Tag Archives: Perspective

Growing pains

Time is money, the customer is always right, estimates are free, every company wants and needs to grow.  These expressions are so familiar that they sound like universal truths. Life has a way of being more complicated than we’d like it to be.  I’ve definitely encountered rare situations where costly time was squandered, customers were wrong, and estimates cost a fortune.

Is growth always good?

To answer that question, I’ll ask another one.  What puts more companies out of business, losing too many bids, or winning too many?  This isn’t a trick question, and it doesn’t require any extensive market knowledge to answer.  Consider the following.  If a company doesn’t win any work, they’re not getting any income which means their overhead is consuming their capital until they’re insolvent.  The overhead and the existing capital are known entities to the firm.  This means that it’s possible to accurately define how long the company can remain in business without landing work.  More significantly, it defines how the company can fail without owing anyone.

If a company wins more work than it can complete, it’s in a very dangerous situation.  Contractually they’re obligated to complete the work and penalties for failure are severe. In real life, things don’t fail in a neat and orderly manner.  One bad job has a way of taxing resources on all the others, systemically spreading the failure to everything the firm touches.    A company that might ordinarily be able to weather one bad job is now facing the prospect of losses on all their projects at the same time.    Taking on that one additional job might well doom the entire operation.  The knock-on effects of this are severe.  Clients and subcontractors are often left in serious financial jeopardy.  It’s difficult to know the total downside risk, but it’s clearly much worse than having to close up shop for lack of work.

Risk versus reward

Businesses operate on risk versus reward relationships.  Growing a successful business is often assumed to be a low-risk, high-reward proposition.  After all, you’re just copying whatever worked to capture more of the market.

There are two assumptions underpinning this plan that have the potential to upend the whole risk to reward relationship.  I’ll pull them out here.

“…copy whatever worked…”

and

“…more of the market…”

 

Let’s start with copying “whatever worked”.  On the surface, it might seem like any entrepreneur or professional would have a solid handle on what they do, why it works, and how it can be copied.  In my experience, this sort of corporate self-awareness is extremely rare.   Quality control efforts tend to focus on detecting the signals and causes of failures.  People just aren’t that curious about their successes.  If something is working, there isn’t much incentive to push boundaries in search of weaknesses.

With their heads in the clouds, management keeps tripping on molehills

I worked for an entrepreneur who proudly told me that “big and clean” ground-up construction projects were the bread and butter of the company.  A quick review of the accounting would show that “ugly and small” remodel projects constituted 85% of the annual revenue, and well over 95% of the annual profits.  Simply put, the “ugly” remodels didn’t attract as much competition, so we could win with higher fees.  Since they were smaller, we could do more of them per year with the same size workforce.  This entrepreneur is by no means an isolated case.  I regularly encounter professionals whose company “identity” has little resemblance to reality.  Projecting the image of what they think they are into new markets rarely works out for them.

So, what’s the assumption with the “more of the market” part?

This is a two-part problem.  First, if the firm doesn’t know what they’re good at, they’re unlikely to be aware of the market factors that influence their success.  Very few companies are “good at everything” so there will only be a select few market segments that are viable to any specific firm.  Those segments can have many factors that influence the quality, quantity, and frequency, of opportunities to seize upon.  Simply put, there might not be “more” of the target market to pursue.  This is especially true for niche contractors in depressed economies.  Just before the last recession hit, there were lots of companies boasting about their growth into diversified client bases.  After the recession hit, most of those firms had layoffs.

The venturi effect 

Giovanni Venturi discovered the venturi effect which is visible with a simple experiment.  Blow at a right angle to the opening of a straw placed in a glass of water.  The venturi effect will cause pressure in the straw to drop, drawing the liquid up the straw.

During an economic boom, it’s not particularly hard to win bids.  Companies quickly decide that they need to grow in order to capture more of the expanding market.  So, they hire more people, buy more equipment, and generally take on more overhead.  Now that they have this overhead, they need to win even more work to pay for it.   The constant expansion creates a venturi-effect on overhead.  Some readers have gotten this far and figure this is all normal growth.

The bids aren’t just placeholders in the process of converting opportunities into profit.  Bids freeze the value of the project before it’s begun.  Adding overhead to the company post-bid is effectively trading profitability for growth.  During a boom, the revenue can be expanding so rapidly that it’s hard to tell that the individual job is actually getting less profitable.  Eventually, many such firms reach a point where their very survival depends on growth because none of their jobs were won with sufficient overhead to pay their own way.  Some readers might be asking themselves why the estimators at these firms didn’t react by raising the overhead in their bids.

While I’m sure that some of them do try, they’re often obliged to prioritize the more immediate problem of staying competitive enough to keep winning work.  Estimators should understand that businesses in general, and managers in specific, tend to prefer a flawed but executable plan over an effective strategy that requires constant judgement.

Strategy versus planning

As individuals, it’s impressive how easily professionals can spot the unfortunate outcomes of rigidly following a plan.  When personal accountability is threatened, many will claim “their hands are tied” by these selfsame plans.  People respond to incentives.  A “plan” sounds much less risky because people assume, they’ll be rewarded for following (or at least appearing to follow) the plan.  A strategy that requires judgement means you might be solely responsible for anything that goes wrong, even if your reasoning was sound.

Longtime readers of this blog know that estimating isn’t about a plan or a process.  Estimating is about controlling risk which requires good judgement.  In my experience, the better your judgement, the less you have to fear in terms of accountability.

“Matt spends a lot of time looking for a place where his reflection matches his image.”

Where do you start?

Estimators need to understand the power of perception.  Hard-charging entrepreneurs hire estimators to control risk, so they can focus on growth.  When sports cars are advertised; the horsepower, the speed, the looks and the luxury are all prominently featured.  Nobody’s talking about the brakes.  Race car drivers know that better brakes slow the car in less time which means they can maintain higher speeds for a bit longer before they must brake for a turn.  This means that they’re covering more distance in less time.  As odd as it might sound, it’s entirely possible for a car with better brakes to win a twisty race against a car capable of higher top speeds.

Estimators looking to gain traction with leadership need to illustrate the effect of controlled risk.  How does winning a given bid relate to securing a better position for the company in the future?  Mindless assumptions should be challenged.  I had a boss who wanted to “really impress” a municipal client with a very low hard-bid in hopes of securing no-compete contracts for future work.  The city in question has charter rules expressly forbidding city contract award without a competitive bid.

Strategic thinking looks beyond the client-retention platitudes.  In this example, there will always be competition, so the focus should be on maximizing profitability at the market-leading price point.  In practice, we found that we were able to profitably win work in a handful of cities.  Looking deeper, I was able to determine that a longstanding culture of bid-shopping among the local General Contractors (GC’s) in one city had created an incentive for the local subcontractors to work with out-of-town contractors.  By being honest and forthright about everything including bid results, I was rewarded with better subcontractor pricing than my competitors.

Since repeat business depended upon winning bids, we had an incentive to reveal any design-driven chicanery that threatened to exceed the client’s budget.  On one such project, there was a sole-specified vendor for window coverings that was three times the cost of their competition for a plain “white goods” product.  From a strategic standpoint, the estimator has three options.  They can bid per plans and specs hoping that everyone else does too.  They can carry the cheaper product in their bid in hopes that it will be accepted by the Architect, and finally, they can expose the cost difference to the client on their bid form.

Options one and two depend heavily on the integrity of others for success.  Option three risks angering the Architect by exposing their chicanery.  When weighing the strategies, compare the relative risks.  Any one of them might fail, thus losing you the job.  Option two might still anger the architect when you submit on the “wrong” product.  If the alternate material is rejected, option two could result in winning a job at a loss which is worse than not having a job at all.

Option three presents the least total risk and most potential reward. If the base bid is per plans and specifications, you’re not violating any trust or instructions.  The alternate is voluntary and can be truthfully presented as an alternate equal. If presented as a way to achieve their design intent within the client’s budget, the Architect can accept your alternate and save face.

The “savings” presented can be whatever you choose to offer.  Strategically, it’s smarter to allow yourself greater profitability to counterbalance the potential difficulty in getting an alternate approved.  As an estimator speaking to leadership, this strategy is a win for the client and the contractor.

 

A journey of a thousand steps

Strategic growth is more difficult than it sounds.  During the ebb and flow of larger market trends, it can feel as though a perfect strategy has no priority over your daily concerns.  There will almost certainly be times where the best course of action is to simply press onward, making the best of what you have to work with.

Quick story.  I started working for a company that chased hard-scrabble projects for low budget General Contractors (GC’s).  Every client who put us on their bid list was treated like an unassailable gift from the heavens.  Bidding was miserable because deadlines were short, bid shopping was rampant, and the work was virtually worthless.  Things weren’t much better in the field where most of the jobs ran late, over budget, and suffered from chronic mismanagement.

Strategy was regarded as a nicety we never had time for.  Since the jobs were small, I was constantly inundated with bids to keep everyone busy.  Chasing larger projects with the same class of client didn’t improve my fortunes.  By one year in, it was clear that our three “best” clients were a financial illusion.  They hired us for more work than anyone else, but all of their work was so poorly managed that we lost productivity and profitability on everything else we had going at the same time.

I was deeply frustrated, and at an annual review, I presented a list of the top 100 GC’s in my area to my boss.  I insisted that we make an earnest effort to get ourselves invited to bid on their work.  Some put us on their “small projects” list which was a feeding frenzy of projects identical to the work we were trying to escape.  Others only invited us to bid on work that was too far from our market.  Eventually, we were invited to bid on a modest job with a major GC.  It was a rousing success!  Every single project since has been awesome.  We met with their pre-construction managers where we learned that they were very selective about who they’ll invite to bid.

Mesas and Buttes

Mesas and Buttes are often confused.  A Mesa is flat topped land mass where the width is greater than the height.  In contrast, a Butte is a flat-topped land mass where the height is greater than the width.

Submitted without comment.

It’s pretty easy to spot market stratification in the construction industry.  Some projects command higher prices than others, even when they are very similar.  When we see “price point” markets, there’s a wide selection of mostly standardized offerings from similar providers.  I once bid a job which had a tremendous number of bidders in each trade.  Plotting the bid amounts on a continuum from smallest to largest, it was plainly obvious that the bids clustered around three separate values.  Broadly speaking, the clustered bidders had strong similarities in terms of market share.  Among peers in their cluster, all of the bidders were strong competitors.

Comparing individual bidders from one stratum to the other, it didn’t seem probable that they were looking at the same scope of work.  For the most part, the bidders in a given stratum had similar economies of scale relative to the scope of work.  At the cheapest stratum, the bidders were neither too big, nor too small, they were just right.

Bid invitations that are open to all comers will generally result in an award to the stratum that best matches the scope of work.  We can visualize the market stratification as if there are populations living atop mesas of different heights. Everything is organized roughly the same on each mesa, but they’re too far apart to bridge the gap between them.  Moving from one mesa to the other requires painful transformation because there are no resources at the valley floor.  It’s dark down there, and there’s no one to guide you so only the determined, or desperate dare to try.

Markets can stratify in less obvious ways as well.  Elite clientele may decide to solicit bids from only the most qualified general contractors, who in turn, will only solicit bids from the most qualified subcontractors (subs).  In many cases, the business is conducted with such discretion that only the most observant of the mesa dwellers can tell that it happened at all.

Getting to this level is a formidable struggle, which is why there is less competition.  We can visualize this kind of market stratification as a butte.  The butte can be at the same height as a mesa, but the butte dwellers benefit from a completely different client base.

An island in the clouds

Chasing elite clients sounds like a foolproof plan, and honestly, there’s a lot to recommend it.  However, there’s a big difference in the relationships that underpin every opportunity.  Going back to my butte metaphor, it’s significant to realize that while the height might seem familiar, the boundaries are sheer cliffs.  Any failure to perform, even the perception that you might fail to perform, may be all it takes to be kicked out.  It’s critical to understand that these rules apply to virtually everyone on the butte.  A GC with a sub that’s not performing, is an existential threat to their livelihood.

The greatest advantage of life on the butte is that you can’t exist here without doing construction management right.  Half-baked, absentee Project Managers (PMs) doing their best to maintain plausible-deniability are not tolerated at all.  This is a huge improvement for all concerned, including the GC, because the client is willing to pay the going rate for qualified leadership.

So what’s not to love?

Elite clients have different motives than commodity level consumers.  Time and money may not be their primary concerns.  For example, bank tellers require a lot of costly in-house and on the job training. Once a given teller has the necessary skills, they can easily work for a competitor.  The bank was much more concerned about inconveniencing tellers, than time or money.

Elite clients know that they’re paying a premium, so they expect the build team to do whatever it takes to make the project successful.  Design teams aren’t appraised by their construction documents (CD’s), or the efficacy of their management, but by their portfolio of built projects.  The quality of the finished work may not reflect the quality of the original design.  Astute readers will note how this “cuts both ways” for every professional involved.

There are many unique challenges to working for elite clients, but the biggest risk by far isn’t obvious to most people.  When things are going well, life on the butte is pretty awesome.  As a company, you can be doing less revenue for higher profit with less overhead, and manpower than you’re used to.  When an elite market slows down, your company may face some really difficult adjustments in order to successfully pursue hard-bid work.

Estimators love to think that they’re constantly diversifying their client base in case of a turnaround.  In reality, the butte work is always the highest priority.  Coming down from that height and climbing back up the hard-bid mesa isn’t as easy as it sounds.  Even if the estimating department is up for the challenge, the leadership and the workers all need to adjust to very different priorities.

For more articles like this click here

© Anton Takken 2020 all rights reserved

 

 


Who pays the price for being wrong?

I’ve spent most of my working life in the construction industry and it’s a rare day when everything goes to plan.  Mistakes, misunderstandings, or simple lack of thinking things through causes a whole lot of negotiation about what comes next.  Change orders can be immensely profitable, indeed many businesses depend on them to be profitable.  That being said, negotiations don’t always land in your favor so it’s important to understand what’s at stake.

I’ve seen situations that escalated because one or more parties’ lost sight of the bigger picture.

“You know, I think we’re looking at this negotiation all wrong, we’d love to have you for dinner tonight”

For example, let’s say the client is on a shoestring budget.  The design team didn’t get paid to investigate existing conditions, so lots of surprises are popping up.  Further, let’s say the client decided to purchase salvaged materials that turn out to be different from what they told the design team to include.

So far, it sounds like this is all clearly the client’s fault, and they’ll have to pay to remedy the situation.

Let’s say this client is desperate to open on time because they would otherwise miss out on peak season that accounts for nearly all their annual revenue.  To protect themselves, the client required a payment and performance bond for everyone on the job and stipulated liquidated damages of $10,000 per day for being late.

The client is in a tough situation, so they’re particularly concerned about overpaying on change orders.  This leads to squabbles that go on much longer than they should.  To be efficient and productive, the work at issue needs to happen before other tasks so the job doesn’t progress like it should.  A lot of low-budget construction clients aren’t very experienced.  They’re not concerned with how this squabble is affecting the overall job because they have contract terms and bonds ensuring their deadline.

So, who pays the price for being wrong?  In situations like this, the immediate answer depends on timing.  If the squabble drags on long enough, the client may call in the bonds to replace the contractors and get their project built.  The replacement contractors aren’t going to be cheap because they’re getting paid for by the bonding agency who can (and likely will) seize assets to settle the exorbitant tab.

Now I’m not a lawyer, nor do I play one on TV, so none of this should be misconstrued as legal advice.  I suppose it’s possible that a contractor could win a case against the client, but that will take a lot of time and money.  Keep in mind that said legal battle would probably take place after you’ve had assets seized by your bonding agency which likely preclude you from conducting business anywhere else.

For most contractors, getting their bond invoked is an “extinction level event”.  I’ve seen situations where a particularly malignant client drove the project into delays, then used the threat of invoking bonds to demand extreme discounts.  Over the years I’ve had several situations where it was considerably cheaper to pay for the clients mistake so we could avoid more costly problems.  That’s something to consider the next time the client wants to change something on the project.

I’ve found that more contractors go out of business because of problems with a job they won, than from all the jobs they lost.  Don’t let it happen to you!

For more articles like this click here

© Anton Takken 2019 all rights reserved

 

 

 

 

 

 


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.

 

For more articles like this click here

© Anton Takken 2018 all rights reserved


Power tool safety for estimators Part 2 : Headaches and Hard hats

In part 1, I touched on some of the dangers presented by estimating software along with some advice on how to work and bid safely.  In part 2, I will be looking into estimating hazards that are uniquely human.  A lot of frustrated and unsuccessful estimators get that way by overlooking human nature.  While estimating involves lots of facts and figures, we must keep in mind that we are working with, and working for, people.

Submitted without comment…

In my experience, people define organizational policies according to their outcome.  Bureaucracy generates lots of work that is peripheral to the task at hand.  In contrast, Leadership aligns people and resources with the task at hand.  Within the context of competitive bidding, effective leadership involves communicating expectations that are aligned with the interests of everyone involved.  This starts with considering the interests of parties outside of the estimators office.

The four P recipe

  • Perspective What do people expect to see? How does that compare with what they actually see?
  • Predict How could people do things differently than you might have planned?
  • Prepare What can you do to accommodate the inconsistencies, differences, and individual choices of others?
  • Perform How can you coordinate the interests of everyone involved to maximize your odds of delivering a successful outcome?

Schools, academies, and trade associations promoting “best practices” in estimating tend to put great emphasis on process uniformity, deference to design professionals and obsequious devotion to every client request.  While tidy spreadsheets and good manners are part of being a professional, they hardly define the estimators purpose.

Losing estimators are often telling me how they were “just doing their job” because “their hands were tied“.   While some contractors do micro-manage their estimators, this mindset is more common among estimators who prefer to believe their job security is a function of avoiding accountability. If they were making and communicating the right decisions, they’d win more profitable work which is why the job exists in the first place.  When a process interferes with your purpose, it won’t be the best practice to follow.

There is no more important safety rule than to wear your reading glasses

Estimates are used to compile and condense a great deal of information into a single number.  Even the spreadsheets illustrating what’s going into the single number can be densely packed with information.  Since everything must balance utility against clarity, the location of the information in an estimate is almost as important as the quality of the information.

Estimators working by hand are used to categorizing the information according to Construction Specification Institute (CSI) Masterformat guidelines.  The Masterformat assigns a unique serial number to commonly encountered building materials arranged so that the materials generally align with similar materials that broadly align with trades.  As anyone with experience in actual general contracting could tell you, the CSI divisions aren’t a good indicator of how the work is actually divided among contractors.   For example, division 9, finishes may involve a dozen or more trade-level subcontractors, whereas division 14 Conveying systems will ordinarily involve only one.

There are a lot of estimating programs which are configured to organize the Quantity Take Off (QTO) according to CSI divisions.  While this is great in terms of adhering to a standard, it doesn’t lend itself to compiling the relevant information to scope subcontractor bids.  For example, there are a lot of “flooring” subcontractors (subs) that will install vinyl flooring as well as carpet, but they won’t do any ceramic tile or wood flooring.

The CSI codes place vinyl flooring and carpet in separate areas of the estimate that are often surrounded by completely unrelated trades.  This means that on bid-day, the estimator is figuring out how to make one bid apply to two scopes of work which might be separated by hundreds of lines of information.  When the deadline is fast approaching and low bids trickle through the door, this creates an arbitrary obstacle that can trip the estimator when they least expect it.

 

Lizzy was following the instructions perfectly, but then everything went sideways

 

If you’re using a spreadsheet program to compile your estimate, it’s possible to temporarily move relevant divisions to conform with the sub proposals that are coming in the door.  Time invested in building a “working” worksheet that is linked to a “formal” estimate worksheet can make it possible for the estimator to have a streamlined layout for bid-day revisions, without sacrificing the uniformity of a formal layout.

Make sure it works seamlessly because spreadsheet errors on bid-day are serious problems.  The “old school” approach to this problem was to print separate pages for every CSI division including a row for bidders and columns to verify, add, or subtract relevant scope items.  Each of these sheets were put into binders with tabbed dividers.  “Bid tabs” is industry slang for these comparison sheets which “show the math” for how the estimator scoped the bids of every relevant subcontractor on bid day.

Combo bids: Two for one, or double the trouble?

Subcontractors rarely specify which CSI divisions they’re bidding which means the estimator must not only sort the CSI divisions being bid, but must attribute them separately to their estimate.  Despite all the heated rhetoric, the subcontractor (sub) is not an employee of the General Contractor (GC).  GC’s can “demand” pricing breakouts from subs in direct proportion to the goodwill they’ve cultivated from fair dealing.  GC’s cannot afford to ignore competitive bids from subs who are reluctant to provide breakouts that may be used to help a competitor win the job.

This means that GC estimators must be prepared to take the best subcontractor number they can get, even if it combines several “separate” scopes of work.  Estimating programs will often generate error messages for any CSI Division that is left empty.  If one bid applies to multiple divisions, most programs won’t allow the estimator to group them together.  Instead, estimators are forced to use workarounds.

Let’s say a flooring sub’s bid for carpet and vinyl flooring is cheaper than any combination of independent carpet and vinyl flooring bids.  They didn’t provide separate prices for vinyl or carpet because they want an “all or nothing” award.

The GC Estimator needs to enter the “combo” bid into the estimate but this raises several issues.  Everything they enter in as a quoted value will be documented which means the Project Manager (PM) running the job will expect to find a subcontractor bid for the exact same amount in the bid file.  If the estimator arbitrarily divides the quoted amount into plausible-looking amounts for carpet and vinyl respectively, there’s no bid in the file that actually matches either number.  Now the estimator could put the entire bid amount into just one of the CSI divisions.  That solves the problem of quoted numbers matching bids in the file.  However, this causes two new problems.  First, the default of most estimating programs is to “select” the lowest available bid in each entered quote.  If the combo bid was entered into the carpet division, it would likely be higher than the carpet-only bidders because it’s also including vinyl flooring.  This means the default setting for that division must be overridden in order for the estimate to select the combo bid.  The second problem is that the vinyl flooring division needs to have a quote entered and most programs will not accept zero as a valid bid.  Some estimators enter $0.01 for the quote as a workaround because no PM would go looking for a one penny quote for the vinyl flooring.

CSI Masterformat is tremendously helpful for design and management professionals who want a uniform system for coding information.  Many Project Management programs include estimating functionality which not only imposes the CSI structure, but also includes the accounting structure for the job that follows.  The estimating program’s lack of flexibility means that on bid-day an estimator might enter a one penny bid for a subcontract amount which later causes administrative issues in accounting and project management.

Breakouts are the leading cause of breakdowns

Alternates can multiply the estimators labor to an incredible degree.  In their simplest form, Alternates are a request to add or subtract something to the project.  In their most complex form, they’re a multi-dimensional problem that generates its own risk for the bidder.

For simple additions or subtractions, the alternate needs its own mini-estimate to address what’s going on.  When the changes become more convoluted, the Alternate essentially replaces the original bid.  Estimating programs may feature user-defined breakout tags which allow the estimator to sort, group, and compile the different breakouts into different schemes that reflect the alternate.  Unfortunately, many estimating programs with breakout functionality are unable to compile multiple breakdowns into a cohesive estimate.  This is very common for trade-specific estimating programs.

For example, let’s say there is an alternate which substantially changes the vinyl flooring scope.  Some areas grew, other areas got smaller. As there are several alternates pertaining to the vinyl flooring, the estimator would have breakouts defined by the rooms involved.

Rather than a single line item for all the vinyl tile in that alternate, the program would output each room’s vinyl flooring separately.  As silly as it sounds, some estimating programs will not compile the breakdown information into a cohesive estimate the way it does for an ordinary bid.

“With our new mirror technology you can double your horsepower!”

 

When GC estimators call the subcontractor wanting to make changes to the Alternates, the Subcontractor ends up going into intense “manual override” to answer relatively simple questions.  The sub is usually under incredible pressure to answer quickly because the deadline is rapidly approaching.   It’s much worse when the GC calls the sub whenever they are away from their desk, and unable to wrangle a simple answer from an obstinate program.  I know of at least one competitor who guessed at a breakout price on bid-day that dramatically under-bid one portion of a project.  That mistake was the first of many cascading events that ended in bankruptcy.  Learn from their mistake, professional estimators do not guess!  It’s much better to replace a lost opportunity than it is to “win” a project that imperils your company’s survival.

Bigger blocks, fewer breakdowns

One successful strategy to counteract an estimating programs clunky breakdown system is to use the definable breakdowns for complete alternates.  Picking up on the earlier tile example, the estimator would conduct separate breakdown-level QTO’s for each alternate separately.

Let’s say there were four rooms pertaining to the base bid and two alternates.

In the base bid, rooms one, two, and four get vinyl flooring.

In Alternate #1, rooms two, three, and four get vinyl flooring

In Alternate #2 rooms one, three, and four get vinyl flooring.

This means that one definable breakdown would be named “base bid” and the estimator would conduct their QTO for the rooms as normal.  Then the estimator would name a definable breakdown “Alternate #1” and would do a QTO for rooms one, three, and four.  Note that this repeats the QTO of room four.  Finally, the estimator would name a definable breakdown “Alternate #2” and would do a QTO for rooms one, three, and four.  At this point, every room has been measured twice, and the vinyl flooring has arguably been estimated three times.

However, the estimator can now output their reports by the individual breakdown with all the pertinent information correlated normally.  This means that the Alternates will display the total vinyl flooring as a single line item, tremendously simplifying the information you’re reading at Mach 6 when the GC calls.  Only in estimating do we have situations where taking the long way around gets us to our destination faster than a direct path.

Quoth the vendor: “It costs more”

Quoted goods pertain to items with requirements that influence the price such as custom-built equipment.  Some quoted goods are unique materials represented by an agent or a firm that promotes the material to design professionals to secure exclusive sales rights.  Wherever competition and transparency are discouraged, artificial pricing hikes are sure to follow.   As a result, the quoted goods can constitute an out sized proportion of the total estimate.

Quoted goods can be material exclusively, or they can be materials plus some labor or service.  “Parts and Smarts” is industry parlance for a proprietary system of components that the contractor must install themselves, according to the design and programming requirements of the quoting firm.  This is most common in fire-alarm and HVAC controls systems.  “Turnkey” proposals are generally understood to be standalone quotes to deliver a completely built system.  At the trade-level estimators desk, it’s critical to correctly attribute labor hours to the quotes you expect to receive.

Trade-level estimating program defaults can be very complex.  For example, a fire alarm vendor supplying a “parts and smarts” quote will provide the fire alarm devices which the electrical contractor must install on a dedicated system.  The electrical contractor is expected to furnish the junction boxes, conduit, and wire, for a fire alarm system that has not been designed yet.  Estimating programs might have a “helpful” default for fire alarm takeoffs however they will only quantify the quoted goods.  This means the estimator must carefully supplement the “fire alarm” takeoffs with all the parts and pieces that the fire alarm vendor omitted.  Unless the whole system is attributed to a dedicated breakout, the quoted aspects of the fire alarm will be separated from the costs to furnish and install all the stuff needed to make the vendor’s quote work.

It’s good practice to conduct separate breakout estimates for any quoted goods that involve bidder groups with inconsistent levels of scope delivery.  For example, the breakout combined with parts and smarts quotes can be directly compared to turnkey proposals.

Getting more information out of less data

Reading along, it would be easy to conclude that the best approach is “more breakouts”.  Being better informed certainly helps when making decisions.  To serve its purpose, the estimate must be a condensed explanation of what a project entails.  Specifically, the estimate should reveal what is driving the cost, duration, and risk, of the project.  I’ve encountered plenty of estimates that were so detailed that they buried the meaningful project attributes.  This can be described as the “noise to signal ratio”.  If you’ve ever been listening to a radio station when an adjacent station intruded, you can appreciate how difficult it is to understand what’s being said.

The Request For Proposal (RFP) may list alternates the owner requested alongside breakdowns the Architect wants to see.  The intention and implication of each may serve different purposes which occasionally makes them difficult to understand.

I’ve seen projects with twenty or more breakout requests on the RFP get whittled down to three alternates in the course of a single exchange with the client at the job walk.  Clients and Architects aren’t always considering the quality or the context of the information they’re requesting in the RFP.  It’s often easier to generate a long list of things they might want, than it is to consider which things they would actually be willing to combine.  There’s also a tendency to be additive rather than reductive when tasked with writing a wish list.

For example, lets imagine a project which is comprised of three connected buildings named A, B, and C.  The client asks that all buildings be included in the base bid.  They then ask for an alternate to move building B to the other side of building A, and to omit building C altogether.

Their second alternate request is to build only building’s A and B as originally aligned, omitting C altogether.

At this point, we’re up to three prices due on bid day.  To bid them separately, all the estimating for buildings A and B would be repeated for all three prices.

In contrast, we could arrive at the same answers by answering two questions.  What does building C cost? and “What cost difference is there in moving building B’s alignment with Building A?

That’s one breakout, and one alternate which is never repeated elsewhere in the estimate.  More importantly, the estimate for building C generates 100% of the accuracy with 50% of the data compared to estimating A and B together.  It’s probably a whole lot easier to review an estimate for building C against the drawings than it is to check a “combo bid” against multiple buildings.  If your process is the same for all the buildings, the check on building C will be instructive towards determining if there are issues with your estimate for buildings A and B.

It’s also very significant to note that the building alignment question is pulled out as a line item cost.  This allows careful consideration of what the result implies without the “noise” of building A and B’s total factoring in.  I really can’t stress this enough because alternates are often sparsely documented by the design team.  It’s fairly common for a complex alternate to be completely and exclusively defined in a few sentences on the RFP.  What may sound like a simple “add this” or “take away that” alternate request can generate a long list of subtle consequences to the project.  The knock-on effect for the client is sticker shock.  Estimators who’ve carefully constructed their approach to reveal the subtleties are better equipped to present a solid explanation.

Savvy estimators will have already noticed that this advice could lead to a situation where you win the job and the client selects one of the alternates.  Now when you go to hand off the estimate to a Project Manager (PM), you don’t have a single estimate which perfectly reflects the contract scope of work.

Your options will depend heavily on your software.  In some cases, an estimator can copy the Building C breakout into the base bid and “multiply” the new version by -1 thereby generating a subtraction amount in all takeoffs.  When grouped with the original total, and the relocation alternate, the output would be reconciled to the actual quantities needed.

Without question, this will require additional work, however it’s important to note that most estimators don’t win every bid.  Spending a bit of extra time on those you win is an easy trade to make when you’re sinking less time into the losing bids.  Negotiated agreement or “sure shot” bids should be done so that the estimates can be handed to a PM without confusion, rework, corrections, or delay.

Estimating is about controlling risk to secure profitable work.  We can worry about risk created by the limitations of people and machines, or we can build our operations to accommodate them.  I’ve provided a few examples to show how applying the four P’s can lead to opportunities that competitors only saw as obstacles.

For more articles like this click here

© Anton Takken 2017 all rights reserved

 

 


Seven new estimating ideas to try

We’re all looking for an edge to win a bid or make a project more profitable.  Estimating is a profession with deep roots going back through history.  It stands to reason that many of our current problems were familiar to our ancestors.  As with all human endeavors, we’re trying to improve on old problems, and sometimes a “new” idea is really just a rediscovery of a forgotten gem.  With that in mind, I hope the following seven ideas are at least new to most contemporary estimators.

#1 Provide constructability review for fee instead of conceptual competition for free

Conceptual estimating provides financial feedback on incomplete designs.  Since the complete design-development process can take months or even years, it’s important for clients to have a way to maintain alignment between their design and their budget.  There are many situations where a conceptual estimate can help the client to make an informed design decision.  General Contractors (GC’s) have traditionally extended this professional courtesy to assist and encourage upcoming projects.

Some GC’s believe they can make themselves indispensable to a project by providing extensive conceptual estimating.   They hope to secure a contract award before the design is completed.  This is commonly known as “client capture” and it’s the reason some firms will spend a considerable amount of time on conceptual bidding.

Seven new estimating ideas to try

“Scott does a lot of conceptual estimating and it’s starting to show.”

Since neither the Architect nor the Client pays for these conceptual estimates, they are naturally enthusiastic about soliciting bids from GC’s.  In some markets, it has become common to solicit competitive conceptual estimates from several GC’s without any intention or obligation to work with the “winning” GC on the final project.  The request for proposal (RFP) on such projects  encourage GC’s to provide design solutions, while studiously avoiding any reference to contract award.

GC’s with more optimism than caution end up as unpaid design consultants.  Some truly callous Clients will  “refine by bid” which is where all the estimators best ideas from one round of bidding are incorporated into the plans before they’re put back out to bid with their competitors.  This process is repeated until the client is satisfied that they’ve got the cheapest contractors building the best ideas.    I encourage estimators to find less frustrating ways to help their competition!

Clients may be unwilling (or unable) to award a contract to a GC on the basis of the conceptual estimate.  Nevertheless, these clients need budgetary feedback on their designs.  An unspoken detail of complimentary budgeting services, is that you can’t hold anyone responsible for bad information.  Clients who solicit several bidders are hoping to work around this problem by putting their trust in a budgetary consensus.  This encourages bidders to game the uncertainty to their advantage.  The bidders goal shifts from providing insightful conceptual estimates worthy of contract award, to landing an invitation to the final round of bidding.

Since Architects act as gatekeepers to new project opportunities, the GC’s will favor the Architects interests wherever they can.  This means that GC’s aren’t as interested in finding budget-blowing design choices as they are in delivering a plausible-sounding number.  GC’s who mostly chase conceptual work won’t attract market-leading subcontractors (subs) who have real opportunities to pursue.  Firms that cannot attract market-leading subs must often cut corners to be competitive.   All of these conflicting motivations serve to move the outcome of a conceptual estimate further from its purpose.   Many clients end up blind-sided by a budget blowout on their final bid as a result.

Estimates are not free.  Competitive bidders submit their estimates in a good faith exchange for either contract award, or bid results which help them to win their next bid.  Competitive conceptual bidding with no obligation to award or even select a contractor is a terrible practice that’s harmful to all parties excepting the Architect.

GC’s should offer clients an alternative.  A constructability review would furnish the client with not only the conceptual estimate, but a comprehensive report on the constructability of the plans.  Furnishing the client with a list of outstanding budgetary issues provides a way to track changes and guide progress.   The fee for these services should be commensurate with the labor involved in meeting the client’s needs, including recompense to any subcontractor consultants involved.

#2 Include sample subcontracts with every invitation to bid

It’s impressive that with the incredible amount of information that’s being effortlessly transmitted via email, and bid-letting software that one crucial document is virtually never shared before the bid deadline; the subcontract.   Many GC’s provide the sample contract under Division 1: General Conditions in the project specifications.  However that sample contract is only between the Client and the GC.  Most GC’s include subcontract terms that are much more stringent than those in the General Contract.  The most common are the “pay when paid” provisions which allow a GC to deny or delay payment to a sub because the client hasn’t paid them.  Some GC’s restrict the allowable percentages of overhead and profit on change orders on subcontractor’s change orders as well.  Other GC’s require every subcontractor to provide several hours of daily cleanup.  These are just a few of the many contractual requirements that Subs are expected to agree to after they’ve bid the job.  GC’s factor the general contract terms into their estimates as part of the project risk.  Providing a sample subcontract with every invitation to bid (ITB) shows the subs what the GC is expecting of them.  This avoids unnecessary arguments and negotiations for the Project Manager trying to get the project started.

Seven new estimating ideas to try

“Here we see a project manager fixing problems with the estimate… “

#3 Provide bidder responsibility matrix to delegate trade overlaps and identify sole-sourced vendors

Building on the concept of telling Bidders what you want from them, it’s a good idea to provide a bidder responsibility matrix.  There are tons of situations where several trades will overlap, yet nobody knows which trade the GC expects to do the work.  Rather than leaving these things to chance, it’s far better to actually provide direction so there won’t be any bid-day surprises.

Sole-sourced vendors are companies that must be hired for the project.  Sometimes they sell an exclusive material, other times there are proprietary systems that require specialist training.  The most common sole-sourced vendors will pertain to systems like; Security, Access control, HVAC Control, Fire Alarm, Elevators, Point of Sale (POS) systems, and Telecom.  Many of these vendors are “ghost trades” who only operate in a sub-tier-sub relationship.  If the affected trades don’t know who to call, they’ll just exclude the work entirely.   It’s absolutely incredible how much time gets wasted by all the subs trying to figure out who these sole-sourced vendors are.  GC estimators that provide leadership and information will quickly earn the loyalty of their subs.

#4 Provide “sellable” target budgets for individual trade solicitations on design-build estimates

GC’s who pursue competitive design-build bids rely on subcontractors to fill in a great deal of information.  These projects typically provide a narrative along with a rudimentary sketch of the work.  Lacking a target budget, the subcontractors have no context to interpret the design intent of the project narrative.  As a result, a lot of work is wasted in developing proposals that don’t meet the client’s needs.  Getting the subs dialed in to the GC’s expectations gives the whole team a cohesive plan of action.  Providing leadership and perspective is vital to successful bidding in a competitive market.

It’s worth pointing out that GC’s who have a Project Manager (PM) “bidding their own work” should make sure they adhere to estimating best practices .  Lots of PM’s “estimate” by collecting subcontractor bids and tallying the total of the lowest bids in each trade.  These PM’s have no idea what things should cost because they’re not actually estimating their projects.  GC estimators looking for an edge against their competitors can set themselves apart from the “bid collectors” by proving they are the firm that knows what a winning number should be.

In tight markets, this knowledge can undermine the hack GC bidders by giving the sub market a way to know when a GC hasn’t shared all the project requirements.  Transparency leads to trust and trust leads to cooperation .  The subcontractor market’s frustration with bidding practices that obscure, delay, and misrepresent what’s really going on shouldn’t be underestimated.  Being timely, honest, and forthright with important information will provide a sustained competitive advantage in most markets.

#5 Improve in-house estimating by hosting “lunch and learn” sessions with a market-leading subcontractor

Good leadership is difficult without good information.  Market-leading subcontractors can be a great source of trade-specific information for a GC estimator.  Understanding what drives the costs in complex system can open up options that would be overlooked.  GC estimators should strive to improve their knowledge by inviting a market-leading sub to a lunch hour session where they can present on some specific area of their trade and answer estimators questions.  These meetings can explore new materials, techniques, and technologies that estimators could potentially use for value engineering exercises.  Don’t forget that subs have extensive market knowledge about Architects, clients and competitors.

Reciprocity is a vital component of fair-dealing so GC estimators should share whatever they can that would help the sub to win more work.  Feedback on how proposals are scoped on bid-day can greatly improve a sub’s understanding of how their bids look through the GC’s eyes.  Poorly written proposals may end up on the “war room” floor when time is short, and the prices are close.   GC’s may lose the bid by these small differences so it’s very important for subs to have well-written proposals.

#6 Provide a team strategy that goes beyond simple pursuit.

The very nature of competitive bidding means that the majority of bidders will lose.  Many professionals assume that bidding is like a lottery, where your odds may improve in proportion to the amount you participate.  Their favorite slogan is “you can’t win if you don’t bid“.  If clients merely picked the winning GC out of a hat, this reasoning would have merit.  The reality is that the market-leading price for the proposed work isn’t generated by random chance.  Market leaders will consistently deliver higher value at lower cost than their competitors.  It therefore follows that any GC capable of attracting the best subs on the market will have a profound advantage in quality, pricing and profitability over their competitors.  When these firms pursue an opportunity, it’s incredibly hard to beat them without an excellent plan

Eagles and moths share the gift of flight, but moths squander their gift by banging against windows.

GC estimators should sincerely develop a strategy that plays to not only the GC’s strengths, but to their best subs’ strengths.  Winning  a bid has more to do with targeting the right opportunity than anything else.  Blindly pursuing every opportunity leads to consistent losing.  This tells market-leading subs that the GC is a participant rather than a contender.  GC’s that can’t attract market-leading subs won’t be competitive on dearly needed projects without sacrificing profitability.  Eventually this spirals to the point where every bid is a last-minute, underfunded, and poorly managed effort to keep the doors open.  The ever-present urgency to pursue every project is the most visible indicator that an estimator is adrift.

Seven new estimating ideas to tryEven the best teams get tired of running around

Estimating is a deadline-driven enterprise, and everyone participating knows this.  Invitations to bid that offer nothing but a strategy of pursuit aren’t capitalizing on the opportunity to communicate a viable strategy to win a profitable job.

ITB’s with statements like ;”we’re really going after this job” are presenting  their enthusiasm for the pursuit as a reason for subs to team up with them.  When these ITB’s are followed up with interns or secretaries nagging subs to bid, the tone shifts from enthusiasm to desperation.  Excellent GC’s don’t nag subs for bids.

GC’s who carefully select project opportunities based on their best allies in the subcontractor market aren’t doing themselves any favors by writing an ITB that implies the GC is desperate for company on their mindless pursuit.    If the GC’s best subs are market leaders, nothing is gained by soliciting every company in the book (or the database).  ITB’s can and should indicate when subs are short-listed for a targeted opportunity.  If it’s a great opportunity because the GC’s got a great team of subs, then the GC should clearly commit to their team. 

It’s worth mentioning that scoundrels who think “blind copy” gives them the power to misrepresent their commitments are mistaken.  Dishonesty is revealed in the supply chain just before the subs bids are due.  This is because the sales reps at distributors who sell to all the subs in a given trade have a vested interest in helping their customers to win.  Since everyone has the same deadline, the vendors can see who’s requested pricing.  Subs may have a lot of opportunities vying for their attention.  Sinking a few weeks of effort into bidding on one project may require turning down a lot of great opportunities.  Competitive bidding operates on principles of good-faith.  Once a sub knows the GC is willing to lie or cheat, there’s no reason to believe in fair competition.  Honest subs will choose to either withdraw from bidding or intentionally lose the bid so they can escape dealing with the dishonest GC.

In the decade that I’ve been an estimator, every profitless, contentious, mismanaged, and unpaid project started with some form of dishonesty.  It’s never the bid you lose that puts your business under, it’s the terrible job you won.

#7 Replace boilerplate bureaucracy with clarity of purpose

Modern construction is very litigious which is why companies call themselves “General Contractors” instead of “Builders”.   This is why GC estimators often think in terms of contractual liability.  Estimating is about controlling risk so it follows that many estimators would seek to reduce their risk by using standardized forms covered in catch-all provisions, clarifications, and exclusions.  This “boilerplate” can get so extensive that very little on the form is actually pertinent to the project at hand.

I’ve encountered proposals that were so riddled with boilerplate that they barely outlined the work to be done for the proposed amount.  Some GC estimators try to circumvent this practice by requiring their subs to use a “bid template” to standardize the format for the bid.  This is predictably unpopular with the subs because the GC’s formatting  limits the risky exclusions, clarifications, and notes.

Both of these examples illustrate how boilerplate bureaucracy swaps risk for cooperation.  The best cooperation is achieved when the risk is assigned to the parties who can best control the factors driving the risk.  Subcontractor proposals with boilerplate meant to replace a contract are false economy.  The GC’s ITB is a solicitation to bid on work under the terms of the GC’s subcontract.  While the GC’s get to set the terms of the contract, the subs are independent firms who must strike a balance between protecting their interests, and offering a useful proposal to the GC.  If the subs knew what the GC’s subcontract would require, they would have less risk to control.

Subs who don’t include the complete scope of work for their trade are generating liabilities for the GC.  The GC’s patience with those liabilities grows in proportion to their ability to find someone else to address them.  The more skilled the trade, the fewer options there will be.  This is why some “concrete” firms can get away with excluding rebar and/or concrete.  In contrast,  Electrical contractors are expected to include all wiring for the building, even when that requires a sub-tier contract for proprietary systems such as Fire Alarm, Communications, Building Management Systems, or Point Of Sale (POS).

Inexperienced GC estimator’s sometimes try to counterbalance their lack of knowledge with additional bureaucracy.  This translates to numerous and tedious bid revisions that steadily move away from a collaborative effort to win a job.  These revisions generate additional risk to the subs because risk-averse GC estimators are prone to losing bids.

Clarity of purpose is what’s needed here.  The GC estimator must understand it’s their purpose to profitably win work by controlling risk.  This is best accomplished by working collaboratively with market-leading subcontractors.  Demanding protection from all risk isn’t estimating, it’s one-sided policy that leads to profitless work.

Seven new estimating ideas to try

“I don’t know… something about light and heat, I handed it off to the estimator…”

In competitive bidding, profit may be considered to be a function of risk versus reward.  Making projects rewarding for subs increases the GC’s ability to attract top talent.  It therefore follows that reducing the risk for bidding subs will correspondingly increase the GC’s profitability.

It’s here that an engaged GC estimator can provide committed leadership to direct the best course of action.  The most common problems will pertain to what gets included, or excluded from the scope of work.  The design teams believes their primary function is to provide design intent, which the General Contractor  uses to develop a cohesive scope of work.  Design teams can successfully argue that even incomplete plans, convey the design intent.  As a result, the GC may find they’re facing a choice between losing the bid by including something or winning the bid by excluding something the design team expects you to have.

Many GC estimators are reluctant to carry subcontractor exclusions into the proposals they send to their clients. This creates a situation where the GC estimator must force their subs to remove the exclusions (pushing the risk onto the subs), or take the risk that they can be negotiated during the contract buyout (pushing the risk onto the build team).  Risk is always expensive, but problems get more difficult when there’s less time to solve them.

When a specific risk is dependent on the actions of the client or their design-team, it’s wise to clarify what’s included in the proposal based on your understanding of the design intent.  Giving the client insight into how you’ve managed the uncertainty clarifies your position in terms they can understand.  On bid day clients may interpret exclusions presented without context as inconsequential.  Yet when these selfsame issues cause a change order later on, they’ll feel cheated.  Empower the client to make informed choices by connecting their choices to project outcomes.

I hope these ideas push estimators to think beyond statistics, measurements and spreadsheets.  It’s easy to become confident in a process that has become complacent through repetition.  Estimators looking for an edge can set themselves apart by exceeding the standards of their competitors.  As Thomas Edison once said ; ” Opportunity is missed by most people because it’s dressed in overalls and looks like work“.

 

For more articles like this click here

© Anton Takken 2016 all rights reserved

 

 


Perspective on percentages

Estimating involves a lot of details and mathematics which must often be communicated with great speed and precision.  Unfortunately, there are terms that are so frequently misused that the information being shared is of little value.  A percentage is a simple concept with great utility and flexibility depending on your perspective.

Sometimes 10% to one party isn’t 10% to the other

Subcontractors regularly call to request bid results of the General Contractor (GC) estimator to define how closely their bids are following market prices.  Estimating often requires discretion during the bid (before the deadline) in order to maintain a fair competition for the subs, and to protect the firms interests.  All too often, the focus on discretion leads GC estimators to be incredibly reluctant to provide their bidding subs transparency in bid results.  The best bid results many GC estimators will offer is a percentage presented in vague terms.  “You were 10% higher than the low bid” is a typical example.

For simplicity’s sake, let’s assume that the inquiring subcontractors bid was $100,000.  Ten percent of $100,000 is $10,000.  So we might think the low bid amount was $90,000 so far, so good. But it’s wrong!

Perspective on percentages

“Yep, that’s the look of someone who’s made a rookie mistake.”

If the low bid actually was $90,000, adding 10% would make the 2nd low bidder $99,000 not $100,000 because 10% of $90,000 is $9,000.

In order to figure out the low bid amount, using only the information provided we can lay out what we know in an equation.

The percentage given represents the difference between the low bid, and the calling subs number in proportion to the low bid amount.

Putting this into an equation gives us:

($100,000-$Low bid)/($Low bid) = 10%

Solving for low bid we have:

($100,000)/( 10%+1) = $Low Bid

$100,000/1.1 = $90,909.09

Deducting the calling subs bid from the low bid give us the dollar amount they lost by.

$100,000 – $90,909.09 = $9,090.91

This means the calling subs was $9,090.91 higher than the low bid.

Rounding to an even $9,000, it’s plain to see that the calling sub would have needed to cut 9% from their $100,000 proposal to match the low bid amount.  Since the entire point of bid results is to define what you’d need to improve, it’s imperative to correctly interpret what you’re being told.  The GC’s is telling the sub they are 10% higher than the low bidder, when the Sub actually needed to cut 9% to match the low bid amount.

That simplified example might lead you to think 1% is no big deal, and on smaller projects, that might be true.  Have a look at what happens when we run through that example again with a 30% difference.

($100,000)/(30%+1) = $Low bid

($100,000)/(1.3) = $76,923.08

$100,000 – $76,923.08 = $23,076

Round that to $23,000 and the sub only needs to cut 23% from their bid to make up a 30% difference at the GC’s desk.  A 7% difference in perspective can lead to completely wrong conclusions.

Just to sum up, the GC is calculating the bid-result difference as follows:

($Sub bid – $Low bid) / ($Low bid)= % Higher than low bid

The sub is calculating the percent they must cut their amount to meet the low bid as follows:

($Sub bid) / (1+ % Higher than low bid) = % to match low bid

Many GC estimators prefer to give bid results in percentages because this minor obfuscation  spares them from actually speaking dollar amounts aloud where they might be overheard and misconstrued as bid shopping.  Bid shopping is when a GC informs a colluding subcontractor of their competitors price for the purpose of soliciting a lower bid.  In some cases bid shopping is illegal, and in all cases it’s unethical.

Subs calling for bid results should be prepared to think on their feet to rapidly calculate the hard numbers behind the percentages.  Responding to the percentage provided with “So the low bidder was $XYZ amount?” gives subs a chance to confirm what they’re being told, without obliging the GC estimator to speak the number aloud.

514007541_1bd174d191_z

Photo by Andrew Dobrow

Contractor cloaking technology isn’t very sophisticated

Subs should be especially conscientious about clarifying the bid results they receive from  Project Managers (PMs).  PM’s traditionally “buy out” the estimate which means they’re checking their estimators work, and addressing the problems they find.  They might have discovered that the  bid-day low sub was missing some costly scope inclusion, which made a different bidder the legitimate low-bid.  This vital error-checking process naturally requires  discretion to avoid the appearance of impropriety.  PM’s providing bid results after all that review may be looking at a considerably different situation than their estimator presented.  Honest PM’s will do their best to work out the errors in the order of bid-day performance.  If the corrective addition to the low bid makes the new total higher than the 2nd low bidder, the PM will hire the 2nd low bidder (provided their scope is complete).

I should mention that it’s a curious coincidence that many of the most dishonest PM’s I’ve encountered have a habit of saying every bid was “close” or “within 2%”.  Estimators should be particularly wary of clients showing any signs of dishonesty.  The false pretense of a  hotly contested bid is a potential warning sign of bid-shopping, especially when similar projects deliver a larger spread between bidders.

Where percentages work, and where they really don’t!

There are several components of an estimate that operate on percentages.  Profits, taxes, fees, and bonds are frequently calculated as percentages of the total costs.  There are some estimators who believe that overhead should be calculated as a percentage of project cost despite the many ways this goes wrong.  Unfortunately, this archaic thinking is sometimes bound into contractual terms where change orders are limited to predefined percentages for overhead and profit.

Overhead is the cost of doing business over time, which is not directly driven by the project cost.  Imagine a one month duration project that has a slightly cheaper level of finishes, resulting in a lower total project cost.  Did that decline in finish alter the rent at your office? No, your rent is the same regardless of what your client’s project costs, so why jeopardize the means to cover your overhead by pricing it as a percentage?   This practice virtually guarantees that projects above a certain value will be overpriced, while projects under that value will be under-priced.  In extreme cases, you’ll never win big jobs, and you’ll go broke doing little ones.

The difference between markup and margin

All business is a balance of risk versus reward; estimators calculate that potential reward in terms of profit.  It’s here that we encounter some terms that are often misunderstood, and misapplied.  Let’s say we’ve got a project worth $100,000 after all the costs are included.  Now for that $100,000 worth of work (risk), we’d like to see 25% profit (reward).  This percentage is known as markup.

$Subtotal X Markup % = $Profit

$100,000 X 25% =  $25,000

We add that profit to our subtotal and our bid amount is $125,000.

Now let’s say we won ten such jobs in one year.

10 x $125,000 = $1,250,000

That means the company had a total revenue of $1.25 Million.  So the boss is reviewing the books at the end of the year which will show all the costs, and all the earnings.  The difference between all the costs and all the earnings is your total profit.

We know that every estimate had $25,000 for profit, there were ten jobs, and to keep things simple, we say everything went perfectly according to plan on all of them.  This means the total profit should be $25,000 X 10 = $250,000.

Let’s take that $250,000 total profit and divide it by the $1,250,000 total revenue to determine the percentage of profit we’re actually earning.

($250,000) / ($1,250,000) = 20%

The percentage of profit we’re actually earning on our revenue is known as the Margin. As we can see, a 25% markup yielded a 20% margin.  This is where estimators need to consider what’s going on from an owner’s perspective.  The overall risk versus reward to the firm is the total revenue versus the total profit.  They’re not working off the subtotals of every estimate, they’re working off the contracted total amounts.  Margin makes sense when you’re working off of revenue amounts, because it directly speaks to the profitability of your entire operation.

Imagine how serious it would be for someone who misunderstood markup to be margin.  The 5% difference between 25% and 20% may not seem like much until you consider that profit to be their annual income.  That would be like working five days a week and only getting paid for four!  Many entrepreneurs  have failed because they didn’t understand this concept until it was too late.

Photo by strange_r

Photo by strange_r

Jim knew things weren’t adding up, but he couldn’t figure out why.

Just like the bid-results example above, the differences grow with the percentages in question.  A 25% Markup results in a 20% margin, whereas a 33% markup results in a 25% margin.  The percentage of markup is always higher than the margin percentage.

Putting this into formulas we get:

% Margin = (% Markup)/(1 + %Markup)

% Markup = (%Margin) / (1- %Margin)

We can calculate the total with a specific margin by using this formula:

$Total = ($Subtotal) / (1- %Margin)

So why do people get this wrong all the time?

The construction industry is very competitive which means that contractors must bid with lower profit percentages in order to win work.  It’s quite common for hard-bidding GC’s in tight markets to bid with less than 5% markup.  The difference between markup and margin is quite small when the percentages in question are in the single digits.  If the project isn’t worth very much to begin with, these differences become even less significant.  Sadly, many firms have leadership that developed bad habits when they were small and just starting out, that are ruinous to the larger operation they oversee in the present.

Fiddling with your fee

Sometimes markup is known as a fee which can get confusing when we are dealing with cost-plus contracts.  Cost plus contracts are invoiced on a “time and material” basis with either a fixed fee (set dollar amount), or a fixed percentage.

In the case of a percentage based fee, it’s absolutely critical to understand whether the fee is actually a markup, or a margin.  Contracts stipulating that the contractors fee may be no more than XYZ% of the total invoiced amount, are allowing the fee to be calculated as a margin.

Conversely, contracts stipulating that the contractors fee may be no more than XYZ% of the total time and material costs, are requiring the fee to be calculated as a markup.

This same logic applies to contractually stipulated overhead and profit percentages on change orders.  It’s been my experience that if the client took the trouble to stipulate overhead and profit percentages, they’ll likely limit those percentages to markup only.

I hope this article has helped to shed a little light on how percentages change with perspective.

 

For more articles like this click here

© Anton Takken 2016 all rights reserved

 

 


A Modest Suggestion to Improve Budget Checks

I’ve written before about conceptual estimating and some of the challenges that it presents.  We conceptually estimate whenever the plans and specifications are too incomplete to facilitate a normal contract.  This means that conceptual estimates do not constitute a binding contractual obligation the way they do on a “real” or “hard-bid” situation.  Correspondingly, the client is typically under no obligation to award a contract, or even select a contractor for future award based on a conceptual bid.  It’s supposedly mutually understood that conceptual bidding is a courtesy that contractors extend to clients and their design teams to facilitate future work.  Many General Contractors (GC’s) see conceptual bidding as an opportunity to get in front of the client.  They hope that their investment in conceptual bidding will lead to contract before all the drawing stages are completed.  This is known as client capture.

A Modest Suggestion to Improve Budget Checks

You’ve got to enjoy those victories

The Architect knows more than they’re letting on

Before we go much further we need to address some of the misconceptions about what’s really going on.  First and foremost, we need to understand that the professional with the most information, and the most authority to make informed decisions to align the design with the budget is the Architect.  The American Institute of Architects (AIA) has recommended policies and procedures for the project process.  These policies aren’t shy about demanding not only budgetary information, but insight into how the budget gets approved, who might be opposed, and what can be done to ensure the job moves forward.  The Architect knows what features must be included and they know the budget they’ve got to hit in order to get the job approved.

Further, any Architecture firm with sufficient experience has an impressive backlog of information for the costs of past projects.  This information is far, far, superior to what any individual GC might have because they have access to not only the awarded bidder’s proposal, but the losing GC’s bids as well.  This is profound feedback on their design that they can collect every single time their plans are bid.

Not only are the Architects sitting on competitive bids for their plans, they’ve also seen the change order costs for all the projects they’ve built.  They have a uniquely accurate insight into how costly missing, incomplete, or changing information can be on an issue, by issue basis.

Inflection point

This brings me to one of the most canny contractual moves I’ve ever seen.  The AIA writes the vast majority of construction contract templates.  It’s therefore not surprising that these contracts absolve the Architect of any responsibility for the financial outcome of their work. So when the lowest bid they received blows the client’s budget, the Architect isn’t responsible.

This makes a certain degree of sense because the Architect is independent of the GC’s bidding the job.  They can’t be held responsible for market conditions, or contractor business decisions that are outside of their control.

A Modest Suggestion to Improve Budget Checks

However, this absolution of responsibility has opened the door to corruption.  Architects and their design teams can, and do, sole specify vendors who inflate their prices because they’re protected from competition and transparency.  Everyone in the distribution chain realizes that exposing the corruption to win a single job, may cost them competitive pricing on everything else they’re bidding.

Playing dumb is a costly game

It’s obvious that an Architect can’t do their job without knowing the clients budget as well as their project expectations.  It’s also obvious that an Architect couldn’t be expected to balance the project expectations with the clients budget, unless they had a sense of how much their design would cost.  This working knowledge is a function of the Architects experience.  Taking this one step further, it’s therefore obvious than an experienced Architect has very little excuse for blowing a clients budget.

GC estimators receive Request For Proposals (RFP’s) from the client or their architect which outline the expectations and obligations for the bid.  These vary in formality, however the basics of the bid and subsequent project are provided to all invited bidders.  Some government projects are required to show the estimated project cost on every RFP.  It’s very rare to see this information provided anywhere else.

Conceptual estimating requires the bidders to fill in the gaps in the documents.  This means that a conscientious bidder is forced to make design decisions and price them in a competitive setting.  While there may not be a contractually binding obligation to honor their conceptual price, a bidder is aware that it is unprofessional to provide erroneous or misleading information  Experienced bidders know that clients and design teams virtually never remember the qualifiers, clarifications, or exclusions.  The lowest number they got is what they’ll remember.   In tight markets, clients may have several GC’s bidding each stage of plan development.  This can mean three or more rounds of competitive bidding before the final contract award.  Every GC may have two dozen trades, with three or more subs per trade.  The collaborative cost of all these estimators pricing a project through its document development is staggering.

A modest solution

The entire point of a budget check is to verify that the design cost won’t progress outside of the clients ability to pay.  If things aren’t adding up right, it’s easier to scale back earlier in the process so the final Construction Documents (CD’s) attract acceptable bid amounts.  The budget checks are tied to plan development stages which are known to the design team and the client.

For example, a 50% design set may only have the major  Heating Ventilating, and Air Conditioning (HVAC) equipment located on the plans.  The Mechanical Engineering consultant may need to run some calculations to make their final specification selections, but they know the magnitude of the final system and how it will correlate to the mechanical portion of the project budget.

If the 50% drawings don’t provide the estimated magnitude of the system so the HVAC bidders are forced to fill in those blanks to conceptually bid the job.

A Modest Suggestion to Improve Budget Checks

Efforts to improve engineering transparency are ongoing…

Basically the conceptual bidders are pricing their vision of the project rather than the design teams vision of the job.  Design changes implemented on the conceptual pricing feedback aren’t actually based on universal comprehension of the original plan.  If the HVAC bidders filled in the gaps with unnecessary or inefficient selections, they’re pricing a completely different design than the design team had in mind.  Since conceptual estimators are wary of angering clients when the low-cost assumption is shot down, they may skew to higher cost answers to guard against the unknown.

We have a situation where Clients are asking if the design is on track, and the bidders are playing guessing games with the designers intent.  None of the answers are meaningful because the most insightful information isn’t provided.

I propose that RFP’s for budget checks include a design-team estimate breaking down the clients budget into Construction Specification Institute (CSI) Masterformat divisions.  The Mechanical Engineering consultant in the above example would provide rough magnitude descriptions of their planned equipment along with budget allowances for each component.

The context of the RFP completely changes because the design teams budgetary assumptions become the baseline of conceptual estimating.  Instead of asking what some poorly rendered thing costs, the RFP asks if their plan is on track.

The GC’s responding have a uniform means of quantifying the scope, and they can identify budgetary inaccuracies on a line-item basis.  This not only improves the design teams understanding of what’s driving their budgets, it also reduces the GC’s risk in answering conceptual questions.

This also resolves the ticking time-bomb of last round changes to the plans that suddenly reveal costly items that were always expected but never communicated during earlier budget checks.

A Modest Suggestion to Improve Budget Checks

“We found a few concerns in the Landscaping budget…”

What would need to change

For starters, Architects would need to become more transparent and accountable for the impact of their decisions.  Currently, budget checks are like a theatrical production intended to feign concern for staying on budget, while collecting the means to blame GC’s when the job comes in over budget.  Budget checking doesn’t need to be a charity effort in an Architects theatrical production of “The budget is blown” starring “The angry client”!

Budget checks are not offering a fair contract award to the lowest bidder in exchange for a free bid.  Since there is no legitimacy without reciprocity, the bids shouldn’t be free.  If we can agree that it’s a professional courtesy that’s necessary to foster market growth, we should be able to agree that Design teams need to be more respectful of the markets time.  Basically, if the design team knew what they were doing, checking their budget should be a simple process.

There is an obvious need for Architects to have their own in-house estimating, scheduling, and management professionals.

Likely resistance

The fundamental link between design intent and cost outcome cannot be waived aside in the context of a budget check.  Either the Architect is a responsible and capable professional, or they’re just hoping whatever they draw will pass budgetary muster.   Architects may feel they have little to gain by transparency in inverse proportion to their professionalism.

Admitting that to their cost knowledge may lead to clients demanding that they pay for design errors and omissions.

A Modest Suggestion to Improve Budget Checks

Even when they’re spiraling out of control, Architects will color coordinate!

Of course, there would be fewer change orders if the budget-check process was actually grounded in a meaningful process to correct the Architect’s course via contractor feedback.  Also, the budget-checking may provide sufficient pricing information to later argue that change orders are overpriced.

Incompetent design-teams won’t likely be any better at estimating than they are at Architecture.  Budget checking an obviously flawed estimate isn’t going to be fun for GC’s looking to impress the client.  However GC’s will benefit from having a real black-and-white illustration of the Design teams competence to refer to on bid day.  Clients may fail to recognize the nuance of a complex architectural depiction, but they’ll be able to see how their Architects work fell short of what they promised.  It’s politically difficult to tell a Client they’ve hired the wrong team, but a red-lined estimate showing where and why things were wrong may send the same message.

Adding estimating and management staff to a design firm may be seen as an onerous obligation. Many design teams have been able to operate on fuzzy program designs that fall well-short of being an accountable estimate.  Plausible deny-ability is built-in via sloppy and opaque documentation.  Nevertheless, design firms are selling their clients a promise to responsibly translate their clients vision and budget into a successful project.  Clients looking for a qualified architect should focus less on computer-aided design innovation, and more on sound business practices.

Likely blow-back

The entire concept of client capture via conceptual estimating would be effectively turned on its ear.  Rather than telling the most compelling story of how the job might be done, conceptual bidders would be editors to the Architects narrative.  For firms that have been successful with client capture, the budget check as I’ve proposed would offer much less latitude to sell the client on your companies abilities.

There’s nothing about my proposal that addresses the possibility that the final round of bidding could still exceed the clients budget.  Market factors like seasonal rushes or shortages can have profound impacts on the bid-day amount.  We all have to cope with factors that are outside of our control.  However, it’s worth pointing out that GC’s could inform their potential clients of changing market conditions that would affect their budgets.  Additionally, the Architects estimate defines the limits of the scope intent which reduces risk, which in turn lowers pricing from the GC’s.

By a wide margin, the group most likely to oppose my proposal are the cabal of corrupt professionals who would find it harder to maintain their business practices.

A Modest Suggestion to Improve Budget Checks

Derek is just trying to build the only way he knows how…

If Architects were to reveal the actual cost of corrupt vendor material, it would immediately attract the clients attention.  Even having a placeholder for a future sole-specified product would attract the bidders attention leading them to offer more cost-effective options.  If the Architect attempted to add the sole-specified vendor in the final round of bidding, the budgetary impact would be easily audited. GC’s who participated in earlier rounds of budget-checks would be quick to identify the chicanery to the client to explain why the budget jumped.

Some GC’s may be opposed to my proposal because it indirectly illustrates their faults.  If the architects estimate is based on contracted amounts of similar work, they’re providing accurate information about what market value pricing is supposed to look like.  There are some GC’s who’ve never actually seen a market-value subcontractor bid because their approved subcontractor roster is so limited.  These GC’s will initially inform the Architect that their budget for that scope is too low.  Architects with several GC’s checking their budget may find that they can tell when a GC has an overpriced sub on their roster.

The next round of budget checking would tell all the bidders how they compared to the winning team.  This neatly side-steps the insidious nature of GC’s who withhold bid results from their subs.  It won’t help the GC’s who prefer to avoid transparency, but it will help the industry to be better informed about the going rate for work.

Final thoughts

If the market is helping the client to achieve their goals, it’s only fair that the process should help the market to be more successful. Estimating should never be free.  If you’re not winning a contract award, you should receive feedback on how to win the next time.

Lots of subs would be far better off by bidding to a more competitive GC.  GC’s need to know when they’re failing to attract market leaders so they can correct course.  Bureaucratic inertia and dysfunctional relationships lead to lots of wasted opportunities.

Architecture firms seeking to market their abilities to potential clients would have a market-proven means to show that they can design within the clients budget.  Undermining this fundamental concept is where our industries contractual adversity takes root.  True professionals must raise the industries standards to shed daylight on the scoundrels operating in their shadow.

For more articles like this click here

© Anton Takken 2016 all rights reserved