Tag Archives: GC

The cost to quality fallacy

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

Photo by Geir Tonnessen

Photo by Geir Tonnessen

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

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

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

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

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

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

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

Photo by Moyan Brenn

Photo by Moyan Brenn

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

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

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

The importance of context

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

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

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

Is it them, or is it me?

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

But what about overpriced change orders?

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

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

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

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

Photo by simczuk

Photo by simczuk

Artistic rendering of a project with a change order dispute

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

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

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

The highest art in being the lowest bidder

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

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

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

The best deal

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

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

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

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

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

The high price of a bad deal

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

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

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

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

 

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© Anton Takken 2016 all rights reserved

 

 


Warning Signs

Will Rogers once said “Good judgment comes from experience, and a lot of that comes from bad judgment”.   While there’s certainly some truth in that statement, an awful lot of suffering can be avoided by recognizing some common warning signs. It’s been my experience that all the truly awful projects had one thing in common; dishonest people. I realize now, that every one of them put off some warning signs right at the beginning. So in hopes of sharing my hard-earned good judgment, I’m going to start with some background on why people disregard warning signs.

Warning signs

“I’ve got three good reasons why we should turn back…”

Judgment isn’t an insult

Right off, we have a popular perception that exercising judgment on the actions of others is an unkind or hurtful act. In simple terms judgment is the ability to make considered decisions or come to sensible conclusions. We have to exercise judgment to make good decisions. Estimators exist because there is uncertainty. If it were possible to simply add everything up, our job would be done by cashiers or accountants. It naturally follows that estimators must exercise their judgment if they are to do their jobs successfully. Estimators cannot afford to limit their perspective to the documents they’ve been provided. The project will happen in the real world, which means the uncertainty and risk of everything involved in the project should be considered. There are times where the people involved are the greatest risk of the project. Ignoring or underestimating the harm a key player can inflict, is a potentially ruinous mistake. If giving everyone the benefit of the doubt was a universal business practice, contracts wouldn’t lock in the estimated price.

Critical thinking

Getting back to influences that shift perspective, we must move to ethical reasoning. Critical thinking, also known as the Socratic Method is the classical means to grapple with moral dilemmas.   The basis of the approach is a line of inquiry meant to draw out ideas and underlying premises. A series of hypotheses are presented, and each is tested to rule out those that lead to contradiction.

The clean and clinical Socratic Method takes a turn when you’re considering what to do with potentially dishonest people. It’s here that we entertain “devil’s advocate” or “how would you feel” arguments about the merit of your concern. I’ve worked with diplomatic and polite professionals who simply couldn’t bring themselves to see potential malice in others. Naiveté and bad judgment are constant companions. A lot of wrong-headed policy decisions are made by people who want to appear virtuous without doing the work to ensure a moral outcome.

For example: A General Contractor (GC) may become aware that their client isn’t conducting a fair bid. Their competitors are benefiting from additional time or information that’s not shared formally or equitably.   Nevertheless, this GC upholds their “policy” of bidding according to the terms of the Request For Proposal (RFP) simply because they were invited to bid.

 

Virtue-signaling

Virtue-signaling, is more about the appearance of virtue, than acting with moral fortitude.

Warning signs

Sure Al could bike to work and avoid the traffic, but then nobody would see how superior he is.

In my example above, the GC is knowingly consuming their subcontractors (subs) time chasing a bid for an unethical client. Not only are they unlikely to win the job, they’d be contractually bound to a dishonest client if they did. Obviously it’s not the GC’s fault that their client is acting dishonestly. However the GC has options to act with integrity. The GC could contact the client with their concerns and withdraw from bidding if they were well-founded. The GC could also opt to submit a conceptual courtesy bid to give the client, their subs and themselves a face-saving exit from a bad situation.

Hope and second guessing

Entrepreneurs are an optimistic bunch. Seeing an opportunity in every difficulty is a critical component of their success. Estimating is a craft but lots of entrepreneurs start to see bidding strictly in terms of competition. Estimators may take pride in landing a few percentage points apart on bid-day because they’re aware of how hard it is to get to that total. Unfortunately, narrow losses are still losses. Tight markets increase the pressure on estimators to capitalize on every opportunity. Lots of desperate estimators jump at the chance to bid on turkey jobs because they’re hoping more than they’re thinking. Second-guessing your hard-won knowledge is using your best tools to build a trap for yourself.

Warning signs

Legitimacy and reciprocity

Take a moment to consider how construction estimating relates to clients, the market, and to contracts. From the RFP to the contract award there are a chain of events that proceed entirely on good faith. The client expects free bids from the GC’s according to the construction documents (CD’s) by their deadline in exchange for fairly awarding the contract to the winner of the bid.

There’s a lot to unpack in that last statement. The GC’s are committing their resources and the resources of their subs to providing a bid based on the client’s CD’s. Those resources are expensive and they are limited. So what’s in it for estimators facing lots of competition? The client is promising to fairly award the contract to the winning bidder. This obliges the client to prove the bid was fair by providing bid results to everyone. So each estimator is guaranteed to get either win a contract, or information on how to win their next bid. Anything that’s true at the Client-GC level is equally true at the GC-Sub level.

Estimators have an obligation to responsibly invest their company’s time in legitimate pursuits. Therefore the legitimacy of a potential opportunity, is dependent on the client’s reciprocity. Estimators must understand that a foolish investment cannot be recouped. So it is especially important to pay attention to early warning signs.

Warning signs

Warning signs

#1 The CD’s don’t support the clients schedule

For example, a client with a set of 50% complete drawings dated yesterday who claims they’re already in for permit so they can start the day after bid-day.

Unless the job is very small, it’s implausible that the clients design team could finish half their work in the time it would take you to bid the job. Even if that were the case, why pay to submit plans that aren’t likely to pass building department review if the completed drawings were forthcoming? The job is obviously not going to start when the client claims, so what is really going on? Bidding on incomplete drawings means that the estimator will have to creatively “fill in the blanks” of the design. Some clients use this ambiguity to request alternates or Value Engineering ideas for their project. These clients take the best ideas from the “free” bids and direct their design teams to include them in the final plans before putting the whole thing back out to bid. Feigning urgency and in need of assistance is a tactic to attract bidders looking to convert a conceptual estimate into a contract. I’ve seen clients who consumed so much of a GC’s time in estimating that the job was no longer profitable to build. That’s a very expensive way to give your competitor a job!

#2 The plans are ancient

Warning signs

We’re working with a familiar design…”

Most legitimate projects on the hard-bid market will have plans that are dated within a month of the RFP. Design development can be a lengthy process that taxes the clients’ patience to get underway. Most clients are in a tremendous hurry to get their projects out to bid because it’s a major step in getting their project built. CD’s that are several months old could indicate that the project has previously bid. Savvy estimators might figure they must have come in over-budget so they’re re-bidding the job. They might be right, but it’s worth considering that a budget-blowout is cause for design/scope revision.   Revised drawings get new dates, and that didn’t happen. Clients who simply felt they could get a better price by re-bidding are violating the basic reciprocity that makes them a legitimate client. They’re simply beating the bushes looking for someone below market value.

#3 The plans show more scope of work than the RFP requires

They’re called Contract Documents for a reason. The contract requires everything shown on the plans and specifications. Vague and/or informal instructions to “just bid this part” of a larger project creates a situation where the contractor can’t simultaneously follow instructions, and address their contractual risk. Why wouldn’t a legitimate client pay their design team to define the limits of project scope in a contractually enforceable manner? In my experience, these clients are feigning a competitive bid to collect information for later negotiations.

#4 The plans have the wrong address

Believe it or not, this is an incredibly common practice with chain stores and restaurants. Plans for a project in a different state are put out to bid with instructions to bid as though it’s identical to the proposed location. When the client won’t invest enough to revise their drawings for a new location, it’s a warning sign that they’re not sincere about writing a contract with you.

#5 The plans have a different contractors name on them

Its common practice for contractors engaged in design-build projects to have their names and logos put on the plans they develop. So when plans are put out to bid with a different contractors name on them, it’s an indication that a design-build contract fell through. Most contractors make their money on the build portion, so it’s unlikely that they’d happily give up that work. I’ve encountered situations where a competitor was suing the client because they were never paid for their design. It was difficult to imagine a successful project emerging from that debacle.

Warning signs

“Laugh all you want Tim, they’re your client now!”

#6 The client is still looking for money

Charity organizations are often obliged to fund their projects with some combination of pledge drives, donations and loans. There’s nothing wrong with that however an estimator needs to be aware of when a client’s ambition exceeds their finances. I’ve been to job walks for church remodels with a pledge drive “thermometer” showing they’d only raised a fraction of their goal. Those projects never got off the ground despite the client’s optimism.

#7 Unprofessional plans and bad clients

Clients tend to attract design teams with similar priorities. Truly excellent clients are generally willing to pay for the best professionals so their projects are successful. The worst design teams tend to work for clients with risky priorities. Projects that are run by committee like Education, Religious, and smaller Government facilities are bastions of poor decision-making. These groups are often seeking to spend their entire budget so they generally require a multitude of alternates that allow them the means to “upgrade” from their basic project without seeking additional funds. Vague, misleading, and incomplete plans are par for the course because these clients want to spend as little as possible on their design. In many cases, the committee members have no construction experience so decision-making and leadership will be haphazard at best. The design teams focusing on this market are well-versed in the arguments that poor plans create. No matter how incomplete the plans, these design teams will make certain they’ve laid all responsibility on the contractor.

#8 Past as prologue

Chain stores and restaurants have a tendency to use a “universal” design for all their locations. Over time, the company builds new stores and encounters change orders for something that was wrong in the plans. The client directs their design team to change the plans for all future work which generally takes the form of an added note on the plan. Over time this “universal” plan becomes inundated with obscure, trivial, and often pointless notes that solely exist to prevent change orders. The clients desire to avoid change orders creates a situation where the relevant scope is concealed from the bidders. A better plan would require fewer notes and would communicate more effectively, but the client isn’t willing to pay for that.

Similarly, clients with onerous RFP requirements designed to facilitate future arguments speak to the clients history. While it’s understandable that a client would want to avoid past mistakes, it’s worth considering what the client learned from that experience. Dishonest clients are often convinced that everyone is trying to cheat them. These clients tend to believe that cheating is simply a matter of beating the contractor to the punch.

#9 Nobody gets the same story

Clients and/or design teams that only answer questions off the record may pass it off as a means to rapidly respond, or to foster a “friendly” rapport with the GC. The bureaucratic process of writing an RFI, and getting it answered via an addendum is admittedly a lot of impersonal work. The great advantage of the formal process is that it’s the only way a bidder can change the contract documents. Moreover, the formal process also provides a measure of assurance that your competitor is getting the same information. If the client and their design team won’t provide direction formally, there’s a chance it won’t be a fair bid.

#10 The job has bid before         

Reciprocity is tied to legitimacy and that’s especially true when it comes to clients who aren’t willing to award a contract to the low bidder. Lots of clients put their projects out to bid at the Schematic Design, and Design Development, stages to “check” that their design is within budget.

Warning signs

Conceptual bidding: a process of going nowhere until you reach your destination.

Unbridled optimism leads GC’s to think their conceptual estimate will be so good that the client awards the contract before the Construction Document’s are finalized.  This process is known as “client capture” and it’s great when it works out. However unless the client has made promises to that effect, it’s more likely that the client expects this professional courtesy to be free of any reciprocal obligations.

There are some clients who maintain this perspective even on their “final” drawings. They are constantly beating the bushes for better prices by re-bidding the job with different contractors.   Developers are particularly given to this practice. An absolutely staggering amount of market resources are wasted on these pricing exercises.

Clients aren’t the only ones who use this tactic, unethical GC’s who’ve won a bid will solicit new bids in a gambit to find a cheaper subcontractor. The subs who brought the GC their bid-day victory, are rewarded by a craven attempt to gain profitability via their competitors after the fact. Whether the GC is technically engaging in outright bid-shopping or not, it’s absolutely wrong.

You may discover your project was previously bid when vendor quotes are faster than normal and carry the date of the original bid. Distributors will often call subs to ask why something is bidding again. These same people will contact the previous bidders tipping them off that the job is back out to bid. GC’s who suddenly receive an early proposal from an uninvited sub may have good reason to suspect they’re not the first to bid the job.

As warning signs go, learning that a job has bid before should be cause for serious concern. There are very few legitimate reasons why a client would be forced to re-bid a job. Clients with contractors or financiers backing out of the deal would be a legitimate reason, however this is extremely rare. Subcontractors should be especially concerned about any GC who’s trying to get a sub proposal after the GC won a bid. The best case scenario is the GC had a sub back out on them. Any GC who’d accept proposals from hack bidders to win a contract isn’t willing to control the project’s risk. Why sign up to work with a rogues gallery of misfits who will drive the project into failure? It’s far more likely that the GC is trying to undercut the subs who helped them win in the first place. These GC’s won’t become more honest after contract award.

A note for the cynical

Oscar Wilde once said; “A cynic is a man who knows the price of everything and the value of nothing”. Estimators spend a lot of time figuring out what things should cost. It can be easy to lose sight of the bigger picture where estimating translates to controlling risk. Every enterprise will rely on people acting in their interests, in accordance with their nature. My answer to the cynics is to pay attention to people’s nature. Most of the problems we seek to guard against fall into patterns of behavior that are more complex than avarice. From the estimators point of view, there may be more risk in working for the indecisive, or ignorant than the greedy.

Many estimators fail to grasp the significance of picking good opportunities to pursue. Successful estimating starts with culling the lost causes, and the wastes of time. Impressing a client who won’t hire you isn’t worth much when your company needs work. It’s very important to understand that our industries malefactors are perfectly aware of how hopelessly optimistic contractors can be in hard times. Feigning legitimacy is their stock-in-trade so hard-times call for serious consideration of who you’re dealing with. Estimators working in a down market must recognize these warning signs as a basic survival skill. Working for a bad client in hard times has put many companies in dire straits. It doesn’t take much for a single bad job to pull an entire operation down. Estimators have a duty to protect their firms by heeding warning signs and steering a better course.

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© Anton Takken 2016 all rights reserved


Why people won’t follow instructions

If you work long enough, you’ll eventually have a moment where you’re stuck wondering why someone didn’t follow your instructions. Estimators, especially estimators working for a General Contractor (GC) struggle to get their subcontractors (subs) to follow instructions all the time. It would be easy to suppose that typical explanations such as inattention, or laziness explain this behavior but there are overlooked reasons that could be playing a role here.

Why people won't follow instructions

“Wait,  I can explain…”

 

A reflection on risk

Let’s start by considering something that all estimators have in common; risk. Risk is the uncertainty of a return and/or the potential for a financial loss. If we really think about it, controlling risk is more important than simply winning work. For example; winning a risky job is worse than losing a profitable opportunity.

The GC’s contract exchanges the liability of the entire project scope for their bid amount. The GC controls the risk by contracting portions of the project scope out to subcontractors. Once the project scope is divided and attributed to the subs, the GC’s remaining risk is greatly reduced because they have the contractual means to enforce performance.

This means that the GC estimator is primarily concerned with “complete” sub proposals. Exclusions, clarifications, or limitations that leave uncertainty for the GC estimator are considered potential “holes” in their plan. It’s understandable that subs not following instructions is a common frustration for GC estimators.

Perspective on the plans

The sub estimator has a profoundly different perspective because there is very little contractual latitude when it comes to accepting liability for their scope of work. Sub estimators are keenly aware that they must bear responsibility for misunderstanding, overlooking, or underestimating the scope of work shown in the Contract Documents (CD’s).

It’s incredibly rare for design teams to accept financial responsibility for misleading, incomplete, contradictory, or incorrect information on their designs. Specifications often stipulate that any design errors or omissions must be brought to the design teams attention BEFORE the bid via a Request For Information (RFI). Many projects obligate the bidders to walk the job. Some specifications even require bidders to verify hidden conditions during the walk regardless of how impractical or impossible that really is.

Why people won't follow instructions

“We’re all along for the ride, but Engineer’s hate field trips…”

Essentially the design team expects the CD’s to be vetted and reviewed for constructability before the bid deadline, free of charge, and they believe this is grounds to dismiss change order claims based on the inadequacy of their design at bid time.

A competent GC estimator understands that they are empowered to write RFI’s, and bid directives to communicate the questions and answers necessary to work around issues with the CD’s. Sadly, many GC estimators assume a passive role when it comes to inadequate CD’s because timelines are tight, Architects might get cranky, and it’s a lot of extra work. Some GC’s won’t write an RFI unless there’s a subcontractor “revolt” where all the subs of a given trade refuse to bid unless an issue is resolved. This attitude starves the subs of any recourse to address uncertainty in the plans, so they resort to exclusions, clarifications, limitations, or outright declining to bid.

Last minute bidding and why we’re all in a hurry

Lots of GC estimators maintain a rigorous bid schedule. There’s lots to do, and little time to get it done. Subs rarely have the luxury of working for a single GC, so they deal with exponentially more projects than the average GC. Their scope is limited, however they’re liable for every single component which makes it very stressful to keep up.

As I mentioned earlier, RFI’s are part of the bid process which inevitably leads to changes in the CD’s or scope of work. Design teams love to answer all questions a day or so before the deadline. Maybe this is because they’re hopelessly optimistic that they’ve resolved every possible issue for the bidders. In truth, it’s very common for addenda answers to actually create more problems than they solve.

Why is it so hard to know what changed?

Every year, fewer and fewer design teams bother with addendum change narratives which itemize the changes made to the CD’s. The assumption is that the Architectural standard practice of “clouding” or “bubbling” changes to the CD’s makes it clear what they’ve done. In reality, there are often changes made that aren’t bubbled. Presumably the assumption is that everyone is using digital take-off systems that can do overlays to reveal the hidden changes.

Overlays can take a lot of time to do. Minor changes shown on an overlay can induce eye-strain, making the addenda a literal headache! Often it’s less work for the Architect to simply revise the entire drawing set and transmit it digitally. This can mean overlays of pages without any changes at all. Larger projects may have several such Addenda, which can quickly overwhelm a subcontractor.

For the sub who’s always several bids deep, the most efficient way to handle this deluge of information is to do their quantity take off (QTO) at the last moment. Bidding off the final addenda set avoids all the misery of earlier overlays, but it leaves them with little time to complete their estimate.

GC estimators looking for less drama on bid-day should itemize the changes made in each addenda according to their bidders scopes. Maintaining a running list of changes and supplementing with instruction/ direction where necessary limits the amount of scrambling a bidder has to do to deliver a complete proposal.   GC estimators who strive to lower their subs risk get better pricing. The GC with the best sub-pricing can be simultaneously cheaper, AND more profitable than their competition. I know of a few GC estimators who’ve rejected an Architects addendum until they provided a change narrative and bubbled drawings. Setting a precedent with the design team at the start of the project kept the addenda from becoming unmanageable.

Email mountain

The ease with which information can be transmitted via email can lead to inboxes that are inundated with messages. Bid letting software allows an estimator to mass-communicate with all the invited subs to share every document, file, and change. Many bid-letting programs automatically send out reminders to bid, often to multiple contacts at each subcontractor. On the receiving end this can mean upwards of a half-dozen emails per project, per client, and per contact. Projects with short deadlines can go from invitation to bid, to addenda, to bid day reminder within 24 hours. Many of these systems don’t communicate the basics about the project in any of the emails. Subs have to log in and navigate to files they must download in order to find out what they’re being asked to do.

Sure, the information is available, but it’s parceled out into several “Go find what I sent you” exercises that waste the subs time. If GC’s want their instructions followed, they should put themselves on the receiving end of their systems to see what’s going out to their bidders.

Why people won't follow instructions

“Our servers improve your fitness by exercising your patience”

Cloud based file sharing has become incredibly popular because all the documents are constantly available to everyone. Some teams are careful to separate different editions of the CD’s to maintain documentation of the changes. Other teams make no real effort to retain older CD’s which means the documents can and do change between the invitation to bid and the deadline. This can create a real hazard to the bidders who may not receive any notification of the changes. I’ve worked for unscrupulous GC’s who replaced the CD’s after the contract was written in an attempt to avoid paying for change orders. All the supposed benefits of shared files pale in comparison to the risk of being unable to prove what was and wasn’t on the CD’s at bid time.

I encourage every estimator to download and save the most current CD’s on bid-day into a time-stamped file.   Keep that file for your records, because it may not be there later on.

Smarter than you think

So far, I’ve focused on information and risk management reasons why a bidder won’t follow instructions. The GC estimator should provide leadership to clarify, consolidate, and communicate what needs to be done. There is a lot of trade-specific knowledge required to understand and bid the scope of the skilled trades. A lot of GC estimators aren’t sure what to do when they’re presented with a complex issue, so many default to asking for alternate or breakout pricing. Alternates can double or triple the amount of work to bid a project. Not only is it more work, alternates might be misunderstood, misapplied, or used against the bidders interest. Arming the client with information that leads to wrong decisions is bad business.

If the GC estimator don’t understand the issue, it’s unlikely that they will clearly communicate the alternates to their client. Some GC estimators in this position will simply add up all the alternates just to “be sure” they’re covered. Subs see these GC estimators losing bids because they don’t exercise good judgment with the information presented. In some cases the sub is truly trying to help the rookie or fraidy-cat GC estimator win, by ignoring their alternate request.

Don’t kick the hornets’ nest

Material specifications don’t happen by accident. Design teams are paid to select, define, and enforce the material specifications for their projects. This becomes a very contentious issue when a specified material is overpriced. Corruption thrives wherever transparency, competition, and accountability are lacking. Some material vendors and distributors have extensive relationships with design teams who protect them from competition by sole specifying their product. Lots of GC’s will request alternates for Value Engineering or Alternate equal pricing to replace overpriced material. If the difference is significant, they present it to the client.

Subs may refuse to provide this pricing for several reasons. First off, the design team has a vested interest in their specified vendor. It’s therefore unlikely that they will happily accept an alternate product that would expose their budgetary irresponsibility.   Second, the more extensive the corruption, the more control the malefactors have in the system. Releasing material pricing just before the deadline is a favored tactic because it precludes bidders from seeking another option before the deadline. The subs may simply not have time to find an alternate solution. Finally, the sub understands that solving the GC’s budget issue isn’t a guarantee that the sub will be awarded a contract. Many GC estimators see no problem using one sub’s alternate in conjunction with another subs proposal. They figure their low sub will be able to find the same deal on the alternate material later on. So the sub who kicked the hornets’ nest gets noncompetitive pricing on all their material bids, while their competitor lands a contract.

Why people won't follow instructions

 Chris has plenty of time to consider how his hard work left him in the cold.

A lot less than nothing

It bears mentioning that lots of GC estimators entertain endless post-bid client requests to value engineer the job. Some clients instruct their design team to incorporate all the best ideas, then put the job back out to bid. I call it “Design by bid” and it’s an incredibly expensive way to give your competition a job.

GC estimators looking for a solution here should consider writing RFI’s requesting alternate specifications for sole-specified overpriced materials. In some cases, it’s smarter to ask for performance specifications because it’s difficult for a design team to go on the record refusing to accept an equally performing product.

Most design teams stipulate that alternate materials must be submitted for approval before the bid. Since it’s virtually impossible to know precisely how overpriced the material will be before the deadline, it’s hard to tell when this will be worth doing. Experience in a given market will expose the relationships underpinning the corruption, so long as you’re paying attention.

Defensible decisions beats conditional clarifications

Contradictory, misleading, and confusing requirements are part of an estimators life. Controlling risk often comes down to judgment calls on the information you’ve got at hand. It’s a weird quirk of estimating that people tend to overlook justifiable confusion during the bid because they’re sitting on the post-bid answers. “Of course they wanted X instead of Y, here’s all the supporting reasons that make it obvious…” Nobody cares that there may be just as many compelling reasons to support a preference for Y, because now the client’s telling you what they want.

This mindset carries into reading proposals at every level. The presumption is that your proposal is presenting a complete scope of work for a bid amount. Clarifications, especially complex conditional clarifications are seen as fine print or worse; weasel wording. Anything that savors of sneaky dealing works against the estimator. From a practical standpoint, it’s better to articulate your scope of work in terms of defensible decisions. The more simple and defensible your decision-making is, the more your client trusts your motivations.

Let’s say there’s an obvious conflict in a design that could potentially go three different ways. If a sub sent over a base bid with two alternates to cover all the options, they’re taking a risk that the GC won’t know how to scope their bid against their competitors who didn’t price any alternates on their proposals. These alternates make the GC estimator responsible for the outcome of their decision-making. Lacking knowledge, experience, integrity, or time, the GC estimator may make the wrong decision. These moments can have real costs in terms of bids, relationships, and reputations.

The imaginary alternate

Some projects have a long list of alternates that are scarcely defined in the CD’s. I’ve seen projects that had four elevation drawings of a single occupant restroom, yet an alternate for an additional building was defined entirely by three sentences in the specifications! I call these “imaginary alternates” because they exist only in the client/architects imagination. Experienced estimators know that any price you provide can be used against you. Imaginary alternates offer no tangible defense for decision-making. The only defensible decision, is to not price them. Estimators should respond to imaginary alternates with “To Be Determined”, or “Price Pending Design”.

The bid template

Just about every rookie GC estimator who has scoped a stack of sub proposals gets tired of how difficult it is to simply compare one against the other. The myriad ways that bidders word their way around promising to “have everything” can be very frustrating. Their grand solution is a bid template which not only orders the information, but neatly prevents the subs from excluding anything inconvenient to the GC. The GC estimators plight is understandable, but misguided because they’re ignoring the autonomy of the subs. It’s the subs autonomy that makes them an effective risk diversification strategy for the GC. Attracting market-leading subs not only lowers the GC’s prices, and raises their potential profit, but it also reduces the risk of subcontractor failure. GC’s with a myopic focus on bid templates convey higher risk to the subs. We’re estimators because there is uncertainty. If we can’t address the uncertainty via clarifications or exclusions, the risk becomes unmanageable without raising the price. Bid templates are an excellent way to efficiently lose bids and repel market leaders.

Why people won't follow instructions

A better alternative

A bid checklist is a subcontractor level list of applicable scope items with columns to confirm, add, or subtract funds to correspond with the GC estimators plan. Not only does the form automatically tabulate the “apples to apples” amount between bidders, it provides all the bidders with the same criteria, and equal time to respond. Getting the subs “on the record” in terms of unclear scope inclusions is invaluable for when Project Managers are writing contracts. Perhaps best of all, the checklist allows the subs to protect their interests and control their risk by supplementing rather than replacing their proposals. If done correctly, it’s possible to use the GC estimators actual estimate to output bid checklist forms, thereby saving considerable time for everyone. It’s easy to overlook just how much time a GC estimator spends trying to call the subs individually. Bid checklists can be mass-emailed to all bidders. The answers return in black-and-white terms that simplify decision-making.

Clear, well-reasoned instructions backed by good faith efforts to make the project successful make all the difference.  Bidders want to be on the winning team, and will happily do their part to the extent they believe it will benefit them.  This means that ignored instructions communicate something counter-productive to the bidders.  Estimators who build on this feedback may find ways to re-focus their efforts and get the results that matter.  If our purpose as estimators is to win profitable work, we should evaluate our processes with clarity of purpose and keep only what works.

 

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© Anton Takken 2016 all rights reserved

 

 


Stress and boredom

Life as a construction estimator involves a lot of ebb and flow. Building estimates, doing quantity take offs (QTO’s) and tabulating results can range from steady progress, to boring slogs through minutia. Sharply contrasted are bid days which can move at a fevered pace studded with snap decisions that will make or break all the work that’s gone before.

There’s a hidden nuance to this pattern; boredom is its own kind of stress. Tedious or repetitive measurements are prone to error because it’s difficult to recognize subtle differences when everything looks the same. Conscientious estimators know that boredom can lead to mistakes. It can be very frustrating because checking for mistakes often means going through the same boring material. Each review loses its potency until you’re so familiar with the material that you’ve lost perspective.

Stress and boredom

Even estimators who aren’t worried about making mistakes can find boredom stressful. Tedious and repetitive tasks are the “grunt work” of estimating. In firms with a dedicated estimating department, the hierarchy often dictates who does what. Since General Contractors (GCs) employ fewer estimators than Project Managers, Project Engineers, and Superintendents, the estimator advancement potential at any given firm is typically tied to vacancies or company growth. This can lead to situations where seniority is a greater factor in advancement than skill, ability, or performance. For the perpetual “junior” or “assistant” estimator, this can mean years of doing the grunt work without much opportunity to advance your skills. Human Resource professionals refer to this condition as “underutilization” and it’s been shown to harm morale, and reduce productivity.

Stress is often discussed in exclusively negative terms which can serve to conceal the real picture of what’s going on. For example, bid day can be described as a hectic experience with plenty of hazards to negotiate. Bid day might also be described as the culmination of weeks of labor where all the parts come together according to plan, ending in a well-deserved victory. Lots of folks are so used to thinking of estimating as a brief process in a larger chain of events that it becomes reasonable or them to think that generating a price is like turning a crank. Smooth and uneventful bidding reinforces this perception while concealing the work it took to get there.

Being part of a well-organized and highly motivated team of professionals can be exhilarating. Spending the day in constant motion makes it seem like time is flying past. However it’s often difficult to “let go” of everything in your free time. As an estimator I’ve lost more sleep thinking about mundane jobs than I’d like to admit.

Stress and boredom

Smoothing the peaks and filling the valleys

From an outsiders perspective, it might be difficult to see what estimators are getting so worked-up over. To most folks, estimating is a combination of ringing up a total like a cashier, and running an audit of the plans. The reality is that estimating is about controlling risk. There are many forms of risk to contend with, but uncertainty is the one that attracts the most estimator attention. QTO’s go a long way towards becoming certain of what’s required. The natural extension of this thinking is that greater detail leads to higher certainty. The problem is that time is always limited, and there are risks beyond what’s depicted in the drawings that must be accounted for. Minutia nourishes limited perspectives while starving big-picture thinking. Estimators need to understand the driving forces of a project in meaningful and actionable terms. GC estimators should build their estimates to furnish pertinent information for comparing and scoping subcontractor bids. For example, it’s not as important to know component level pricing (screws, nails, etc) as it is to know assembly level (meeting room carpet, air handling unit, etc.) pricing.

There’s a balancing point to be struck on relative detail. You’ll always feel better with a bit more information, but you can achieve a lot with a bit more time early on. When it comes to the really tedious QTO stuff, it’s worth taking the time to consider how useful that information will be. It damages a lot of ego’s to point out that perfect QTO’s of low-value and high tedium items have little bearing on successful bidding. Time sunk into tedious tasks early in the bid cycle robs you of time to develop strategies, answer questions, and direct resources to make the entire estimate successful.

Rather than strictly recording quantities for later comparison, your time might go towards communicating intentions which leaves less potential for discrepancy on bid day. Estimators looking to control risk should remember that losing the job through misplaced priorities is a very real possibility. Perfect spreadsheets are little consolation for lost opportunities.

Routine tasks

Some routine tasks lend themselves to interruption or working in stages, like QTO’s for example. There are some tasks that must be completed entirely or you’ll lose time constantly attending to remaining items that won’t wait.  The Invitation to bid (ITB) is a simple document that conveys the who, what, when, where, and why of the project to the invited subcontractors. Incomplete ITB’s are distressingly common, especially among GC’s who are using a bid-letting software/service. Documents that generate more questions than answers ensure that the estimator will be constantly interrupted by bidders looking for necessary information. Creating an ITB that gives bidders everything they need will take longer to assemble, but it leaves much less for follow-up. Being able to move on from a routine task not only reduces your stress, it’s a vital stage of a successful bid.

It bears mentioning that time spent on bidder convenience is often an investment in reliable turnout. One obvious and constantly overlooked element is the how the Construction Documents (CDs) are configured. It’s a waste of a subs time to download an enormous drawing file just to access a single page. The old argument that giving subs the entire set guarantees they’ll catch the buried architectural note, is hollow because it’s the GC estimators job to find all the “gotcha” nonsense, and communicate it to the subs. Label the individual sheets with accurate and understandable terms. Whenever possible, group the sheets by discipline (Civil, Structural, Architectural, Interior Design, Mechanical, Electrical, Plumbing, etc.) to speed bidders to the files they actually need. Be advised that delegating this task to the office receptionist, or summer intern is a risky move because they rarely understand the pivotal importance of naming things properly.

Stress and boredom

Office designers are finally addressing interns in the workplace

Estimators should develop the habit of organizing their work to maximize expediency, reliability, and professionalism because it’s very likely they’ll need answers in a hurry.

While we’re on the topic of file storage, it’s a good practice to maintain saved copies on more than one machine. For example if the company server goes down, you might need to progress on your standalone computer. Having older iterations on file allows you to “fall back” if your most current version gets corrupted. Plus, it can be handy to have time stamped “save points” to plot your progress through your work afterwards. Don’t forget to maintain this practice on bid-day. It might save your bid should the “war room” computer falter at a vital moment.

Perspective on pressure

About the only thing worse than a tedious takeoff, is knowing that you’re running out of time to get it done. Procrastination and poor planning leads to a lot of unnecessary overtime. We hear about how working well under pressure is a vital quality in an estimator, but there’s little curiosity about the source of the pressure. Estimators need to get their heads up and pay attention to the scope of their own operation. How long does it really take you to get the QTO done for this or that? Working backwards from the deadline, how does the sum of your estimated durations line up with reality?

Fighting the clock

It’s ironic that stressed-out estimators are often unwilling to apply their craft to their own schedule. Create a schedule, then track your time against it so you’ll see when and where you’ll need corrections. Every successive schedule will become more and more accurate. Identify where most of your time is spent, and take stock of what that means. If you’re constantly answering bidder questions, you might consider publishing a bid-directive that proactively answers group questions.

Slow grind

If you’re mired in QTO, it might be time to look into better software, hardware, training, or templates. Looking back at your performance, you should see an increase in QTO speed without any loss in accuracy. If you’re not improving with experience, you’ll almost certainly stagnate or stress out. It’s not discussed much, but lots of GC’s do painstaking estimates on things like paint, but square foot cost items like Mechanical, Electrical, and Plumbing (MEP) simply because they don’t know enough about those trades. The MEP trades are among the most expensive subs on a typical project. These estimators would be better served by square foot costing the paint, and spending the time learning what drives MEP pricing.

Quick-hitter quicksand

If you’re constantly transmitting RFI’s, Addenda, and bid-directives for quick-hitter bids, you might find relief in a higher level of client. Insincere, underfunded, and unprofessional clients rarely attract top-level design teams. It’s a LOT more work to bid an incomplete design for an underfunded client and you’ll have little to nothing to show for it. Marketing folks are loath to admit that low barrier to entry clients are the most likely to waste an estimators time. Tire-kickers aren’t clients, pretending otherwise is busy work theater and you’ll be the star of the show! Conceptual pricing techniques shouldn’t drift into design-build territory.

Stress and boredom

Bob’s not sure why he never wins, but he’s having fun and that’s the important part.

There’s a lot of fast ways to render a courtesy bid without wasting your companies (or your subs) resources. Good record keeping builds a vital reference resource for these tasks.

Redundant department of redundancy

Some GCs strongly believe that good sub turnout on bid day is directly tied to “working the phones”. Nagging subcontractors to bid is an incredible time-sink that’s based on a fundamentally flawed perspective of how bidder relationships should work. Estimators often call a project an “opportunity” because a competitive bid offers professionals a chance to win a contract by doing their best as part of a team. If the GC or the project lack sufficient luster to attract market leading subcontractor attention, it’s spectacularly unlikely that any amount of nagging will change that. Building “pull” with subcontractors is a function of establishing a valued relationship with the market. Winning bids obviously gets the market’s attention, but so too, does transparency, honesty, and leadership. There’s a lot a GC estimator can do to bid an “ugly” project successfully. Nagging is never the answer. Voluntary, accurate, and timely bid results are the single most effective means for building pull in your market.

Furious futility

Some GC’s respond to lost bids by increasing the volume of bidding in the hopes that volume will lead to victories. Grinding out bids as quickly as possible means that there’s never time for strategy, skill, or teamwork. There’s never a shortage of low-end clients looking for quick-hitter bids. Sadly, the majority will be fruitless because insincere clients and urgent bid requests are constant companions.

If you’re tracking your estimates, you’ll be able to assess projects in terms of how successful you expect to be. Lots of companies think they’re excellent at everything, but the reality is that most companies are only market leaders in specific areas. Estimators should keep in mind that the project management side of their firm may adore a client or design team that’s generated profitable change orders. Being profitable on the basis of what might happen is better known as gambling. Estimators should be looking for work that will be profitable at the bid amount. GC estimators should learn to look at their market potential in terms of their subcontractor base. If the GC can’t attract market leading subs for the work in question, they’re going to lose to a contractor who can. Picking work that aligns with your best subs abilities is critical to success. Most GC’s see this entirely backwards. They pick projects that look profitable, easy, or fun to manage. If they chose work that aligned with their market leading subs, there would be less difficulty, and more profitability, regardless of how fun, pretty, or prestigious the project appears to be.

Blind faith in the process             

Estimators need to maintain a sense of purpose. You’re there to profitably win work by controlling risk. While we spend a lot of our time building estimates, it’s vitally important to maintain perspective on the market, competitors, and clients. There’s entirely too much blind faith placed on QTO’s, spreadsheets, and bureaucracy. Estimators need to see what’s really going on and they need to respond accordingly. Contracts are awarded to the best market value, if you don’t know what that is, you’ll struggle to profitably compete.

Perspective is an investment

The key to building a meaningful perspective is to faithfully record what’s happened on past bids. Bid results are often treated as a vestigial appendage of the estimators craft. “Yeah, yeah, we lost but we’ll do better next time…” neatly sums up the attitudes of many estimators. The bid cost real time and real money to produce. It’s truly remarkable how little effort goes into defining how a job was lost, compared to the work put into bidding. With a more accurate picture of what happened on a loss, the next bids benefit from refined judgment. REALLY simple things like getting a winning competitors sub on your bid list can make all the difference. There’s an interesting element to post-bid investigations that’s constantly overlooked. You get more information from your allies, when you share more information with your allies. Once an estimator has lost their bid, they’ve got plenty of useful information to exchange that can materially change their position on the next bid.

Stress and boredom

Earlier I brought up career stagnation in estimating and it’s here that I hope to offer some help to the folks trapped on the lower rungs. Most GC’s aren’t particularly scientific about tracking their bids, their subs, or their markets. By and large, they trade on their established contacts in their market which brings them varying degrees of success according to luck, market conditions, and subcontractor quality. If you’re doing the grunt work without seeing much opportunity for advancement, I encourage you to build your own tracking systems to help define for yourself what is and isn’t working. Be advised that your daily tasks are higher priorities to your superiors so it may be necessary to invest your personal time.

Be cautious about relying on small data sets, or those with wide-ranging values that will skew results. In time you’ll develop perspective on your clients, your market, and your subs. If you decide to offer suggestions on how things might change, you’ll have facts and figures to lend credence to your perspective. Advancement is never guaranteed, but you’re wiser for the effort and you’ll learn what to look for wherever you go. It’s worth pointing out that we’ve all learned from those who went before us. Do your part to improve our craft by sharing what you’ve learned. I’ve found that a policy of forthright honesty has been a profound and enduring advantage against my competitors.

Policy driven pinch points

The bid-day blitz can be a terrifically stressful experience for a GC estimator. Bids come rushing in at the last moment and everything must be done at high speed if you’re to make the deadline. Last minute sub proposals aren’t happening by accident. It’s a calculated effort to limit or obstruct bid-shopping by starving the estimators of time to act. Getting right to the root of the problem, last-minute bids are a sign that the market views corruption as a serious threat. The lack of trust may be anywhere in the supply chain. Corruption thrives in secrecy and wherever it’s possible to curtail competition.

Accountable transparency is the only effective way to counter corruption. It’s predictably unpopular because it requires a strong moral compulsion to act when it won’t help you directly or immediately. Lots of people opt to remain silent which prevents the honest majority from working together.

Stress and boredom

Estimators need to understand that they can’t win work alone. Company policies that work against transparency, accountability, profitability, and good judgment should be questioned and if necessary, changed. Estimators need to be able to show the market that they are ethical professionals if they’re to be market leaders.   It’s worth saying that accountability means facing repercussions for mistakes. Estimators should take heart in knowing that while accountable transparency will reveal their honest mistakes, it won’t conceal their honest intentions.

To recap, much of an estimators daily stress comes from incomplete tasks, dysfunctional relationships, and misplaced priorities. With greater perspective, we can find avenues to re-direct our energies towards successful outcomes. Boredom is an insidious source of stress with roots in minutia. We must make the connection between utility and effort before we commit our valuable resources to proving things we already know. Growing our base of knowledge and sharpening our decision-making skills should be constant pursuits. Finally, we should all do our part to improve our craft by acting ethically, sharing what we’ve learned, and facilitating advancement in our ranks.

 

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© Anton Takken 2015 all rights reserved


Reliable Estimating Part 1: Getting stuff out the door!

Estimating is a deadline driven vocation that can be equally exciting and stressful. Many estimators are expected to manage multiple projects concurrently. With time at such a premium, anything that goes wrong on one estimate has the potential to disrupt several projects. Estimators must keep a wary eye on their entire system from Request For Proposal (RFP) to the Project Manager Handoff meeting.

Much of what goes into a reliable estimating comes down to a consistent process. The focus here is on building a consistent and flexible process to accommodate the various projects you’ll encounter. Estimators must balance the speed of modularity, against the need for specificity for every part of their process.

Reliable Estimating Part 1: Getting stuff out the door!

Nobody figured the “kids eat free” special would have caused so much trouble…

Request For Proposal

The RFP gives an estimator some information on the project, deadline, client, where to get the plans, job-walk date, and potentially some narrative of how the client wants the bid to be handled. Nearly all of this information is as useful to the subcontractors (subs) as the General Contractors (GC’s). Yet very few GC’s will share this document because the prequalified /selected GC bidders are listed. Nobody wants their subs bidding to a competitor. RFP’s also convey when the GC was notified of the job.

GCs may have a lengthy evaluation process for RFP’s to decide whether they will bid. Some GCs wait until the job walk before committing to an opportunity. This hedging can consume the lion’s share of the allotted time to bid the job.   These GC’s are always rushing their subs to bid in a fraction of the time allotted. Revealing that their ever-present urgency is a bid tactic might encourage their subcontractors to pursue their more forthright competitors.

GC estimators may be hard-pressed to find time to evaluate an RFP when they’ve got hard-bid deadlines peppering their bid-board. The urgency of the short-term, consumes the planning for the long-term. The only way out of this pattern is to streamline the front end of the process so that there are fewer problems consuming time later on.

Invitation To Bid

An Invitation To Bid (ITB) is how the GC invites subcontractors to bid on their projects. It should be obvious that the ITB should include all the information from the RFP. This is where we meet our first opportunity to balance modularity against specificity.

The ITB is a simple document conveying the Who, What, When, Where, and Why’s of the project. Estimators looking to quickly get through this process might opt to provide scant detail on the ITB since they can readily refer bidders to the Construction Documents (CD’s). A currently popular approach is to insert a hyperlink into the text which leads the sub to a website where the files are available. From the subs viewpoint, a virtually meaningless document arrives, obliging them to further inquiry just to know why it was sent to them.

Reliable Estimating Part 1: Getting stuff out the door!

On second thought, maybe I’m afraid to ask what this is about…

Estimators making templates should configure the template to show only relevant information. An itemized list with check boxes is a tedious means of communicating vital information. I recommend configuring the templates to sort each common job requirement into separate lists for inclusions or exclusions. Forcing the GC estimator to answer these questions, obliges them to become sufficiently familiar with the job to know what they’re asking subs to bid.

The entire purpose of the ITB is to solicit subcontractor proposals which will only happen when subcontractors are interested in the opportunity. Whenever obviously necessary information is buried, it makes subs wonder about the GC’s motivation. Maybe the GC isn’t really trying to win the job or perhaps the information is buried in hope that mistakes will lower prices?

Does this document make me look bad?

Unprofessional ITB’s do more harm than good to a GC. Every savvy sub could rattle off a list of GC’s they’ll never bid to again. Most of the time, the firm was just as bad as their ITB.

Most GC’s use some kind of bid-letting system. Quality ranges from excellent to terrible. The only way a GC can really tell what their subs are getting is to create a false subcontractor with an email address they can check throughout the bid. If this was done, I solemnly believe that nearly half the bid-letting systems would go out of business in a fortnight. The ITB’s out of some really popular systems are an embarrassment to the industry.

Reliable Estimating Part 1: Getting stuff out the door!

Efforts to shed light on code development are ongoing…

Translating to trades

Before we can begin selecting subs, we need to know about the project scope. Unless you’re bidding repetitive projects, odds are excellent that you’ll need to go through the plans carefully considering how you’ll get everything handled. Since everything relates back to the estimate, this process should follow some basic principles. First and foremost, is organizing the project scope according to the Construction Specifications Institute (CSI) Masterformat system. The CSI format codifies every conceivable construction scope into a numerical section broadly defined by divisions. The advantage of this system is a universal organizational structure for everyone in the construction industry. The disadvantage is that CSI divisions are not always related to how subcontractors will bid the job. For example, an Electrical contractor’s proposal will often include everything in division 26 (Electrical) , however it might take a dozen or more different subcontractors to cover everything in division 9 (finishes). Even a fairly modest project may generate an extensive list of CSI numbers. Adding further difficulty, some trades cover multiple CSI numbers, or even multiple divisions.

This is where estimators face an entirely unique problem. Most companies maintain haphazard contacts databases that are tied to Project Management/accounting software systems. It’s incredibly rare for these databases to be searchable for fields like trade or CSI numbers. Some bid-letting systems include extensive subcontractor databases and they are generally categorized by CSI numbers. The GC estimator simply checks every applicable CSI division, and the system generates a list of subcontractors for the GC to send an ITB.   Most GC estimators end up creating their own in-house contacts database using a spreadsheet program.

If you decide to build a database of your own, stick to the significant details. GC Estimators virtually never need a subcontractors mailing address, yet they always need the name, email address and direct phone number of the subs’ estimator. I recommend that the subs contact information be listed in rows, ordered by a column defined for CSI numbers. If a sub bids multiple CSI numbers, copy their information for each individual number.

Estimating is a time-sensitive operation, you’ll need fast answers from subs. If one company doesn’t answer, you’ll need another one to contact right away.

Estimators keen to save time might consider using the specification manual’s table of contents to list out the applicable trades. A very complete specifications manual might include a CSI number for every applicable scope on the project. Far more often, the specifications manual will include sections on work that doesn’t apply to the project. Architects often recycle their specification manuals from larger projects without culling the items that don’t apply. This thrifty approach creates huge files with small pockets of useful information.

GC’s who use the specifications manual to list out applicable trades invariably invite subs who find there’s nothing to bid. The wasted their subs time which eventually leads to ignored invitations. What’s worse, easily overlooked notes on the drawings may still require trades not mentioned in the specifications.

Bid list

The an old adage; personnel is policy has a tremendous bearing on a GC’s ability to profitably win work. Pick the wrong players and bid-day prices aren’t going to be competitive without being risky. This is probably the single most common mistake of GC estimators. They use the same bid-list for absolutely everything they bid. Somehow its assumed that “teamwork” will compensate for fielding subs who are too big to be profitable, or subs who are too small to make production. Profitless work is rarely a priority so big subs get there when it’s convenient for them. The job languishes until suddenly they mob the scene. Change orders ensue then you’ll be waiting for them to return. Too-small subs can’t keep up and they can’t get out of the way. Either case ruins the job for any related trade that wasn’t causing problems.

GC’s spend fortunes on scheduling and project management software systems intended to fix this problem. Pick a better team and it’s amazing how little work it is to make them successful. Please note that better doesn’t equate to more expensive. Market leaders are cheaper AND better than anyone else. GC’s with stagnant bid-lists are the least likely to believe market leaders exist because it would disprove their favorite excuses for losing.

Every estimator needs to be clear on some fundamental points. First, the odds of winning are NEVER even. Second, the estimators who know the odds will either win, or they won’t be surprised at the loss. Third, bureaucratic inertia and dysfunctional relationships are responsible for nearly all the bidding problems between subs and GCs.

Reliable Estimating Part 1: Getting stuff out the door!

Bad relationships will trip you up and keep you down

Soft-headed software for hard-headed bidding

Think about how noteworthy it is that there are extensive bid-letting systems with millions of subs on file. None of them are tracking market-leadership. None of them are tailored to the GC’s interests. There is no such thing as a subcontractor selection system that’s based on anything beyond geographic proximity, CSI designation, Union status, and Minority Business Enterprise (MBE) status. The reason it’s not available, is because GC’s are insanely stingy with bid-results. Nobody knows who won the bid in each division, even among the losing GC’s. This code of silence means that every single estimator will need to figure this out for themselves.

These systems offer little more than a searchable directory of potential bidders. The idea is to blast the entire market, and hope that the market-leader sub will send you a proposal. This approach cuts both ways, since market leader GCs aren’t likely to use a cattle-call approach with their subs.

So what’s the solution?

The answer here is to generate your own classification systems to define the best fit for each subcontractor. Please don’t assume that classification based on dollar value is sufficient. Some subs excel at remodels and struggle with ground-ups regardless of the value. Every descriptive quality that makes a difference towards selecting a market-leading team should be part of your analysis.

Every bid-result should be used to tweak your rankings so you’re staying current. There’s no sense in inviting a sub who won’t be competitive, or worse, who wouldn’t perform. The entire system should be built to sort a subcontractor list based on the calculated likelihood of each sub being the low-bidder. Not only are these subs the most likely to help you win, they are the most likely to bid the job because it’s what they’re good at.

Reliable Estimating Part 1: Getting stuff out the door!

Pat’s really cheap on jobs that don’t require pants

I would recommend using a spreadsheet based system for this. Whatever can be done to format the output to match the ITB template will prove helpful. Building a worksheet which allows the estimator to select the job-specific qualities will leave the estimator free to consider what the job needs, rather than populating their sub list. If the job aligns with your job-tracking recommendations, it won’t be difficult to come up with the right subs. Chasing work that’s a bad fit for your subs shows up as low probabilities for everyone. That’s a strong sign you’ll lose the bid unless you find some new subs.

The hidden catch

Since this spreadsheet system is based on data you generated, it’s very critical to differentiate between internal and external perspectives. The GC estimator has very accurate bid-results on all their subcontractors. This internal data is your version of what happened. Unless you won the job, you aren’t looking at what happened on the market. What you must learn on every job you’ve lost is which sub was contracted for each trade. This external data will tell you with confidence which of your subs were market value, and which subs you need to add to your invite list. External results are much more significant than internal.

Even if you don’t know much about the sub, you do know all the descriptive qualities of the job they won. Entering what you do know about these subs allows you to run the probabilities and determine when it’s time to contact them. If they’re fiercely loyal to a competitor, you’ll know which jobs are going to be harder to win as a result.

Some throughput suggestions

If every job generates an estimate, it also generates a list of subs which can be ranked. Smart estimators will notice that it’s entirely possible to simply add your winning competitors sub to your sub rankings and list them as “low” when you don’t know their actual bid amount. This adjusts your job-level output to reflect the external market outcome. By not obsessing about dollar amount, you’re free to track by job descriptors which you can accurately define.

Reliable Estimating Part 1: Getting stuff out the door!

“Spiraling descent into madness” may describe a lot of jobs

Every estimate is for a job which has those aforementioned descriptors so useful to sorting subs. Estimate tracking for the GC is vitally tied to sub performance, all of this information serves that purpose.

Estimators should make their estimate template so that a separate worksheet is populated with the ranked subs and the job specific qualities.

Copying that worksheet into the sorting database file allows you compile trending data on all of those data points.

Making it easier to move this information around, makes it more likely that it will be done. Having a job-specific bid-list of bona-fide market leaders on day one is going to significantly increase your hit-rate which means you’ll be able to bid less often. Which means you’ll have more time to perfect your craft. None of that happens if you’re stuck updating spreadsheets for hours after every bid.

Reliable data relies on short memories

Big-data projects get out of hand quickly. The relevance of historical data falls off quickly beyond one year. Most construction work is seasonal, so last month is potentially less relevant than this quarter of last year. It’s useful to “freeze” weekly, monthly, and quarterly databases by saving locked copies separately on a server. Whenever you do a weekly freeze, take the calculated output of your week’s worth of bids and start the next week with that as your first bid. By never carrying more than one week’s worth of bidding in the database you’re able to re-create any files that were corrupted with a minimum of fuss and bother.

After a year’s worth of records, your weekly update would have the previous weeks rollover plus last year’s data for that week. You might run a bid-list search and be reminded of a sub who fell out of touch. GC’s who decide to re-visit an old revenue stream would be able to call up whatever year they were last doing that work. Old allies are better than cold calls.

Useful tools work in many ways

Take this concept and apply it differently, if a GC created a subcontractor pre-qualification form which helped to rank them according to their relevant job metrics, they could do a bid-list search based on that feedback. Appraising the new sub in the context of existing subs could provide meaningful comparisons and insights into how they might work out. Taking a different tack you could search your estimate tracking to see examples of past bids that were well aligned with this subs metrics. Lots of subs will be a poor fit to the work you’re pursuing. Being forthright about their odds and the frequency of relevant opportunities shows respect for their time, and keeps you focused on fruitful pursuits without offending anyone. Giving everyone an equal shot at wasting their time doesn’t breed loyalty. Calling them when you’ve got an awesome opportunity does.

Reliable Estimating Part 1: Getting stuff out the door!

They’ll love you for it!

Speed is your friend

Estimators are constantly interrupted by demands from projects that are all in different stages of delivery. Getting distracted at crucial steps is where lots of mistakes get their start. It’s therefore critically important to reliable estimating to work quickly and systematically. Every repeated process should have a systematic approach that’s complemented by templates, spreadsheets, and databases that are all built for speed and reliability.

People are very adaptable which can often cloud judgment about what’s faster or more reliable. Programs, databases, templates, or spreadsheets that force you to search through long lists for basic and repeated stuff are wasting time. Just because some program or spreadsheet has “always had” some quirk, doesn’t mean it should remain. It’s far better to have a short list of stuff you’re always using, than a long list covering every eventuality. Buried information is wasted time.

The estimator who can get their team rolling on an opportunity in less time and without skimping on information will have better coverage on bid-day. Bureaucratic estimators often take exorbitant amounts of time to get their invitations out to subs. Subs facing short deadlines and slow-moving GC’s are more likely to decline the invitation because it looks like that GC isn’t committed to winning.

A late hit is better than a fast miss

It takes a lot more work to fix miscommunication than it should. A typo may attract hundreds of emails asking the same question, even if you sent a clarification moments after it was initially discovered. Lots of contractors adopt a “do what I tell you” philosophy with their subs. If your instructions aren’t clear, the subs have little choice but to ask you about it. If their questions aren’t answered, they may withhold their bid until you call looking for it.

My next post will pick up from the ITB and will cover how to increase reliability in quantity take offs, communications, plan changes, bid scoping, and so forth.

 

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© Anton Takken 2015 all rights reserved