates and opponents relevant to funding, and so on.  The design team knows far more than they will let on about the job budget.  Traditionally the Architect serves as owners rep for the project duration.  They’re cagey about the budget to protect the client’s interests.  Generally the project budget will have a contingency fund which the Architect must be cautious to protect since it pays for unexpected issues, design problems, and so on.

Find out the budget over-run and REALLY consider that information.  We hear a lot of inspired speeches  about the importance of optimism but the reason that GC’s even exist is because a client can’t reasonably expect to hand the plans to subcontractors and have the job built on time and within budget.

Building on the assumption that the budget over-run is achievable it’s time to review your options to generate an effective strategy.  Looking at the subcontractor bids, are there any that seem higher than a similar project would call for?  Build a rough tally of what these differences might be.  Work your way through all the bids and figure out what you could reasonably carve out.  Bear in mind that decorative items have wildly varying prices.  If one trade in particular strikes you as profoundly expensive, then it’s worth having a conversation with that bidder to determine what’s driving their costs.  Asking for rough numbers in a conversational manner keeps things from becoming a brainstorming session.  If you find that a major cost center is due to a sole specification you should try to get a handle on what a competing product would save you.

I’ve seen some bids drop by over half via simple product substitution.

Patterns, Pitfalls, and Practicality

 Seven lamp octolights with custom ink-stained shades don’t come cheap…

Corruption is expensive and complex.  Don’t think you can simply cut it out of your project without repercussion.  It bears mentioning that incompetence is more common than malice.  A great deal of specification data is generated “for free” by vendors courting the design team.  These vendors put a lot of effort into “helping” the design team with the “nuts and bolts” of their project.  This much akin to lobbyists writing sections of proposed laws for congress.

They get their compensation via sole-specification and the outcome is often expensive.  The design team will protect their vendors on whatever grounds they see fit.  They’ve invested considerable time addressing each issue of the project and it’s their role to ensure that the integrity of their design is built.  The client is paying for a level of quality that the design team ensures is provided.

Many GC’s are afraid to anger the design team with Value Engineering suggestions which leads to the aforementioned practice of bombarding them with a myriad of “What if” scenarios.

Really often the client has no idea of the extent to which a sole specification is driving the budget.  I bid a project where the square foot cost of a single trade was greater than the total built square foot cost  of a similar adjacent property!

That level of brazen price gouging is only possible when the vendors are VERY sure that the design team will protect them.  The game is rigged and you’re in a pickle so what do you do? That’s a tough question.  Obviously you’re the low bidder if you’re in front of the owner so you’ve gone quite a ways to proving you’re market value.

Personally I think it’s time for a sidebar conversation with the client.  Their design team has brought a certain level of corruption into the project but they still work for the client.  Clients rarely demand that their design team prove their due diligence with respect to the project budget.  The AIA specifically advises its members to avoid any contractual responsibility for the final project budget which might explain why it doesn’t happen much.  Nevertheless, the client has options.  They can direct the design team to accept performance based alternate equals via a published addendum. They can also opt to establish a “National Account”.  More on that in a moment.  I purposely stipulated a “published addendum”.  Supply chain relationships are very insular. A distributor’s relationship with a rep is far more significant than a single job.  Some reps won’t step up and offer an alternate if the design team is notorious for corruption/refusing alternates.  By issuing a drawings set with clearly requested value engineering, the design team is forced to acknowledge that “the game is up”.  It also clarifies what the design team considers relevant performance data.  Again, sometimes a specific product is unique and has a valid reason for inclusion in the design.  One pitfall to this is the fairly standard practice of requiring all alternate materials to be approved prior to the bid.  Depending on the amount of time from bid letting to deadline, this can often mean it’s not feasible to get alternate materials approved before the deadline.  Don’t forget that the design team is invested in their project so they’re not looking to have the design changed by subcontractor suggestions.  If they were interested in lowest common denominator materials, they’d list performance specifications to start with.

National Accounts are commonplace among chain restaurants, banks, and some stores.  The client establishes an account with a material distributor who publishes the unit costs of each item.  This gives the client a chance to scrutinize the design team’s choices and it ensures that all trade bidders get the same material price.  National Accounts solve a lot of problems inherit to local corruption however they introduce their own idiosyncrasies as well.  First off National Accounts rarely offer best value on everything they include.  If the client elects to have subcontractors purchase the materials through national accounts, it adds a layer of complexity since the National Accounts reps must rely on the Subcontractors Quantity Take off (QTO) measurements.  I’ve won and lost jobs because of differences in QTO. Getting a National Account rep to give you a unique quote because you’re the only one who noticed that the scale was mis-labeled is all but impossible.  I’ve caught something significant in the past and was rewarded by a National Account Rep who notified all my competitors of their mistake.  This decreases the incentive for smarter bidders to participate since they can’t capitalize on their expertise.

When the owner furnishes material they take on the risk incurred by having no check on the design team’s measurements.  They also take on the risk associated with delivery, billing, and payment for each vendor they contract with.  Since material delays would be outside of the build teams control, the client could provide their own undoing.  In my experience owners lack the “pull” necessary to get material vendors to correct mistakes in a timely fashion.  Obviously the more prominent the client’s account, the more pull they’ll have.  Keep in mind that a lowly subcontractor likely purchases millions of dollars of material annually.  Their vendors are very committed to overall revenue and that makes a huge difference in their performance.

The client needs to know authoritatively how much they’re being ripped off which will require you to provide historical data on what previous projects have cost.  Speak plainly as the design team may be beholden to these vendors who are ripping the client off.  The design team may wail and swear that such isn’t the case but that it’s necessity that brought these people to bear.  They may claim extra charges to “re-design” elements to achieve your budget which was impacted by dozens of unforeseen issues.  Advise your client that they pay the design team for work completed. If the team sublets portions of the design to vendors in exchange for exclusive supplier rights then it seems only fair for you to know beforehand what their final cost will be.  This hidden detail is the exposed thread that unravels the whole thing.  The industry works on relationships and not all of them are healthy.

Patterns, Pitfalls, and Practicality

 Sometimes you can just feel their contempt…

If your client’s facing this situation it’s time for the Architect to call in a solid with their cronies to get the job on budget.

Pretending that this or that valid thing changed to suddenly get the price in line is what causes all the “what if” scenarios.  If other similar work is getting built for less, then the design team is making excuses.  Many times Architects and their consultants will demand unit pricing for the expensive items.  This is a desperate search for ways to pin the blame.  The root cause is a vendor overcharging because they know they’ll be protected.  The subcontractor can’t risk angering the vendor because they’ll work together again.  The Subcontractor’s also in a bind because answering the GC’s unit price questions puts out answers that can and likely will be used against them.  Competing vendors may be disinclined to offer other options if they’ve got irons in the fire with the specifier.  The more corrupt the design team, the less help you’ll get from the market to fix it.  I’ve witnessed projects bidding semi-annually for three years in a row.  They celebrate their bid anniversaries by coming in so over-budget that it boggles the mind.  The vendor’s responsible can’t/won’t cut their price because they’ve exposed themselves before.  Without a team overhaul or a budget boost, the job will never happen.  It’s a terrific shame that parasitic situations persists.

The flip side of this is a client who’s so cagey that nothing is ever cheap enough.  Developers are notoriously given to speculative bidding.  They’ll ask for value engineering ideas from all bidders with immensely detailed breakouts.  They’re always one unanswered question away from inking a deal.  Weeks and months later, they put out a revised set of drawings that incorporate all of your best ideas.  You get the privilege of competing again and again and again.  I’ve encountered GC’s who spent so many labor hours bidding the job that they couldn’t re-coup the cost once it finally went to contract.

It’s really important to realize that these people aren’t stupid.  They may know that your bids are spot on and that your pre-construction efforts will save them huge amounts.  They may also know that once you’ve pounded out all the risk for them,  they can go ahead and hire a less sophisticated competitor at lower cost.  It’s not that they’re evil,  they’re just working the system with people who play along.

Patterns, Pitfalls, and Practicality

This brings me to another experience learning point.  Certain subsets of any given market will be populated with a distinct class of professionals.  Much of the pairing between client, contractor, and design team comes from a shared level of professionalism and ethical standard.

Despite all the rhetoric about how wonderful everyone is you’ll likely see that weak design teams tend to work for clients that create less competition for their work.  Undesirable clients are a magnet for weak design teams.  Clients that are broke, “run by committee” or run by a politically connected and unqualified person are disinclined to see the value in a higher level design team.

The less vested a client is to the project’s outcome, the more nonsense you can expect.  Gaming the bid with a myriad of alternates allows these individuals to max out their budget with less management interference.  It’s these projects that routinely blow their base bid budget because the client’s focus is on spending their allotment entirely rather than building efficiently.

The Design team’s vendors know that the base bid is the low hanging fruit so they load on their profit there.  Unsurprisingly the budget is blown.  At the GC level it’s apparent how sincere the alternates are when you track through the documents to see if they’re carried to all project scope.  For example, there may be a page in the Project Manual listing an alternate for a different ceiling layout.  If the Architectural sheets have reflected ceiling plans showing both base and alternate conditions, make sure the Mechanical and Electrical sheets do as well.  It’s incredibly common for Architects to pepper their sheets with alternate requests that they never comprehensively list elsewhere.  Force the design team to fully acknowledge their alternates via Request For Information (RFI’s.)  Badgering your subs on bid day to know that some tiny key-note on the architectural page effects their bid isn’t their job, it’s yours made harder by a weak design team.

Strictly speaking if an alternate exists, you have a duty to provide pricing for it or risk having your bid rejected as incomplete.  Be very cautious with this because poorly defined work is higher risk.  If you are obligated to use a supplied bid form, you can reliably expect there will be no provision for clarifications, exceptions, exclusions, or contingencies in the single line provided for each alternate price.  The client requiring a bid form understandably wants “apples to apples” pricing comparison between bidders.  It is therefore critically important that every alternate request be fully vetted at the request for proposal stage.  File RFI’s as needed, consult with subs, and control the risk.  Discovering that you’re “on your own” to price some murky alternate on bid day is a bad place to be.  More than one half-hearted alternate request was revoked following a serious inquiry from a GC.

 

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© Anton Takken 2014 all rights reserved


How to lower prices

A common follow-up question to “How much to build this?” is “Could it be done for less?”.  If you are losing to competitors frequently enough , the answer would be yes, yes it can.  There’s a tendency to look at a bid as if it’s simply the total of all the subcontractor quotes.  This perspective has limitations in that it implies that cheaper subcontractor quotes is the only way to arrive at a lower total bid.

But why are their quotes so high?  Risk is the most common reason.  Subcontractors must assess factors that go beyond a narrowly defined scope of work listed in their contracts.  For example market conditions may have created a labor shortage that limits the amount of projects the subcontractor can safely take on.  Bid invites for projects that are planned to start during peak seasons will create a twofold risk for the subcontractor.  First, if they win the job and labor is scarce, they will have to pay a premium to adequately staff the job.  Second, if they fail to land enough profitable work during peak season they jeopardize their annual earning potential which may leave them saddled with a fastidious low profit job, which is a very serious problem.

GC Estimators can address this risk by carefully evaluating bid opportunities that are leading up to and during peak season.  Are the plans ready for permit? Does the client have funding? Can they start when they claim they will?  Could they start earlier or later?  Lots of ambitious clients choose to break ground in the summer to reduce weather delays.  School remodeling typically takes place when the kids are out as well.

From traffic signals to hand grenades – timing is everything!

This is not the time to be optimistic and giving the client the benefit of the doubt.  If a client looks wobbly or has a history of late starts tell your subs you anticipate a later start date.  If the client is obligated to timelines for contract awards and project closeouts include that on your invitation to bid.  Specification manuals are sometimes thousands of pages long and Architects can’t be bothered to list pertinent details like start dates, completion dates, liquidated damages, bonding requirements, Taxes, or Davis Bacon Wage requirements in one place no matter how much it would benefit mankind (but I digress).  Honesty counts, I have been involved with bids that were upwards of 20% higher than the best we could do on bid day because we couldn’t count on the client to start when they said they would.

Projects that get pushed back inevitably collide with work for responsible clients. These collisions can be immensely expensive especially when small projects “just won’t end” to free up needed resources.

Order of operations

Projects with limited subcontractor scope may still require several mobilizations to the project to complete.  In extreme situations, the mobilizations are more expensive than the scope of work.  Imagine a project that requires a new doorway to be cut into an existing wall.  The painter might be tasked with painting the wall around the new opening, the door frame, and the door itself.  If the painter were allowed to paint the wall after the frame was installed ,they could get the wall and the frame painted in a single trip.  Shipping the door to the painters shop allows them to paint it when convenient and bring it with them when they come to paint the wall.  Cutting 50% of their mobilizations and allowing them to paint a door in a less chaotic environment reduces their labor and risk on the job without changing the scope of work.  Be creative and find alternate solutions.  Taking this door example a different way, let’s say the door is wood and must be stained to match the wall trim.  A painter is going to have to obtain a stain sample, mix, match, and apply that finish.  The millworker will bring pre-finished trim to the job site to install.  They have all the equipment to stain and finish the wood door and bring it with them when installing the trim.  The stain WILL match because it’s the same material from the same equipment.  Again, the staining can occur in a controlled environment at the subcontractors convenience.  The painter ends up with a single mobilization, so does the millworker.

If the work is inconvenient or likely to interfere with more profitable pursuits subcontractors will price it higher.  Don’t let dogmatic tradition dictate the schedule, look for the efficient approach.  Don’t be afraid to make things cheaper for a “little” scope of work.

House cleaning

Part of what defines the work is the GC.  Many firms are monoliths of unresponsive yet demanding bureaucracy.  Estimators who don’t have a rapport with their subcontractors are rarely well-informed as to what influences each bidders view of the job.  Giving prompt, uniform, and firm direction in reply to subcontractor questions builds a positive association with your firm.  They will be more inclined to speak honestly with you about their limitations, interests, and concerns.  Dithering, weaseling and CYA replies achieve the opposite.

Project Engineers that hastily reject submittals without explanation create administrative log jams that delay critical path deliveries.  Project Managers who fail  to develop, maintain, and manage project schedules often become “screamers” as the deadline approaches with long punch lists.  Taken together, these “dynamic duo’s” are artery clogging masses in the project’s bloodstream.

GC’s who have their project managers bid their own work often receive different subcontractor rates depending on which PM is going to run the job.  This is why.

How to lower prices

“You could say workplace tension is a factor…

 

None of which is to say that everyone at a GC must be everybody’s friend or always “play nice”.  GC’s that win work that’s run smoothly and profitably without screwing anyone will have plenty of admirers.

 Working around the situation

The modern bidding environment is very formal and compartmentalized.  The GC’s are not permitted to informally ask the design team questions.  Subcontractors are not permitted to ask questions of anyone but the GC’s.  Bureaucratic delays ensue, forcing critical decisions to the end of the bidding period (if then).  Then the bids come in and often the client is displeased with the price and all value engineering suggestions.  After all, they paid the design team to get everything this far,now they’re forced to choose what to amputate from their vision of the project.  The client doesn’t see much value in the ritual of the Request For Information (RFI) exchange.  So take the opportunity to push the project back on track by providing leadership BEFORE the job is off the rails.

“An appeaser is one who feeds a crocodile hoping it eats him last” Winston Churchill

Many GC’s seek to avoid exposing an Architect’s mistakes in hopes that “playing ball” will naturally resolve complex issues.  Assuming the Architect will fully grasp all the issues and costs of a problem is how we get half answered questions, cost over-runs, and project delays.  Often these problems are apparent at the bid stage.  Cost additions post bid are change orders that the owner doesn’t appreciate.  Ambiguity in the plans can raise moral dilemmas that unscrupulous competitors exploit to snag a job.  Closing the gaps BEFORE the bid levels the playing field and protects the client.

Subcontractors may feel the same way only they must rely on often feckless GC’s to get direction from the design team.

Start on the right foot by writing RFI’s in a professional manner.  Reference an actual drawing that you’ve cropped to the area(s) affected.  Wherever possible ask Yes/No questions to simplify things.  Offer reasonable solutions and imply that you think that’s what they intended.

Here’s an example:  Detail XYZ has a note requiring process X  however detail PDQ has a note requiring process Q.  ABC Construction believes the intent is to use process X at only West facing openings and process Q at all other openings.  Is this correct?  If not, please define the desired process for the openings in question.

If the architect writes “yes” on your RFI and sends it back to you, you’ve generated an easy to follow instruction for subcontractors to bid on.  Legalese or weasel wording makes for ambiguity which is risk.

Now most estimators will just send this RFI to the Architect and steadily grow their frustration as the bid date advances without a reply.

Get what you need as soon as you can

It may be possible to call the Architect off the record before sending the RFI.  Phrasing and tone are important.  Portray your efforts as striving to make an easy to answer RFI.  The intention is to establish your desire to honor their design, not list mistakes you found in their plans.  If done with diplomacy, it’s possible to get the answers you need before you send the RFI.  Some Architect’s will formally answer all RFI’s at one time for their convenience.  Typically via addendum  just before the deadline.

Broadcast the answer’s

Knowing the answer early means you can create a bid directive for your subcontractors  well in advance of that addendum which will confirm and formalize your instructions.

GC’s that aren’t afraid to give accurate and precise direction are rare in the market.  If you make it easier to bid to your firm, there’s an excellent chance that you’ll attract bidders to your projects.  Be advised that asking for alternates for scope of work that “could go either way” depending on an Architects reply can be a sizable request.  It’s typically much harder to precisely “break out” some scope of work after the bid is complete.  Get such requests out an in front of your bidders as soon as you can.

“I’m too busy to answer you right now”…

Subcontractors bring a profound level of specialized knowledge and diverse experience to the bidding environment.  They typically have far more customers clamoring for their attention than the average GC could imagine.    Subcontractors do not have the luxury of analyzing a single project from the invitation to the deadline.  They may only be able to invest a small amount of time in bidding the work because their scope work isn’t valuable. GC’s are who are unwilling to “spoon feed” subs looking for answers are missing the bigger picture.  “It’s in the plans” is a pithy response that results in a furtive hunt for as long as their charity outweighs their frustration.  Trades with limited scope, or with scope of work that’s only shown on an obscure detail drawing are likely to come up short on bid day if you don’t let them know what you’ve found.  The interplay of alternates is immensely frustrating for subcontractors.  Items that are affected by trade overlap are likely to have conflicts when decisions are left to interpretation.  Does the roof top unit come with its own fused disconnect or does the Electrician have to supply it?  Is carpet demolition by a demolition subcontractor of a flooring sub?

A well-defined estimate should output scope of work checklists that you can send to your bidders to reduce bid-day confusion.  Try to remember that competitive bidders default to EXCLUDING anything that’s questionable in their scope.  If you don’t know enough about the item in question you should call trusted subs and get their input.  Not everything with pipe connected to it is in the plumber’s scope, not everything with wires is an Electrician’s job.  A skylight might be handled by a Glazier, a Specialty skylight subcontractor, a roofing subcontractor or even a carpenter depending on the specifics of the situation.  Be advised that there’s more than one way to address a scope of work.  Sometimes the cheapest option is overlooked.

 Plan wrangling                

99.99% of the time bid documents are transmitted as Portable Document File (.pdf) files.  This can be a blessing or a curse depending on several factors.  First of which is the way the document is formatted.  A fair number of Architects will transmit one file with all the plan pages included in order.  The advantage is that there’s no chance that any single page will be omitted.  The disadvantage is that this makes the file large and cumbersome for the majority of bidders.  Alternately, the plans can be transmitted by sets defined by group i.e. “Architectural, Structural, Interior Design, Civil, and MEP,”.  Finally the plans can be transmitted as individual sheets.

The naming convention of the file is very important.  Individual sheet files need to be renamed to match the sheet name.  “Sheet #21” is meaningless whereas “A5-3 West Elevations” defines the page. Don’t assign this task to folks who lack construction knowledge, the results are uniformly awful.

Be advised that re-naming sheet files tends to scramble the page order if the page names aren’t alphabetical or sequential.  In those cases, I find it easier to put the page number at the beginning, followed by the sheet name.  From the example above you would have “23  A5-3 West Elevations” as your file name.  Keeping the plans organized, and accessible is absolutely critical for reducing the amount of time a bidder has to spend trying to get what they need.  Imagine you’re making highway signs for the autobahn, decisions need to be made quickly so the information must be clear.

Welcome to the FF&E Rodeo

This becomes much more challenging when you’re bidding work in certain markets.  The multi-family, retirement, and assisted living, market often use interior design teams who create “Fixtures, Furnishings, and Equipment” (FF&E) packets.  Those that have crossed my desk are a perfect storm of inefficiency.  Cut sheets for carpet, chairs, paint, wall covering, light fixtures, plumbing fixtures, appliances, etc. are combined into one continuous file that’s generally riddled with nomenclature not shared by anyone else on the design team.  Carpet types on the Architectural plans do not correlate with the FF&E types because these teams don’t coordinate.  There is no effort made to place similar materials together so it requires a comprehensive search to find all specified material for a given trade.

Start by breaking down the FF&E files into individual cut sheet files.  Use naming conventions to sort them to either Construction Specifications Institute (CSI) number or trade name.  Maintain an inventory of what you’ve found on a spreadsheet.  The next step is attempting to match the cut sheets to the types listed on the plans (a daunting task).  RFI’s need to be promptly filed where applicable.

Be advised that very complex RFI responses are often delayed.  If you break your list down to trade specific materials it should help focus the design team’s resources.  Presenting your subcontractors with a completed schedule for the material in the FF&E documents reduces their risk immensely. Avoid “narrative” responses wherever possible.  Provide highlighted drawings showing the locations you think they’re addressing.  It’s been my experience that Interior Designers are loath to use plan notation for RFI replies.  This tendency wastes your precious time. If they won’t draw a picture, draw one for them. Be advised that information like room numbers is frequently missing on consultant plan pages which compounds the confusion with narratives.

Drive the bus or get taken for a ride…

Similarly, conceptual or design/ build efforts can be based upon a hodgepodge of plans, pictures, and narratives.  It’s incredibly annoying for subcontractors to read through all the pages of a narrative looking for their scope of work.

Subcontractors are bidding to YOU, so YOU need to put your assumptions out in a comprehensive manner.  List out the presumed scope of work for every trade you’ve invited being careful to add precise direction for areas of trade overlap.  For example, if there’s a kitchen, YOU must declare if the equipment will be gas or electric.  If the client intends to furnish material, then list that too.  If you’re competitively bidding, define what you expect the budget to be.  Leaving everything up to the subcontractors means you’re riding the bus, not driving.  Define desired level of finishes using unit costs wherever possible.  If there are hard specifications or special inclusions, make sure that the affected bidders are aware of this.  List things according to trade to make it easier for them.  If it sounds as though conceptual or design-build estimates are more work than a traditional hard bid, you’re right!

To the subcontractor, missing information on conceptual bids generally equals “excluded”. Design-build presents an onerous situation for subcontractors.  They’re expected to “protect” the GC from uncertainty but they must also compete.  Exclusions are costly – limit their risk by defining what is and isn’t in their scope of work. The MEP trades are facing a significant amount of work to design-build a project.  Weak, weasel-worded, or unknown requirements will push them to simply bid high to let someone else take on the troubled job.

Bids are not free

Sometimes the reason a GC fails to attract low bidders is due to the image they’ve cultivated on the market.  Constant losses are an indicator to subs that it’s time to change horses.  Subcontractors don’t know who was second, third, or fourth low, the awarded GC is all that really matters to them.   A lot of GC’s assume that their competitors were working off the same subcontractor numbers.   In fact, it’s common for subcontractors to give better pricing to low risk or better clients.

Closed doors and open windows.

There are also a lot of cases where a GC has a low bid subcontractor  all to themselves.  GC’s that enjoy this situation have a few things in common.  First off they are aggressively promoting acceptance of qualified subcontractors.  Many firms are enormously insular about widening their list of pre-qualified vendors.  Striking  the proper  balance between competitive pricing and risky subcontractors is a process of continual refinement.    If you’re consistently not winning, you need to be widening the list of acceptable subs.  Unsolicited bids or late bids from subcontractors who just heard your firm was bidding are prime candidates for review because they are already bidding work in common with you.

 Winners pick winners

Another thing these GC’s have in common is that they are conscious of wasting subcontractor time.  It’s senseless to invite subcontractors to bid work they’ve consistently lost in the past.  Just as it’s unethical to invite a sub you wouldn’t  hire, it’s not ethical to invite a sub knowing they are going to lose.  Classify subcontractors according  to their key markets will help immensely in ensuring that they’re paired with the right work.  Too many estimators focus on “at least three” subcontractor bids per trade.  If one sub has never won similar work, it’s time to find another contender.  Be advised that subcontractors are often in “sales mode” when answering questions about their firm.  Base your classifications on their verified performance.  Keep in mind that often subs are much larger than they may appear from your desk.  A mid-sized GC employs a fraction of the people that a mid-sized subcontractor does.  It takes a lot of resources to actually perform the work.

When times are good, it’s imperative to bid Subs  on select lists.  When times are bad – it’s critical to show subs you’re picking market leaders.  Prove it by winning.

Your voice

Many GC’s employ an intern or hapless office worker to manage bid communications and invitations.  The least sophisticated firms have someone on the phone nagging subcontractors endlessly for bids.  “The personal touch” is considered a benchmark of getting things done in the bid world.  Possibly there are  subcontractors who feel this is a much-needed aspect of the bid courtship.  For most others, this is a mindless intrusion into an already hectic day.  If the project, GC, or client strikes the sub as a bad opportunity,  forcing them to explain the situation to an intern or receptionist won’t help.

Sometimes the subcontractor will ask a question intended to help quantify the job.  Inevitably the caller lacks  decision making authority to adequately resolve the issue.

Lots of businesses create customer service positions with authority but no allowance for decision making.  The Department of Motor Vehicles is a prime example.  From the receiving end one message is quite clear:

 

How to lower prices

“We don’t care, and it shows…”

 

I’ve heard GC estimators discussing this situation and several claimed that they had their lead estimators making such calls because the interns or secretaries didn’t get results. Its better to ask: “why don’t subs want to bid?”Not getting nagged enough is the least likely reason.  It’s exponentially more likely that the Subcontractors don’t see a viable opportunity.  If these GC’s were  honest about their chances on an average bid, they’d likely admit that they’re wasting their subcontractors time to an alarming degree.

Targeting specific work should entail having a select list of excellent subs who pursue the same kind of work as you.  Those subs will bid because it’s a great opportunity and they’ll have better pricing because it’s what they’re good at.

Honesty: the great amplifier!

Nagging, cajoling, withholding, and threatening are symptoms of a backwards relationship.  If you’re looking at work that’s a good opportunity for you AND your bidders, you won’t need to shout to attract attention.  I have found that voluntarily providing bid results attracted more bidders than nag calls.  It’s less work if you publish them using the same system as your invitations.  Also, it reduces the nagging phone calls you receive  from subcontractors looking for bid results.

A friend at the gallows

Subs bidding to GC’s over time will notice patterns.  If your firm never wins a certain type of work, you can’t reasonably expect help from them.  Lots of false hope is pinned on loyalty bidding.  Subcontractors may choose to bid to a GC they’re loyal to, knowing that GC won’t win.  Time is precious so they need to get on to better opportunities.  Padding the number and pushing the bid out the door lets them maintain the relationship without the GC consuming all their time.  It’s common to hear such GC’s claiming that “no subs are bidding this job” as they beg bids out of their subcontractors.  Meanwhile, the winning GC has plenty of bids.

The situation could be fixed in several ways.  First off  you must quit chasing losses because it’s senseless to repeat an action that’s failed in the past.  Second, maintain market pricing by cultivating new subcontractor bids.  Third, provide pertinent feedback to your loyal subs .  For example they may not know that you lost by $50 last time. Teamwork relies on communication.

Commitment

Just about everything in the modern bid environment is about stalling; whether it’s  commitment to relationships, contracts, using a low bidder, or even admitting bid results.  The pervasive mindset is that stalling for time is the best move since any other action might play against you.  Jobs are often advertised using terms like teamwork.  In fact, teamwork tends to mean whatever’s convenient to the GC.

For example, three bids for one trade arrive.  The high bidding sub has breakout and alternate pricing that illustrate a very high level of thoughtful detail.  The low bid sub has very little information and the inclusions don’t mention several items the high bidder listed in breakouts.  The middle sub may list all the inclusions of the high bid but without the alternates or breakouts.

Taking low bidder’s total plus the high bidders breakouts gives a sum just below the middle bidder.  Let’s say you call the low bidder and get the adds which come in  within a percentage point of your earlier tallies which tells you that they’re now complete.  Using that bid is now very low risk.

…who’s the fairest of them all?

Consider for a moment the subcontractor’s view of that example.  The high bidders proposal enabled the GC to ask the right questions of an incomplete bidder to arrive at a sound proposal.   Knowing what each answer was worth before asking is huge.  The middle bidder was the legitimate low bidder based on original proposals alone.

How would things change if all three bidders had held their proposals till the last-minute?  The first option is to disqualify the incomplete proposal and carry the 2nd low.  The second option is to take the high bidders adders plus the low bidder’s bid and accept the risk that their formal proposal may not tally as expected.  Jobs are won and lost on these terms all the time.

“Teamwork is everybody doing what I say”.

At the estimators desk, the “teamwork” here allowed the GC to hire the most irresponsible and incomplete bidder.  Without the 2nd and 3rd high bidders, the low bid proposal would lack comparison data .  This creates a significant trap to the unwary or uniformed estimator.  If this situation persists over several bids, it would become obvious that there is little incentive for bidder #3 to continue submitting proposals.  If bidder #1 is consistently missing scope items, this may be a sign that they are attempting to snag change orders. This is an insightful example of how that GC’s brand of  “Teamwork” may be perceived!

How to lower prices

“Better call in the D team…”

 

Lessons learned

It’s reasonable to compare proposals. Sometimes unexpected items will come to light on a proposal which prompt follow-up questions to other bidders.  There is a certain duality to be expected where conscientious bidders may include so many details into their bids that they drive themselves out of competition.  Likewise, the lax or harried bidder may miss something that makes their bid low.  It’s the estimators job to sort all of this out, to include calling and scoping apparently incomplete bids.

This is entirely different from maintaining a subcontractor list intended to facilitate hiring hack bidders.  The GC must offer value to the subcontractors if they are to receive bids.  If the GC will accept incomplete bids, the playing field is tilted against the professional subcontractors.  From the outside looking in, this is little different from bid-rigging since legitimate bidders cannot expect a contract in good faith.

Correcting course

Hack bidders should be directed  to submit complete proposals or risk disqualification.  The estimator must fortify the GC position by more thorough take off pricing to back-stop these risky subs.  Unsophisticated subcontractors may offer attractive pricing that’s worth the risk.  Be cautious of staffing projects with such firms.  As the saying goes, trust but verify.

GC’s must strike a balance between subcontractor sophistication and market value.  Those that do, find themselves winning competitive work profitably.  Those that don’t are either losing money or losing bids.  Don’t let it happen to you.

 

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© Anton Takken 2014 all rights reserved