Tag Archives: Losing

The market changed, what do I do?

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

The Bid mill

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

Advancements in estimating technology are still in testing… 

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

Estimators have an image problem

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

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

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

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

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

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

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

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

We’ve got competition coming in HOT!

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

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

You can’t plan without strategy

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

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

Priorities are the foundation of strategy

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

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

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

Priorities should be defined, ranked, and consistent.  

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

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

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

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

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

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

Growing pains

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

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

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

We need more work to pay for all this overhead!

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

That includes interns

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

Strategy is neither a task, nor a goal.

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

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

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

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

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

Napoleon Bonaparte

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

So what do you do when the market has changed?

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

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

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

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

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

 

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© Anton Takken 2018 all rights reserved


Excuses and Uncertainty

I recently encountered an estimator lodging a familiar complaint. “My competitors are bidding at a loss.” Sure, on the surface it’s entirely possible that the low bidder stands to lose money at the amount they proposed for the work. People make mistakes all the time.

However there’s a tendency for some folks to assume that being low-bidder implies low quality. The time-worn comment attending every perceived failure is “What else can you expect of the lowest bidder?”

Excuses and Uncertainty

To be fair, the losing bidders are a bit biased …

Somehow it escapes notice that it takes a lot of investment to produce something cheaply. Consider how affordable cars are made possible through huge factories, infrastructure, and training. The total investment to make a luxury hand-made vehicle is minuscule in comparison. Sure we may appreciate the craftsmanship of a luxury car, but few can afford it. Unattainable quality has no practical value beyond inspiration.

Low bidder could be compared to the winning golfer who faced the same conditions as every competitor, yet took fewer strokes to achieve the same end. Market leading General Contractors (GCs) attract market leading subcontractors (subs). The very best sub prices go to the very best GCs which means those GCs can build the same project for less money than their competition. In some cases the advantages for the market leading GCs can be so profound that not only are they unbeatable, but they are making higher profit than the high-bidder stood to gain if they’d won.

These relationships don’t happen overnight, and they certainly don’t happen from random chance. There is absolutely no substitute for knowing your market.

At the subcontractor level there can be enormous disparities in material costs depending on the scale of the firms revenue. A subcontractor who buys their material by the train-load enjoys prices unattainable to a competitor who buys a fraction of that amount. Efficiencies of scale play decisive roles in determining who will be market-leader. However it’s here, we encounter another tiresome excuse.

“The big guys can afford to call the shots and push everyone aside. There’s just no beating them.”

It’s foolish for estimators to pretend that every company is excellent at all things. Chasing opportunities that are too big, or too small sets you up to fail. Bidding work you know you’ll overprice or underperform is disrespectful of the opportunity and a waste of time. Perhaps the biggest mistake that estimators make is failing to prove the relationship between being able to pick a good target, and hitting your mark.

That being said, smaller firms offer more direct access to stakeholders than their larger counterparts. It’s often possible for a hard-working but small firm to build a relationship with a bigger client than they could otherwise attract.   Not every project hinges upon the purchasing power of a small-fry company. Clients find occasions where the agility and dedication of a smaller firm is worth paying a premium for. Estimators at small firms must look to leverage their size against lumbering bureaucratic competitors.

Excuses and Uncertainty

It takes a lot of patience and even more follow-through but this is how little firms compete with big ones. It bears mentioning that for every company with a huge sign on a huge project, there are hundreds of smaller ones quietly building everything else.

Only they that lost, knew what they were doing.

At the heart of these excuses is an effort to claim that the estimator who lost is the only one who knew what they were doing. If this were true even half of the time, we’d see near-constant business failure across the construction industry. Many of the estimators making these excuses haven’t collected enough information to say what happened with much certainty. Knowing you lost by $X amount or Y% only illuminates a very small portion of what goes into a bid.

Right off the top, it should be obvious that so long as there are differences between the competitors, there aren’t equal odds of success. With observation and experience, it becomes obvious what firm constitutes the long shot in every bid letting. If that firm is yours, you’re probably chasing the wrong opportunities, or your company hasn’t adapted to the available work.

Starving Artists and poorly informed bidders

Competitive bidding proves market value over time. Under-bid work is a self-correcting condition. GC’s who can’t accurately define market value often struggle to be competitive. A lot of companies like to believe that they are delivering a higher level of quality than going rate will pay. As estimators, we cannot allow our firms to become “starving artists”. If you’re selling up-market services, then by all means pursue work higher in the market. If these options are scant, then it’s time to diversify goods and services to meet actual market needs. Every business must meet its customers’ needs at a sustainable profit level. Even non-profit entities need surplus funds to allow for growth, and the occasional set-back.

Winning perspective vs. losing percentage.

Again, estimators must actually know the market value and the market demand before suggesting a structural change. Estimators learn their way around by digging into to every win and loss. The monetary difference is a single number outcome of a huge variety of factors. Estimators face a great deal of uncertainty trying to determine what factors played the commanding role to determine victory. Start by roughly defining the differences in each proposal. Then move on to define what’s “behind” each proposal in terms of sub roster, schedule, site logistics, relationships, market segment, and so forth. Breaking down the “winning combination” can be immensely instructive. The goal isn’t to exclusively look for quantitative differences, so much as differences in perspective. These are the insights that mold options into opportunities.

Excuses and Uncertainty

“After a lot of effort, it became clear that Mark doesn’t see a pattern here”

Risk is relative

Estimators are keenly aware of the quantities of all the building components. One area where each estimator is looking at the same job and getting different measurements is risk. Risk is the potential for loss presented in a deal. Estimators must understand that some portion of the risk in a job is quantifiable according to the strengths and weaknesses of the GC.

Estimating is about controlling risk and uncontrolled risk is very expensive. In some bids, it could be said that the lowest bidder was the least afraid of the opportunity. In other situations, the lowest bidder might be the least informed of the risk they’ve undertaken. Estimators work by bounding uncertainty. Every job could potentially suffer catastrophic and costly problems, but we’re in the business of preventing them. The better we are at our business, the less likely the problems are to occur. Better firms have lower risk. Perhaps more accurately, better build teams have lower risk. To this end, estimators should become very curious about which subcontractors were on the winning team. By tracking the results across the GCs and subs, a picture will emerge of who’s the market leader for any given scope of work. Like anything worthwhile, it takes a lot of work to develop this knowledge. Growth doesn’t always mean expansion. As businesses mature, their ability to do more with less grows in proportion to their commitment to excellence.

Nagging, price checks, and why cashiers don’t win bids.

Some GC’s are prone to assuming that broadcasting an invitation to bid (ITB) to every sub in a five state radius guarantees they’ll receive the best bids that the market has to offer.   Many subs interpret the “cattle call” ITB to be a waste of their time. As a rule, the very best opportunities tend to be discrete because the leader of the “winning team” begins their campaign by enlisting their best players. If you’re a GC who must constantly resort to nagging subs for bids, you’ve probably wasted their time in the past, or your projects are simply unappealing.

Both cases are a symptom of a GC without any sense of who their subs are and what they’re good at. Estimating this way becomes little more than a cashier demanding a price check over the stores intercom. Lots of waiting, incomplete information, and very little money saved. When such a GC loses by an amount roughly equal to their profit, they assume their competition has bid at a loss. This cashier mindset leads to “checking the receipts” rather than comparing stores.

A roster of the awarded subs could potentially reveal an exclusive GC-sub relationship. It could also reveal that the winning GC carried a sub who wasn’t competitive among the bids you collected. This could imply that sub bid a lower amount to the winning GC. It could also imply that the winning GC found the make it or break it cost difference in a different trade’s proposal.  Often, these look too good to be true, so the estimator has to sink a lot of their precious bid-day into deciding if it’s legitimate or not. This can lead to situations where low-value scopes of work are laid on trusted subs even if they’re not the cheapest.

It’s also possible you’ve found an angle to defeat that GC on the next similar project because you’ve got a better sub. Be advised that your precious sub may find their way to the competitors bids if you don’t reliably land work. It’s incredibly frustrating for market leading subs to bid to a GC who keeps a few dullards on the roster to pull the whole bid into a loss.

Excuses and Uncertainty

Protip:  The sub who’s never cranky about the losses is the one causing them.

Faster follow-up

GC’s typically have the benefit of timely bid results from their clients, especially those with public readings. However many GCs would benefit from considering all avenues of information, including asking their subs. It’s terrifically common for clients to indulge in post-bid pricing requests with one or two of the bidders. Some clients believe in remaining silent until they feel certain of the decision to award. Many otherwise honest clients fail to reconcile that they transcended from bid scoping several proposals, to negotiating a different deal entirely with a favored bidder.

Subcontractors are often involved in these rapid post-bid pricing requests which in turn often requires that distributors and vendors be consulted. Everyone in the supply chain has personal and financial interests involved which means things won’t stay secret for long. GCs who can’t get their client to answer the phone should reach out to trusted subs to see what’s going on.

Bid shopping is a serious problem that thrives in secrecy and delayed information. I know of many jobs that were successfully won against bid-shoppers through coordinated efforts between the legitimate GC and their subs. Your average estimator would absolutely love to do their part to hurt a cheating competitor. I should point out that GCs who consistently and voluntarily provide accurate, and timely bid-results on everything they do earn the subs best efforts.

Glory follows virtue as if it were its shadow: Marcus Tullius Cicero

GC estimators must understand that there’s no sense in being an ethical bidder if you don’t prove it by acting virtuously. Success lies in being the best, and nothing sets the field of close competitors apart more starkly than the measure of their honesty.

But if it’s the client’s job, don’t they get to change their mind?

It’s absolutely and unequivocally unfair to send a Request For Proposal (RFP) promising contractual award to the lowest complete bidder by the deadline without committing to the low bidder on those terms. Once they’ve fairly awarded the contract, they’re free to negotiate any further changes with that GC at their convenience and according to the terms of the contract. If they want greater range to negotiate with a specific GC, they should dispense with the competitive bidding in the first place.

If an auctioneer accepted an offer after bidding closed, the entire auction is little more than a fraud. GCs need to hold clients to their own terms. The practice of proving market value by competitive bidding is why bids are “free” in the first place. Moving the goal posts to suit the client’s desires after the bid is dishonest and unfair. No good comes of pretending otherwise.

Excuses and Uncertainty

Submitted without comment

 

It takes a lot of losses to know what you’re doing

Uncertainty is the reason estimators exist. If it were possible to simply tot up everything perfectly, we’d use cashiers instead. Estimators must continually switch between deductive (top to bottom) and inductive (bottom to top) reasoning to balance uncertainty against market value. Inductive reasoning starts with the presumption that profitable work exists at market value. Working “backwards” from that market value, the estimator looks for ways to make that happen. Deductive reasoning is the comfortable and familiar “add everything up” practice of QTO’s bid-scoping, and spreadsheets. Both systems of reasoning involve uncertainty, however there is a cross-canceling effect when the systems are properly applied to one another on the same project. In most cases, you stand to learn more from your losses than your victories because the winner gets no feedback beyond the contract award. Losing a bid is a costly endeavor, so estimators should gain knowledge to improve from every effort.

For example. Let’s say you lost a bid on a simple remodel project. Working deductively, you did a QTO, and made sure that all the obvious scope was attributed to a subcontractor bid, or vendor. In your view, the majority of the risk of the project was driven by unknown/concealed conditions. You may have decided that approximately 15% of the shared wall space would require some measure of re-work in order to facilitate the project. Many estimators will provide a bid-directive to that effect to all bidders. Some subs will interpret this to be an open-ended question intended to prevent change orders. As such, the 15% of re-work might well be priced at change-order rates.

Working inductively, we compare the winners bid against our own. Unless specifically indicated, we must assume that their bid was complete, and that the work stood to be profitable at that amount. Compare the competitor’s operation to your own. If the competitor consistently wins similar projects, they probably have extensive experience mitigating the predictable risk. This doesn’t mean that they bid less than 15% of rework. Repeat business is the goal of most companies. Subs who regularly win work with a GC tailor their proposals to suit that GC’s preference. Subs learn what the GC will and won’t consider a valid change order. If some rework will be expected without a change order, the subs will include that work at their much-reduced bid-rate. Lacking a specified amount, the subs exercise their judgment. The more expert the team, the better the judgment, and the more likely the victory.

Working inductively, you might inquire with trusted subs to see how your competitor addressed the risk with their bidders. This conversation opens up avenues to compare the subs competitors and gain insights thereto. Keep yourself open to multiple premises to explain what happened. The rework was necessary in your opinion based on your perspective. Your competitors past experience in the building, or knowledge of the client might have altered your view of the bid-day situation entirely.

Be wary of gossip, or mean-spirited conjecture. We’re working by inferences and deductions that are based on corroborated information. Curiosity, positivity, professionalism, and kindness open the doors of opportunity. Everybody wants to win work, and everybody takes a loss from time to time. Begrudging a competitor their victory is a petty move, which is unworthy of a professional. Take the opportunity to share what you know to cultivate future communications. As with anything in estimating, you never get a perfectly certain view of what’s going to happen, but you can get very close. With time and experience, it becomes possible to see the critical dimensions of projects that drive your chances of winning the job profitably. With good information, the only thing you can’t make, are excuses.

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© Anton Takken 2015 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