Tag Archives: Risk

Immortal Tasks; Is there a Silver Bullet?

We’ve all seen it before,  a task that re-appears on the to-do list over and over again perpetually interfering with any effort to move on.  It can be tough to see why this happens, which makes it especially hard to know what can be done to make it stop.

Immortal tasks are brainless, tangled, and sting everyone they touch

The first step with any problem is to identify the cause.  In my experience, immortal tasks are caused by:

  • Poor planning
  • Miscommunication
  • Lack of follow-through
  • Debate based on speculation
  • Bypassing the chain of command
  • Difficult people

There is little more vital to success in construction management than perspective.  Specifically, being able and willing to look beyond the current task at hand to see how it fits into the big picture.

 

 

In a bacon and eggs breakfast, what’s the difference between the Chicken and the Pig?

 

The Chicken is involved, but the Pig is committed!

 

The whole reason we use the term “Contractors” instead of “Builders” is because contracts legally and financially commits the firm to the project.   As the responsible party, it’s critical for contractors to understand that their project may be imperiled by involved parties who have completely different priorities than their own.  As a result, it’s very common for involved parties to introduce delays for the contractor. In order to be successful, the contractor must develop and communicate their plan accordingly.  One of the surest signs of poor planning is when the first response to every problem is finger-pointing.

Incomplete information can raise more questions than answers which is especially frustrating when the information was slow in coming.  Plan for every predictable problem by providing timely communication about what’s needed and when.  In the absence of clear direction, communicate the contingency plan you’ll be taking so that all affected parties know what to expect. 

Not having a contingency plan leads to situations where everyone is “doing their best” while  patiently watching as the window of opportunity closes.  Contractually speaking, when the risk of rework is less than the penalty for delay, the contingency plan should default to prudent and defensible action.   Conversely, when the risk of proceeding in error is greater than the penalty for delay, the contingency plan should define the work that will stop, in terms of the critical path delivery of the overall project.  Where reasonable and prudent, develop mitigation strategies such as out of sequence work, while being careful to coordinate unconventional deliveries with the inspection requirements of the Authorities having Jurisdiction. 

Incompetent managers prefer to remain silent on the sidelines in hopes that they may claim successes or deny failures.  Contractors working with or for these managers should understand that the “plan” is to let nature take it’s course on the project.  If this approach worked, nobody would ever hire a manager.  

Power struggles 

Lets address an elephant in the room.  Many contract relationships are adversarial by design.  We may dress up the situation by calling it “checks and balances” but many owner representatives have an obvious conflict of interest.  It doesn’t matter whether the Architect or the General Contractor, (GC) is the owners representative, the contract terms will create incentives opposed to the owners best interest.

Modern marketing would like to suggest that this is easily overcome by finding “the right firm”.  Contractually speaking, it’s a far better approach for the client to make it profitable for the “wrong” people to do the right thing.

This speaks to one of the fundamental principles of power-struggles.  People who are concerned about ethics and fairness often find themselves reluctant to reward avaricious motives.  Just doing your job shouldn’t require extra incentive.  As a result, the focus shifts from the proverbial carrot, to the stick.  Construction contracts are predominately a list of obligations with corresponding consequences for compliance failure.

The focus on preventing malfeasance (not doing your job) often creates a very real incentive for misfeasance (doing your job in a harmful way).  It has been my experience that misfeasance is at the root of most power struggles.  A superficial observation of this practice will appear as though the misfeasant professional is merely defending the integrity of their work.  This happens at all levels and all sides of this industry.

Here are a couple of examples;

Design professionals often rigorously enforce specifications that benefit favored product representatives.  Curious people might ask how the representatives responsible for overpriced products reward that kind of loyalty.  

It may not be wise to attract the Architects attention…

Estimators often find problems in the CD’s that have the potential to add cost.  Some GC estimators conveniently overlook subcontractor bidders who bring these costly items to their attention.  They do this in hopes of winning the contract before revealing the issue to justify a change order.

The misfeasant actor in either case exploits their client while proudly thumping their chest for “venerating the integrity of the plans and specifications”.  If you’ve ever heard the expression “The process is the punishment”, you’ll see the role that process plays when it comes to abusing authority. 

So how do we work around this mess?

I suggest starting with acceptance.  The only thing you can change about human nature is how you feel about it.  While it’s a tragic shame to see so many professionals guided by avarice, your duty is to get things accomplished.  This whole mess was predictable, which means these problems are due to poor planning.  All of which strongly suggests that the avaricious stuff always was the plan.  Any contract which does not reward timeliness, transparency, and accountability, for all involved, effectively rewards avaricious behavior.

This leads us to the next snagging point which is miscommunication.  In order to define what you say or write, we need to recognize how you will be heard.  It’s critical to understand the tactics used in a power struggle.  If everyone was just doing their job, there wouldn’t be any conflict to stall things out. You won’t “kill” the immortal task without addressing the root of the conflict.

What they’re really doing is protecting their interests which may be completely opposed to the best-interest of the project.  If it serves that purpose to play dumb, or keep-away, you must recognize what is not being said.  Ultimately, they want to know that their interests are secured before they’ll perform their duties.  To that end, it’s important to maintain diplomacy.  I have found it’s helpful to project a persona of kindly compliance who just so happens to communicate on-the-record with an unusual level of transparency.

This diplomatically communicates that their avaricious concerns will be secured, while establishing a precedent for full disclosure.  Many professionals will recognize the  connection between my disclosure and the potential for their exposure, which encourages cooperation.

Kind-hearted readers may object to this cynical view.  After all, it’s entirely possible that sincere professionals are simply confused, or misunderstood.  I’ve certainly encountered this in the working world, especially so when working with rookies.   

Rookies are often hard-headed about soft skills.

The reason I presented my solution to the cynical view first, is because it works equally well with sincere people.

Following through

Entropy is the natural tendency of stored energy towards disorder in a closed system.  In construction, estimators put all this energy into pre-construction efforts which get bound into contracts to build the project.  If that was all it took to successfully build a project, nobody would ever hire a General Contractor.  This coarse example serves to illustrate why follow-through is so important to actually getting things done.

I’ve won projects that required dozens of bids over the span of several years before the contract was awarded.  That’s long enough that some of the firms involved will have new staff and no records of what was quoted.  We see similar challenges on projects with lots of addenda before the deadline.  It can be downright difficult to know what is, and is not, in the final project.

As an estimator, it’s often your job to guide everyone through these changes which can feel like an immortal task.  One popular approach that aggressively doesn’t work is to simply dump all the available information into a file-sharing site and expect everyone to wade through it.   The unspoken truth in these situations is that most of that information is obsolete, unnecessary, or redundant.  It doesn’t take long for people to get nervous about what risks might be hiding in all that nonsense.  If the presented information is arranged to conceal risks, people won’t trust you.

Proper follow-through builds on the communication principles for dealing with power struggles.  Address their concerns in a manner that displays transparency.  I’ve found it worthwhile in some situations to build a “follow the bouncing ball” narrative which directs the person through the relevant issues, arriving at the necessary outcome.

I prefer to use email for these communications to generate time-stamped evidence of what was sent.   Don’t forget to use the email title to communicate effectively.  A lot of tasks fail to make progress because the recipient refuses to answer communications in order to maintain plausible deny-ability.  I’ll forward the original email with the title revised to include “second request”, “third request”, etc.  Depending on who I’m dealing with, I may copy proportionately more higher-ups in the respondents firm with each follow-up request.  Sometimes I temper this action with messages conveying my concern for the health of the unresponsive recipient.

Evasive people will often respond with some variation of “I’ve just been busy, I’ll call you soon”.  If they call but fail to resolve the task, I memorialize the conversation and all the promises, in a summarizing email which I send immediately after the call.  If they don’t call, I’ve found it helps to copy their bosses on an email where I ask for someone who’s got time to resolve my task.

Talking in circles

Hardworking people who cannot get a task completed day after day can get frustrated.  It’s natural to ask yourself; “Why is this not getting done?”.  After all, you know that’s the first questions your boss will have for you.  Sometimes a task will involve multiple unseen players who must complete their portion in sequence, according to chain of command.  This creates situations where the visible players are anxiously waiting for something to happen.  As critical time passes, you’ll be called upon to provide progress updates.  When hardworking people have nothing to go on, they might start picking at loose ends in hopes of finding a thread to unravel the snag.  This is where people start debates based on speculation.  I’ve worked with professionals who have an incredible ability to generate delays and confusion by pursuing fruitless arguments over things they did not understand.  This is a good time to focus on solving problems you understand.

Research efforts to improve the coordination of design teams are ongoing.

Life on the chain gang

Contractually speaking, chain of command is set up to mitigate risk for all concerned.  Any communications or agreements outside of the contractually defined processes have no legal bearing on the work.  This is why GC’s rigidly enforce requirements that subcontractors do not communicate directly with the design team or client.

There can also be a chain of command at the individual firm level.  Some firms create administrative blockades tiered to protect senior staff from trifling concerns.  This approach is common in firms of all sizes.

Chain of command has a couple of shortcomings.  Communication is slow, and the structure is prone to abuse by misfeasance.  In my experience, quite a few immortal tasks are due to bad actors in the chain of command.

Before we get into how to handle this, lets look at how chain of command is likely to prevent tasks from getting completed.  We need three things to contractually resolve an issue;

  • Permission/Direction: This is contractually binding instruction on a specific issue.
  • Responsibility:  This is the risk of being held accountable for negative outcomes pertaining to the specific issue
  • Process:  This is the perfunctory stuff which connects the specific issue in question with the contract terms.

When issues get “stuck” in the chain of command it’s generally because someone in a position of authority is withholding at least one of those three things without explaining why.   This kind of problem is common in professional groups which lack the necessary leadership and accountability to perform.  It bears mentioning that many firms intentionally put inexperienced, and unsupported people in gatekeeper positions.  Some people are better students than others, so invest your teaching time wisely.

Running out the clock

Everything in construction is time sensitive, so any issue that won’t resolve will eventually threaten a project.  People who can’t or won’t do their part within the chain of command, are often insulated from the pressures of your time constraints.  Where possible, and with permission, it may be possible to communicate with the person holding things up directly.  Although it may seem obvious to some, the success of this approach hangs upon strong social skills.  The goal is to define what motivates their actions, without questioning their integrity, or competency.  Be mindful of the limits of your knowledge, let them tell you what they think is going on.  Show appreciation for their courtesy and their time, by asking how you can bring the issue to resolution.  If you’re talking to a “junior buckaroo” gatekeeper, they will often allude to senior staff making decisions behind the scenes.  Where appropriate, offer to help explain things to those senior staff.

If they transfer you over to the senior staff, be prepared for an earful of information.  There are often really good reasons that an issue is difficult to resolve.  That being said, remember to ask this professional to outline the steps to resolution.  Where appropriate, ask what you can be doing to help.  Don’t forget to ask for specific timelines.  Be positive, helpful, and insistent that everything goes “on the record” so it’s done according to the contract.  Remember that you wouldn’t have this problem if the team had effective leadership and accountability.  It may prove helpful to memorialize the action plan from this discussion with an email entitled “Thank you for your help with (the specific issue) on the (name of project) job”.  Where possible, prudent, and appropriate, copy that email to the relevant affected parties.

Be sure you understand that last part.  Any viable action plan has the potential to cast an unflattering light on the individuals involved.  It might be possible, and arguably appropriate, to work around an individual it would be imprudent to offend.

Remember that any solution you work out this way is contractually meaningless until that solution is communicated through chain of command, via a formal process.  Wherever possible and prudent, incorporate the memorialized action plan into your paperwork for formal approval.  This is especially helpful in situations where you suspect that unsupported junior staff will be processing the paperwork.      

The bane of all productive activities

If an issue lingers on long enough, someone will call for a meeting.  This is a popular approach to solving problems that is affected by the same lack of leadership and accountability that caused the problem.  Getting the most out of these meetings starts with understanding what is likely to happen.

Companies with administrative blockades tiered to protect senior staff have two primary strategies.  The first, and most common management strategy is to send in the rookie.  This is likely the same person who can’t or won’t perform their duty because their superiors have left them unsupported.  Expect them to emphasize process, without touching on the responsibility they’re trying to avoid by withholding permission or direction.  Pay attention to any names you hear in case the rookie offers to “loop someone in” on this issue.  This is invariably the senior support staff of the rookie that didn’t attend this meeting about the issue they wouldn’t address.  Most of these meetings conclude with a commitment to wait and see what the hiding senior staff member comes back with. 

The second most common strategy is for senior staff to arrive at the meeting claiming to be unprepared to make a decision.  Be very careful here, especially if there is no reaction from team leadership.  This is a common ruse to trap the unwary.  I’ve encountered plenty of professionals who came to the table feigning cooperative ignorance, who revealed the depth of their knowledge later on.  You’d better have your facts and figures at the ready, or they’ll trip you up.  I’ve also encountered situations where a professional played dumb to protect their colleague(s) and/or cronies from exposure.

Matt has been playing dumb for so long, that nobody believes otherwise

Getting the most out of a meeting starts with mitigating wasteful behaviors.  If you are setting up a meeting, you might ask all the senior staff to provide a brief overview of what they need to resolve the issue.  Compile that into an agenda which is copied to all invitees.  By developing a meaningful meeting agenda, you might accidentally solve the problem!

If an invitee won’t answer the email, they’ll probably avoid the meeting too.  Anyone who can’t/won’t make a meaningful addition to the agenda is communicating something.  Use their lack of response as an opportunity to request access to their superiors.  Again, I find it’s helpful to couch this in terms of concern for the unresponsive person’s health.  It’s truly remarkable how often people will find time to reply after I’ve asked their boss if they’re out sick.

If you are asked to join a meeting, you might suggest this process by volunteering the items you need to resolve the issue on your end.  Be careful to “stay in your lane”, because weak and unaccountable leaders are often counting on someone else taking charge so they can claim success, or lay blame.  If you don’t know who should handle some item you need resolution on, admit it.  Hopefully things go well and you arrive at the resolution to your issue.

Be thankful for the difficult people in your life, for they teach you who not to be.

Construction is a field which attracts a unique blend of skills and personalities.  It’s truly remarkable how the various combinations can come together to make an individual really good at their job.  Still, it’s not for everyone, and some people take longer to make that discovery than others.  Many people are in a difficult situation after they’ve invested heavily in higher education, to begin a career that’s nothing like the coursework they enjoyed.  Others suffer from the Peter principle; “People in a hierarchy tend to rise to their level of incompetence”

These are just a few examples of how squandered human capital tends to create difficult people.  I’d like to stress that “difficult” in this context, is simply referring to the relative complexity of getting an individual to either do their job, or stand aside so others can make progress.  

I’ve had some success with the following strategy which works well with most people.

  • Respectfully set a precedent of positive productivity
  • Establish guidelines for success, and an escalation strategy for course correction
  • Define timelines for performance
  • Evaluate and follow through
  • Maintain records to develop a narrative which defends or promotes the necessary course of action.
  • Escalate as necessary

Hopefully these ideas will bring some of your immortal tasks to an end.

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© Anton Takken 2021 all rights reserved

 


An estimators guide to design trends

We often think of trends in design as driven by an aesthetic or fashion.  However design is a business, which means that market trends can have an effect on the outcome.  Just as business can influence the trends, so too, can the trends influence business.  From the estimators desk, it’s critical to spot the trends which lead to changing design practices.  Adapting to these practices allows your business to stay abreast of all the challenges that new trends may bring.

Abby finds it difficult to maintain a trendy surfer accent while yelling.

Throughout my construction career there have always been innovations which promised to simplify or consolidate complex assemblies.  In some cases, this took the form of factory-built replacements like pre-manufactured homes which tremendously reduced the work of constructing a house on site.

Trends impact design

Innovations that simplify or consolidate complex assemblies are most often manufactured solutions.  Getting these innovations into a design-teams plans will typically require that the manufacturer provide the necessary design of their product.

In simple terms, a portion of the design is converted into a specified part.  This part may be depicted in a manner that is visually similar to conventional assemblies, but without the detail and/or section drawings that one would expect.  For example, custom made millwork will typically detail every joint in a cabinet door, however a premade cabinet assembly might only show the rough layout in plan view.

So how does this affect me?

The fine detail of the pre-made assembly is usually the manufacturer or sales representative’s responsibility to deliver, especially for custom applications.  Here again, trends in business can translate to changes in design practices.  For example, a design team may specify a single manufacturer in exchange for design-assist services.  The drawings landing on your desk may have semi-detailed plans for the premade assemblies that were generated by the manufacturer or their representative.  Cost-conscious clients may require their design teams to allow multiple manufacturers of premade assemblies.  In this case, the plans may feature blocked off areas with key notes requiring final design from the relevant vendors.

Submitted without comment.

Estimators should be aware that “all in one” pre-made solutions tend to be very inconsistent.  Determining “who does what” in terms of trade overlap can reveal very complicated relationships.  The representative or vendor of the pre-made solution may only deal with the design teams.  There may well be completely separate individuals who quote, design, fabricate, and install the pre-made solution.  It bears mentioning that these firms are seldom “built” to facilitate the needs of an estimator.  The sales agent working with the design team will often have access to information that the quotes department does not.  Many such firms will insist on a process that is almost guaranteed to oppose conventional workflows.

For example, some firms will only quote work per internal directives.  This is particularly common when the manufacturer has a contract with clients that build retail chains.  In this case, the quote may look nothing like what you’re seeing on the plan.   In other cases, there are firms that will only quote after they’ve completed their design.  This is a particularly difficult requirement in situations where you are competitively bidding a conceptual design.

Trends impact designers

Thus far, I’ve focused on manufacturing innovations.  Market trends can affect the design as well.  Despite the many advances in computerized design, getting from concept to construction documents takes a lot of time.  Design professionals tell me that this is because clients are seldom decisive, disciplined, and aligned to the realities of their situation.  Competition drives prices down, so naturally, design firms look for ways to improve profitability in competitive markets.  “Standards of care” or “Design level” are terms that relate to industry defined practices for design professionals.  Greatly simplified, design professionals offer services priced by different performance levels.  This allows a client to inexpensively hire a design team for a crude schematic design for example.

Some market trends have evolved to counterbalance hiring design teams at a lower standard of care by requiring additional services of the build-team.  This can take many forms including a design-build contract, or a design-assist contract.

Responsibilities rolling downhill is a trend too!

In some situations, this counterbalancing is done by adding requirements to the specifications (specs).  This can include tasks that would typically fall under due-diligence for the design team.  Indeed there is a design trend where design and engineering consultants actually require subcontractors (subs) to hire their own independent engineering firms to verify that the proposed design is safe and appropriate for the existing conditions.  Coordination tasks are also being pressed onto subs via requirements for shop drawings of assemblies that involve multiple trades.

This can create a lot of issues for the build-team, which affects their ability to price the work.  For example, the specifications might require the electrical contractor to provide shop drawings of floor box layout with dimensions coordinating furniture, millwork, glazing, framing, structure, mechanical and plumbing. Typically, the electrical sub does not have any contractual authority over the other subs.  The specification requirements for these shop drawings never include a rubric governing which systems have precedence in the event of a conflict.

Advancements in debate technology are still in the experimental stage.

Consistently lower standards of care have found their way into construction administration practices as well.  Design teams still require submittals, shop drawings, and close-out documentation, however they eschew any responsibility for the information they review.  Many such firms will stamp “Reviewed” or “No Exceptions taken” with requirements that the contractor verify that everything they submitted complies with the construction documents.  Hand-in-hand with these requirements are specifications which state that conflicting requirements will resolve to the most stringent standard, as determined by the design team and the authority having jurisdiction.

Since this approach does not reveal mistakes, omissions, or clarifications in the submittals, we can expect two obvious outcomes.  The first is that the wrong material will be installed, which has the potential to compromise design integrity unless the design team catches it during their inspections.   The second, is that the contractors will recognize the trap laid for them by the design team.  If there is no way to prove that you have met the specified criteria, there’s always a risk that the design team will require costly changes when time is short.

Submitted without comment (again)

This trend obviously increases the contractors risk.  Savvy subs who find themselves in this situation may try to mitigate this risk by refusing to place a costly material order without Architect of record, or Engineer of record approval.  Please seek qualified legal council where necessary, as many states have laws pertaining to professional obligations.  It’s also worth knowing that contracts with a severability clause may feature clauses that cannot be legally enforced.   This may be part of a strategy to bluff contract signers into accepting unfair/illegal conditions.  Please seek qualified legal council before signing any contracts!

We’ll fix it with technology!

Some General Contractors (GC’s) attempt to supplement the lack of design coordination with Building Information Modeling (BIM) which is used for clash detection.   Since most GC’s lack extensive knowledge of Mechanical, Electrical, and Plumbing, (MEP) trades, they prefer to require that subs in these trades generate their own BIM model of the project, which will then be used for clash detection.  Here again, standards of care and detail levels play a vital role in defining what actually gets done.  In the context of competitive bidding, BIM modeling requests are generally between vague and meaningless.  These requests are vague because the GC has no idea how coordinated the plans actually are, so they don’t know how to quantify what it would take to resolve the issues.  The only party who does actually know what needs to be fixed/coordinated is the original design team.

“Go ahead and ask them what’s missing, I’ll be right behind you..”

Be forewarned that the same market trends that make it necessary to sell lower standards of care, encourage design firms to eschew “premium” services that don’t sell.  In the worst cases, the end result are plans of poor quality, which must be aggressively salvaged by a slapdash application of technology.  Please seek qualified legal council where necessary, as many states have laws pertaining to professional obligations.

If you are trying to price BIM and clash detection services, I would start by separating the proposals.  One price should be for a specified number of hours to develop a BIM model at a specified level of detail.  This should stipulate the required documents, standards, and files before the process begins.  The second price should be for a predefined number of hours to address clash issues.  Make sure to stipulate the hourly rate for overages.

We cannot solve our problems with the same thinking that we used when we created them” -Albert Einstein

Trying to coordinate a design using third party independent contractors in a process named “Clash Detection” has a few obvious pitfalls.  GC’s and subs alike should understand that the resultant “BIM Team” works very differently than if the same firms contracted with one another to design the project.

Not all clashes are easily resolved.  Some resolutions will materially change the cost, profitability, duration, utility, aesthetics, or performance of the end-product.  It’s also important to understand that clients purchasing clash detection, do so assuming that this process will eliminate change orders.  For these, and many more reasons, clash detection has the potential to consume a tremendous amount of time.  Estimators should carefully manage their clients expectations.

Trends in bidding

Estimators working in markets with an influx of pre-made solutions should adapt to the lack of detail by exposing what they do, and do not, know, using the Request For Information (RFI) process.  Bear in mind that in most cases, someone on the design team has been working with someone at the manufacturer.  Asking for the contact information of the manufacturer’s representative is an excellent way to get access to the individual who knows the most about this project.  Be advised that the representative may not be aware that the job is out to bid.  Clients with national accounts for materials, vendors, and subcontractors, have a bizarre predilection for design teams who systematically withhold any mention of these contractual relationships.  When asking about these accounts, provide any information you have, because many reticent design teams have no interest in communicating their client’s contractual relationships. Sometimes these relationships range from tricky, to downright risky.

For example, there’s one major firm with a national account for lighting fixtures which goes out of it’s way to conceal that this account arbitrarily excludes emergency egress fixtures such as exits, and frogeye lights.  The client demands that electrical subcontractors buy all their lighting fixtures from the national account  vendor.  However, that vendor will not provide pricing for the exits or frogeye lights until after the contract award.

When they do, the national account  vendor’s price for the egress fixtures are artificially high.  The client refuses to accept financial responsibility for this outcome since they believe they made their requirements clear.  Whether by coincidence or by design, that National Account relationship sets the contractor up for an ugly surprise.  RFI’s about this subject put the issue on the record for all bidders to see.  If/when the vendor refuses to quote the full package per the client’s direction, the contractor can forward the vendor’s response to the design team while asking for direction.  If/when the design team runs out the clock on that RFI, exclude, qualify or quantify the costs for the issue(s) in question on your proposal.

The client set up a national account vendor to secure advantageous terms on pricing, performance, and quality control.  The vendor may be technically selling their goods to the subcontractor, but they view the national account holder as their client.  Estimators pricing work requiring these vendors, should anticipate a lower level of vendor performance as compared to market leaders.

You might say they’re hard-headed and crooked, but that’s just one point of view

In particularly competitive markets, there is a trend where the General Contractor (GC) is awarded based on a hard-bid of the schematic design (typically 10% complete).  The awarded GC then conducts a competitive bid based on the design development set (typically 50% complete).  This bid is often “open book” to the client which means they are presented with all the bid information.  In many cases, the most complex and/or time-critical subcontractors are awarded.  The GC then conducts a competitive bid on the Construction Document (typically 95% complete) set.  This is ostensibly to award the remaining subcontractors, however the subs awarded on the 50% round are expected to revise their proposal and offer guidance on constructability, scheduling, and cost-control measures.  Finally, there is the budget reconciliation round which is the permit set (typically 100% complete).  This is where the client expects the GC to lead their subs in value engineering exercises.  In extreme cases, the client will threaten to suspend, cancel, or re-bid the entire project unless their budgetary, design, and schedule demands are met.  This practice only happens in especially competitive markets since nobody on the build-team is paid for their design-assist work.

 

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© Anton Takken 2021 all rights reserved

 


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.

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© Anton Takken 2020 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.

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© Anton Takken 2017 all rights reserved

 

 


Are pricing revisions costing you work?

Sometimes the estimators job isn’t done at the bid deadline.  Clients, Architects, or the Owners Representatives may have questions for the bidders as they review the bids they’ve received.  In some cases, the estimator will need to make revisions to suit the client’s needs, or to facilitate direct comparison against a competitor.  So far, so good.

Estimators are under pressure to respond quickly because the client is planning to award the contract as soon as they are satisfied with the winners bid.   Clients can be very difficult to reach following a bid so it behooves an estimator to make sure their attention doesn’t drift to a competitors bid.  Most contractors pack the calendar with bids so there is always another deadline looming.  This means that every post-deadline revision is taking time away from the next bid.  Leisurely clients with lots of questions rarely understand the estimators need to hustle.

Are pricing revisions costing you work?

“Sam had a terrible feeling that the client wasn’t going to let the meeting end.”

 

Making the right moves

In times of stress and pressure, it’s helpful to prioritize your tasks.  A client requesting a revision to your bid presents a significant reward for the additional work invested.  Compared to an oncoming deadline for a competitive bid, the client’s request will often take priority because it’s more likely to result in a contract award.  However it’s possible that the Client is calling about a small job with limited profitability compared to the upcoming bid.  The estimators purpose is to secure profitable work for their company by controlling risk.  When everything demands speed, accuracy and competitive pricing, the estimator will see the truth in an old adage.

“Fast, Accurate, or Cheap, you can only pick two.”

With time always in short supply, the estimator must constantly decide between delivering a cheap or an accurate revision.  It’s worth pointing out that the estimators’ wages are generally funded out of overhead.  For many firms, estimating is the only advertising or marketing for the firm.  Time sunk into answering endless questions for a client who awards the contract to a competitor is a costly proposition.  While estimators must make decisions considering uncertainty, their bosses see the outcomes as though there was never any doubt.  Post-bid work is rarely noticed unless it leads to, (or costs you) a contract award.  Many estimators have gotten into trouble this way.

Often smaller General Contractors (GC’s) and subcontractors (subs) aren’t qualified to pursue larger projects for established clients.  Smaller projects are more likely to be for “one-off” projects for sole proprietors who’ve never built anything before.  Inexperienced clients and small budgets are constant companions, which brings us to cost-effective design teams.  Here again, the above adage comes into play.  Incomplete, erroneous, and misleading construction documents (CD’s) are common with clients who have neither the time nor the money for a professional design.  Estimators may expect the number of post-bid revisions to be inversely proportional to the professionalism of the CD’s.

Building a pyramid is an iterative process

Not all client questions are  focused on arriving at a defined outcome.  For example, let’s say a client is trying to reduce cost or waste in their project.  They might ask a question intended to generate a data-point which drives their next question.  With each “layer” of inquiry, they believe they’re cutting away the unnecessary, so that each iteration is better value.  We might imagine this process to look like a pyramid where each layer is successively smaller than the preceding one.

Are bid revisions costing you work?

Above: “An elegant process leading to a difficult position”

The pleasing aesthetics of this process are based on several assumptions that seldom hold true in real life.  For starters, estimators who are competitively bidding have market pressure encouraging them to reduce cost and waste from the project.  It takes great individual knowledge and skill to win competitive bids.  Unless the scope of work, or the risk involved in the work has changed, the client is asking the contractor for information to be used against them.  Estimators know this, so the information provided takes this into account.

Providing information that would reduce profitability, or increase risk is obviously detrimental to the contractor.  As much as possible, the contractor will seek to provide answers to the client in terms of reduced scope, or reduced risk.  Clients are quick to notice that anything that can be cheaply omitted, might be cheaply expanded.  This means that every price the contractor provides has the potential to work against them. Once a price for something has been provided, it becomes a “fact”  separated from the conditions that define it.  Clients will consistently remember the cheapest price they heard for something, and woe betide any estimator who tries to change their mind later on.

In situations where the client requests revisions to revisions, the estimator and the client are poring over the same information repeatedly.  Since the earlier revisions are “fact”, there’s a built-in incentive to assume the earlier work was correct.

Are bid revisions costing you work?

“Good news! We’ve defeated the camouflage but now we’re seeing double”

Between the pressure, the drudgery and the desire to move things along, the estimator may be making quick-but-wrong revisions just to get the client to contract.   Clients obsessively focused on culling waste may talk themselves into cutting out critical project scope.  Estimators foolish enough to price their demands will be rewarded with an angry client, who feels cheated when the critical scope must be restored.

Like most things, it’s pretty clear to see where things went wrong in hindsight.  Clients may have several motivations for their actions, and it behooves the estimator to quickly identify what can be done to bring them to a decision in as few iterations as possible.  It’s my considered opinion that there are three client motivations that should inspire patience and diligence in the estimator.

  • Curiosity
  • Testing the contractors
  • Scope to budget alignment

On the contrary, I believe there are three client motivations which should be cause for concern and reservation.

  • Distrust
  • Dishonesty
  • Incompetence

Answering questions that speak to the client’s curiosity, budget, or desire to vet their contractors will give them what they need to enter a contract that’s beneficial to all concerned.  Conversely, questions driven by incompetence, dishonesty, or distrust are likely to move the project further from an honest and practical effort to award the contract.   “Helping” an incompetent client by pretending every ill-advised question is valid is how a lot of estimators end up with a profitless job and an angry client.  It makes little difference whether the client is distrustful or dishonest when their condition prevents them from awarding a contract in good-faith.   Scoundrels will sometimes feign distrust on the grounds that they don’t know enough to properly protect themselves from greedy contractors.  Demands for post-bid breakout pricing to “prove” that the bidders aren’t overcharging is a common and fundamentally dishonest practice.  The goal here is to make the winning bidder compete against the losers’ breakouts.

Imagine watching a 1600 meter race in the Olympics.  The winner is the one who finishes in the least time.  Should it matter if they were winning at the  400 meter mark?

The client intentionally misled the bidders to believe the contract would be awarded in good faith to the lowest bid submitted before the deadline.   Pretending that it’s “too close to call” is the favorite line of the scoundrel.  Extending the “competition” to continually solicit “run-off” bid revisions for better pricing quickly devolves into outright bid shopping.  It should go without saying that the construction industry’s policy of withholding bid results enables this chicanery.

I’ve awarded half-million dollar contracts that were won by less than $50.00.  I did so cheerfully because my risk of the low bidder having missed something was negligible.  While we’re on the topic, I can only think of three ethical and honest reasons to conduct a “run-off” bid.

#1 The project scope has been significantly changed following a budgetary blowout.  This means that contract award based on the original bid is not possible.   This is notably different from having a “run-off” bid where the two or three lowest bidders are asked to deliver Value Engineering (VE) proposals.  This is dishonest because any VE ideas lifted from contractors who weren’t hired constitutes a theft.  Any estimator who participates in this kind of run-off should seek easier ways of helping their competitors!

#2 A contract was terminated after the project started, but before it reached completion.  The contractors who originally bid the job are in a better position to estimate the cost of taking over the project.  Taking over a failed contract presents a lot of risk which will deter bidders.  Asking only the second and third place bidders from the original bid for a run-off bid reduces their competition which may encourage them to bid.

#3 Two or more bidders sent proposals for the exact same amount.  If this is the case, the client should be careful to disclose the actual bid amount so all the affected parties know the client is conducting an honest bid.

So how do we apply all of this?

Estimators who find themselves with a client whose revisions seem endless should create an opportunity to speak directly to the client. Emails, faxes, and messages won’t do because there is no control over the narrators tone in our reader’s imagination.  A direct conversation provides nuance that is essential to diplomacy.

It’s been my experience that offering gentle resistance by presenting questions or your own, can disrupt the iterative patterns to reveal the clients motivations.

For example, I called one client who was on their fifth iteration of the bid in as many hours.  When I was on the line with the client, I explained that whenever a client requests so many changes, I assume I’m not getting them what they need.  This little disruption shifted our dynamic from call and response, to collaboration.  From there I could help them to define their problem, along with thresholds for acceptable solutions.  Working within that understanding, I was able to bring everything to conclusion with one final revision.

That’s not to suggest that all clients will respond as well.  I had a similar situation where I tried the same approach.  This client was only interested in breakout pricing to see “who was really low”.  Everything was presented as though the decision was just one unanswered question away, yet it’s just “too close to call” the original bid.  More than one such client, added scope of work in each revision over the span of several days, then called (to avoid written record)  to say they’d like to hire me if only I would do all the extra work for my original price.

Are bid revisions costing you work?

“If you show them where to cut, you won’t like it when they do.”

I’ve also had GC’s as clients who blustered officiously about how it’s their “standard procedure” to  answer even the most perilous questions from a client.  They didn’t care that it was potentially ruinous to the trust of all parties involved.  A question was asked, and it’s their duty to answer it.  It would be difficult to imagine another situation where someone could honestly work so hard to  appear incompetent, dishonest, and lazy to their client. As a sub, it’s not “good optics” to let a GC put your name on their mistakes.  Rookies at the GC level are particularly likely to cause this problem, which is why their subs won’t follow instructions.

Good reputations can take a lifetime to earn, but only a moment to lose.

Estimators inclined towards a more charitable view of their incompetent or dishonest clients should consider how costly a failed project can be.  The people involved can either generate, or ameliorate the projects risk.  Estimators should consider their part in the projects risk.   How did the pricing revisions affect the project risk?  How did the outcome of your efforts compare to your intentions?  If pricing revisions are costing you work, look back on your efforts to identify where you might have taken a different approach.  Estimating is more than measurements and spreadsheets.  Thinking beyond the obvious process reveals opportunities to set your work apart from competitors.

 

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