Author Archives: Anton Takken

About Anton Takken

I chose to focus on estimating for a few reasons. Chief among them was that it's a position that's hard to fill in most companies. Job security and advancement is easier as a result. Unique to this job is a higher vantage point over the company and its place in the market. Bids are generally over in a few weeks which keeps things from getting boring. The reasons few of my colleagues pursue estimating comes down to a few misconceptions. The first is that it's the builders version of accounting - perceived as a lonely and quiet life among the charts and plans. The second is that it's not engaged in the construction process. Lots of the appeal of the construction industry is the sense that individual effort brought a plan into reality. The teamwork and camaraderie present among tradesman seems conspicuously absent at the estimators desk. Finally, I think the last reason is that it's daunting to be responsible for setting the price of something that's never been done. The good news for folks in estimating is that it's much more social than advertised. An estimator's phone is constantly ringing. Taking the opportunity to build relationships with the bidders creates a positive atmosphere and encourages everyone to do their best. It can be too much of a good thing which is why it's common to arrive at their voicemail when you're calling with a question. A strong rapport with the bidders can be invaluable. Subcontractors have much more exposure to what's going on in the market and they're often eager to share their knowledge. Learning from these experts is a priceless opportunity that's often overlooked. More on this in a bit. I decided to start this blog because I noticed that estimating has applications in many arenas. Over the last few years I've helped estimate in fields ranging from software development to blacksmithing! The more I thought about it, the more I realized that it's not about knowing what everything costs, it's about knowing how to figure that out. I believe the very first step to knowledge is to seek it, the second is to retain it, and the third is to pass it on. I hope to share some insights into how estimating is done and hopefully have some fun doing it. My experience is mostly commercial construction, but I'll try to make everything as generally applicable as I can. There are many aspects of business that all markets share yet it's remarkable that one of the most consistent is the failure to recognize that estimating is the very first step to a successful project. So if you're frustrated that work isn't profitable, or exasperated that there's never enough time to get the job done, this blog will be worth your time. Feel free to email me at: estimatorsplaybook@gmail.com

June 9, 2015

Adults in the room

By Anton Takken

I recently heard a comedy bit by Whoopi Goldberg where she was talking about her childhood. When she was a child she asked her mom if she would be killed in a plane crash. Her mom spoke unequivocally; “no darling, you’ll be just fine”. This lead me to think of how we as adults seek to provide stability, security, and reassurance to children. We are willing to promise things we can’t control because we place greater importance on our duty to the child’s emotional well-being than our fears of being wrong.

Estimating is about controlling risk. Sometimes risk is controlled by making someone else responsible for the worst that could happen. Everything from insurance policies to subcontracts amounts to an exchange of risk for profit. Far from the absolute assurances of a parent to a child, trading risk for profit involves a lot of limitations on what’s really at stake. In the most extreme cases, it’s hard to see where they’re accepting responsibility for anything at all. The accountability dodging is so intense these firms are failing at their purpose, which is to relieve their client of risk.

Winning a bid that leads to contract, essentially transfers project risk from the client to the General Contractor (GC). Read enough Prime Contracts and it will be evident that the intention is to lay all risk on the GC. Typical contracts provide options for the client to withhold payment, levy fines, or even replace the GC on their project. The contract is written to protect the client from as much risk as possible.

In contrast, the GC has little to no latitude to demand proof of funding or timely design revisions in the case of missing information. Both of these issues have profound implications on the project’s odds of being successful. In some cases, contractors will request proof of funding before signing the contract. Tragically this is too late to help the estimator. A contractual stipulation that proscribed the maximum response time from the design team could potentially discount the projects risk

Hard lines and fuzzy details aren’t for everyone…

Estimators might get five to ten working days with a set of plans before their firm is expected to accept millions of dollars in risk. It’s terrifically common for all Requests For Information (RFI’s) to be answered via a single addendum issued a day or two before the deadline.

It’s impolitic to say it, but this practice means that the real risk of the job isn’t evident until the last day or two. The unstated assumption of the Client and Architect is that the bidders somehow know the unknowable. Estimators are expected to be the adults in the room by providing stability, security, and reassurance to the client. A careful reading of most Request for Proposals (RFP) communicates the client’s desire to shift all risk onto the GC whose proposal is the most complete, and least expensive.

It’s interesting to note how there are some missing elements in the client’s priorities. Consider how difficult it is to draw a perfect set of plans. This task becomes nearly impossible when unexpected conditions are revealed during construction. Even “clean” ground-up projects can encounter something unexpected like an archeological find. No matter what the driving issue, the GC must be able to communicate, negotiate, and maintain production with the design team. Client RFP’s never address these issues beyond occasionally stipulating the change order process in their specifications.

You might ask how a client could evaluate GC’s communication, negotiation and management skills during the bid stage. Truthfully, it’s difficult because there’s no uniform standards for these skills. The closest most clients get is to conduct interviews with the low bidders prior to making a final decision.

It’s the combination of peril and opportunity that can have you wishing you’d stayed at the office…

I propose a different approach. Fair bids are accomplished by uniformly shared information, and uniformly upheld expectations. If clients want better communication, negotiation, and management on their projects, they need to define and uphold these standards for everyone, including their representatives.

RFP’s could include clarifications that the design team has X number of hours to respond to RFI’s, and that RFI’s are only counted as answered when the GC agrees they’re answered. This prevents RFI’s from being answered: wait for reply. I’m sorry to say, that I’ve encountered that game several times in my career!

Further, changes to the project could follow a proscribed resolution scheme which escalates the issue in proportion to its impact on the job. Reducing the time spent dithering, haggling, and arguing over blame reduces the project risk, which reduces the cost.

After further investigation, it was revealed that Scot just liked to argue.

The reason the “blame game” is played is because mistakes cost money. At a bare minimum, it’s time for contracts to admit that design errors and omissions exist. In some markets there is a tradition of carrying a contingency fund to pay for these issues, in others, the client is expected to hold their own fund. The problem is that nearly all risk is transferred to the GC at contract. Holding the GC accountable for design shortcomings carries a fundamental dishonesty into the project. If the GC has no authority to direct design resolution, they are caught in a situation where they pay for the mistake and they have limited ability to make it less expensive to the client. Design teams who must pay for their own shortcomings are much more inclined to seek timely and cost-effective solutions. Further, the practice would cause many design teams to reconsider putting incomplete plan sets out to bid. Experience has taught me that hard bidding on incomplete plans leads to delays, change orders, budget over-runs, and client dissatisfaction. Sadly, in most cases the client blames the GC because contractually everything is the GC’s responsibility.

Absolutely everything pertaining to decision-making needs three things attached to it. First is a timer to illustrate how long it’s been an issue. Second is an estimate of its schedule impact on the project. Third is an estimate of its budgetary impact on the project. Issues must be prioritized according to their net impact on the project. Issues are only counted as resolved when the problem, solution, schedule, and cost is fully (and contractually) settled. Signed change orders should never be optional. If the work changed, so did the schedule. Even “free” changes should be recorded for future reference. Change order pricing needs an expiration date because the window of opportunity is always limited. Expired change orders are recorded as “declined”. All of the worst jobs I’ve ever done had a long list of outstanding, unresolved, and unpaid change orders because the client was given carte blanche to disregard the process. Time spent doing extra work drove delays on contract work, and the client felt no compunction in citing delays as their reason to decline payment for change orders.

Skip a step and problems might fall on you.

Clarifying this process and the expectations of all concerned unifies the standards under which the project will be conducted. Contracts contain innumerable words defining how under-performance intersects with litigation. It’s well past time to define how projects should be successfully run. Every GC advertises their unique brand of “Building relationships”, however the real mark of success is how well they manage to safely, ethically, and profitably get things done regardless of client or design team cooperation.

Another means by which a GC can control risk is to better define what they’re really bidding. Clarifications and exclusions are the simple explanation or listing of what you are and aren’t accepting responsibility for. However the project you are bidding exists between the clarification (inclusion) and the exclusion. Make sure of everything that falls into the gap between them, because the client expects you’ve got it in your bid.

For the really risky jobs, it’s time for a narrative approach. You’re seeking to illustrate the entire arc of your concerns; unknown existing site conditions, a demanding schedule, a weak design team, a limited client budget, etc. What you’re proposing is a solution and it’s price. The solution is driven by your ideas and your team. Subcontractors might shy away from the job as drawn, but a GC with a solid plan and a willingness to “go to bat” for their solution reduces their risk tremendously. Basic assumptions about the limitations of what you’re doing need to be communicated explicitly and clearly in terms the client will understand. If there’s a chance your assumptions are wrong, you must be honest about the risk that presents to your client.

Be advised that an unethical client might take a perfectly spelled out, low-risk solution to your competition. If this is a concern, I strongly encourage you to reconsider bidding to such a client. Until and unless professionals shun bad clients, our industry will continue to suffer.

Dishonest business: One guy eats it, hoping the other guy chokes.

Life isn’t fair, and we’re often expected to handle things we can’t know about beforehand. Being the adult in the room is about more than promising things you can’t control. It’s about understanding that plain speaking and honest dealing are the only real tools we have to control risk. As professionals taking on the incredible risk of these projects, it’s our duty to be responsible and to lead by example.

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6 Comments | tags: GC | posted in Uncategorized

May 21, 2015

Bidding ugly jobs

By Anton Takken

Take a moment and consider all the features of a really great bid opportunity. There are bound to be individual differences but the majority of professionals would choose an opportunity with minimal risk, high profit potential, that is simple to build.

At the opposite end of the opportunity spectrum is the ugly job. These are the projects with lots of unknowns and difficulties, leaving minimal potential reward for the trouble they’ll cause you. During peak markets, ugly jobs are hard-pressed to get any bidders attention.

“Sorry, we’re only looking for jobs located absolutely anywhere else!”

Ground up construction is “cleaner”

New construction on a greenfield (never developed) site is a perfect example of a clean slate. With no existing obstacles, the project is theoretically free to get started. Further the design on a ground-up tends to be more complete as there’s nothing “unknown” in the project scope.

In contrast, remodels especially those involving structural changes can be very demanding. There may be no existing plans of the building. Historic buildings may have antiquated construction methods which bring all sorts of difficulties to a project merging the old with the new. Underestimate these jobs at your peril!

So is there an upside to the ugly job?

Marketing people are fond of reversing perspectives to advertise products. Offering a new diesel engine in an established car might be described as slower and louder than the gasoline model. It might alternately be described as improving the selection of diesel cars. So too, is there a way of reversing the perspective of ugly jobs. Starting with the fact that there’s less competition for difficult jobs. Competition is its own form of risk in that market pressures for the most desirable jobs will tend to lower the maximum profitability for everyone. An ugly job may attract minimal competition, leaving greater opportunity to capitalize on different approaches.

Ugly jobs take many forms. Night working hours can be the reason a job is unattractive. Objectively, having the building site unoccupied during working hours can actually increase productivity. Shift premiums, over-time, and extra costs for night mobilizations are all passed through to the client. For contractors with staff willing to accept the challenge, these jobs offer higher compensation, lower competition, and potentially better production. All of which can make them far more profitable than popular hard-bid opportunities.

Every population will have its share of low-performers. With the majority of firms crowding the market for “clean” jobs, it’s consequently very common for under-performing contractors to land this work. Many “clean” ground up jobs end up working overtime and weekend shifts towards the final weeks of the job. Very rarely will any of these folks see additional compensation for their long hours.

Pro tip: If the PM smiles when a sub demands overtime pay, they might be quicker than you think.

It’s one of those “costs of doing business in construction” that nobody talks about until after you’ve made an involuntary donation. This is less common with good firms.

Some remodel projects will have a lot of unknown existing conditions which increase risk. It’s important to understand that the risk is increased for everyone bidding. Further, the client expects that the unknown conditions will add to the project cost. Estimators tend to default to all-inclusive mindsets when it comes to project scope. On a ground-up project, estimators are expected to get everything included in the plans. However remodel projects aren’t necessarily handled the same way. Change orders are expensive, so clients naturally want the most inclusive proposals they can get. However estimators can structure the risk of changes by establishing some reasonable default conditions, along with fixed rates for additional work.

For example: If a remodel requires demolition of walls that might contain mechanical, electrical or plumbing, (MEP) the default condition might be to exclude any MEP work since you don’t know that it will be required. However it wouldn’t be fair to make the client or the subcontractors assume this unbounded risk. The estimator could provide an allowance for MEP re-working in their proposal along with sub provided hourly rates for demo work. This provides the client with a way to stave off unnecessary costs at change order rates while limiting the GCs exposure to risk. This also allows the estimator to bid more competitively. This is critical because bids are not free, estimators need to control risk at market value.

Ugly to the bone

Underfunded and incompletely designed projects are extremely common at the smaller end of every construction market. The risk in these projects can be very high because the budget and design are working in opposition. In the worst examples, there’s little to recommend these projects since they typically start badly and get worse from there. Bidder ambition and positive thinking have no effect on increasing a clients budget. Correspondingly, there is only so much that can be cut from a project before it fails to meet it’s intended function. Contractors soon discover that while the budget is capped, the project risk continues to grow.

Production punished by empowering everyone

Large and bureaucratic clients can present unique risks to contractors making their work particularly difficult. For example, a large facility must be remodeled without shutting down production. The facility has a safety officer enforcing a policy precluding all hot work. If the project requires soldering water lines, structural welding, or some types of roofing, it will be very difficult to get anything accomplished while following the rules. Simultaneously, the security staff require all workers be monitored. The security staff may not be around in sufficient numbers during evening shifts to monitor full crews, further hindering production. In many cases, the construction work is a low priority for auxiliary departments. Carefully written departmental policies rarely take construction work into consideration meaning that bidders must promise to “coordinate” with rule-making officials once they’ve got the job. The people with authority to make policy judgment calls are rarely accessible when they are most needed.

This is sharply contrasted to the well-defined penalties for delays, cost over-runs, or violated protocols. The bidders know that they may not expect cooperation, facilitation, or autonomy from the client. Their responsibility to make production is bureaucratically opposed at every level. While it’s possible to get along with the myriad of officials, contractors must bear in mind how easy it is for minor misunderstandings to blossom into full-blown work stoppages. Clients who “empower everyone” to stop construction for any reason can add great risk to a contractor.

I’ve often written that estimating is about controlling risk. In the example provided, the risk is in the dysfunctional behavior of a bureaucratic client. Previous experience and/or established relationships are about the only ways a bidder can hope to control the risk these opportunities present. Gaining experience with such a risky client has made many firms pay dearly for the wisdom earned. New competitors facing off against experienced bidders are well advised to be cautious. It’s good advice not to interrupt your opponent when they’re making a mistake. Letting the upstart win the poisoned chalice betters their odds on the next opportunity.

What makes a project ugly to the bone is whenever the project opposes its own creation. There is an economic balancing act where conflicting forces converge. For example, a client’s budget must roughly align with the market value of the project they’re trying to build. Half-priced work doesn’t happen without problems.

While there’s no helping the insincere, unethical, or unfunded client, the answer to successfully bidding ugly work is quite simple; build your bid to the challenge. If the job is a high-pressure remodel to be done only during night working hours, a General Contractor (GC) chasing such work is well advised to canvas their subcontractors (subs) looking for interested partners. Building a team who’s willing to commit to the necessary steps to making that ugly job profitable reduces the risk for everyone. That includes communication about how the work is scheduled, staged, and facilitated.

This is profoundly different from simply sending out an Invite To Bid (ITB) asking all your subs to bid the ugly job. Some clients have extensive property holdings that all need “ugly” remodels. There’s a largely unseen cadre of GCs who’ve tailored their operations to these clients needs. The reward is profitable work with a repeat client and very little competition. Some national chains even have contractors literally camping in their parking lots as they travel around the country doing their remodels. It’s not for everyone, but they’ve found a way to make it profitable.

Estimating is about controlling risk. Taking on a risk assuming that necessary controls will rise to the occasion is a gamble. Contracts make the penalties for gambling on projects very one-sided. “The house always wins” isn’t simply a saying in Vegas, it’s a business plan. Estimators need to soberly appraise their firms ability to control risk on difficult projects regardless of their size. Successfully running huge and clean projects does little to qualify someone to handle the thorny nuances of an ugly job. Even those with great appetites will perish from a single poisoned bite. Estimators have a moral obligation to protect their firm from project risk. Often ugly projects aren’t worth bidding. Market pressures balance things out by driving the price up on risky work . Clients often respond by reducing the contractors risk and re bidding the job, hoping to fall within their budget.

Hard bidding the ugly job; Everyone’s handicapped, out of their depth, and the winner gets stung.

GCs who bid every round of risk revision might lose to a GC who only bid the final and least risky iteration. Therefore GCs bidding risky work should expect clients to select bidders based on the original plans. The GCs should be loyal to the low subs who bid the original plans as well. Professionals have no use for moral flexibility.

Difficult projects are like white-water rafting, everyone depends on one another to keep the raft afloat and running true. When it works, it’s an amazing testament to adversity overcome. When it doesn’t, nature takes its course on everyone. Estimate a difficult job with an eye towards making the build team flexible, buoyant, committed, and led by someone who’s run tough jobs before. Let your competitors watch your success, wondering how you’ve made the ugly work profitable.

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1 Comment | tags: jobs | posted in Uncategorized

April 24, 2015

The real obstacles to successful bidding

By Anton Takken

“May you live in interesting times” – Chinese curse.

We do live in interesting times. Technological advances have made it possible to communicate faster allowing more to be done in less time. Estimating in particular has benefited from software programs seeking to provide faster measurements, more accurate materials pricing, and so forth. Most Architects are using Computer Aided Design (CAD) at a minimum. Many have moved to Building Information Modeling (BIM) which further expands their capabilities. More can be done with less.

“This efficient design gives you clean lines and a place to lie down when your air runs out.“

The curse of the lowest common denominator

Despite these awesome innovations, a simple poll of the industry will show that problems our ancestors struggled with are still with us. Technology, innovation, and horsepower have yet to overcome one simple concept; much of society performs to the lowest acceptable standard. Whether it be price, project duration, code requirements, laws, or professional standards, standards tend to define minimums rather than ideals.

In the manufacturing industry there’s a failure mode described as “tolerance stack-up” which is when all the associated parts are made to extremes of their individual tolerance range. When all the parts come together, the whole assembly fails as a result. This happens in construction estimating as well.

For example: Many projects are put out to bid with incomplete drawings, a short deadline, and a limited budget. The lack of information raises the risk of the project. Limited time to develop an accurate estimate raises risk as well. High risk reduces profitability, so prices are raised to restore balance. The risk stacks up, driving the price which often exceeds the clients budget.

Backing up a bit, we might ask why the minimums fall short of preventing avoidable problems. I believe it really comes down to how individual professionals choose to balance their efforts against what they believe are the current performance standards (minimums) of their profession. Incomplete plans are common on projects with a client who’s short on time and money. Design professionals may forgo site visits and investigation into as-built drawings to keep their costs competitive for low-budget clients.

Drones for remote architect site inspection still have a ways to go.

Incomplete plans in this situation are a function of design professionals balancing professionalism against economic pressures.

The final cost of a cheap (but incomplete) design is hard to prove because competitive bidding is assumed to prove market value. The market consensus on a high-risk job is not the same as the going rate for similar work. Clients can’t be expected to initially realize the impacts of short-changing the design when there’s no mechanism to prove the difference. Architects can’t be expected to turn away paying clients when work is scarce. General Contractors (GC’s) can’t be expected to hit the clients meager budget when the plans are incomplete.

Technology will not solve this problem because it’s not about abilities, it’s about choices. Perspective and professionalism would go a long way towards removing these obstacles. I’m often struck by how simple the solution is to these stubborn problems.

Honesty.

Design professionals know what steps are necessary to produce a complete design. If the client wants to skip steps to save money, they don’t get complete work. Admitting this truth starts with plan labeling.

Design professionals with incomplete plans marked “100% build documents” are rightfully criticized.

If critical information is missing because the client wouldn’t pay for it, the plans should be labeled for the percentage of work they did pay for. Clients should not be lead to believe that 100% designs come at 50% prices. If that were possible, it would imply that the service is over-priced, or the work isn’t complete.

It’s unprofessional and unethical to expect GCs to assume the liability for the intended (but intentionally incomplete) project scope.

“The design is up in the air, you’ll need to get under it before we release anything.”

GC’s who enable this falsehood are rewarded with a new normal of incomplete plans and reduced profitability.

Do you know what pros who don’t know do?

Good Architects could reduce the project risk of incomplete designs by stipulating budgetary allowances for unresolved items. Even a simple listing of details the design team knows are missing would be an enormous step in the right direction. Just like burying something critical in an obscure note, the “scavenger hunt” mentality builds distrust and animosity over critically important information. Incredible amounts of time and energy are expended looking for information that isn’t there.

GCs who choose to bid on these incomplete plans could categorize all undefined, missing, and erroneous information into an incomplete design contingency line item. This is the conceptual sum-total of not paying for a full design. This is not an indictment of the Architect, and it shouldn’t be presented as such. GCs are not in a position to know what the Architect was paid to do. It behooves them to make charitable and respectful assumptions of the Architect while remaining truthful about the state of the plans.

“Erik, I see what you’re looking at but I really think somethings missing here…”

Depending on the situation, it may be wise for GCs to choose not to bid. Clients competitively bidding their project with half-finished plans, short bid deadlines, and impossible start dates are obviously not real opportunities. GCs could cite the plan development percentage as reason for declining to bid. Bids are not free. Bidding a false flag project just to assuage client anxiety, or to avoid upsetting an Architect consumes enormous amounts of time, energy, and money from the market.

By extension, these GCs could reasonably expect the same actions of their subcontractors (subs). Stopping the madness of (over)pricing incomplete designs would benefit everyone.

Compensation in the form of negotiated agreements, or paying for design assist services are reasonable alternatives the client could consider when their project fails to attract market attention.

“The best time to plant a tree was 20 years ago. The second best time is now.” – Chinese Proverb

The real obstacle to successful bidding isn’t recognizing that the system has flaws, it’s recognizing how your flaws impact the system. Clients should not expect minimum design to render maximum project value. Architects should not leverage their position as gatekeeper of job opportunities to force GCs to bid incomplete designs. GCs should be honest and forthright about development discrepancies. Playing politics to protect the incomplete design from criticism while overpricing the project serves to encourage these ruinous practices for everyone.

Think it through

Here are four truths we should all be able to agree upon:

Nobody’s work is free.
Risk is expensive
Time is money
You get more of whatever you encourage
In you’re not aiming at your target, you’re missing

The real obstacles to successful bidding/business come wherever professionals act in contravention to these truths. Pretending that business pressures excuse deliberate choices to short-change professionalism will inevitably lead to higher costs, lower quality, and market constriction for everyone.

In college management course I recall how the professors stressed that there were many different ways to handle business problems. While I can’t prove this to be false, I can say that giving professionals a chance to be honest and forthright will work a certain percentage of the time. As to the rest, I’ve found that working with dishonest people tends to give you lots of opportunities to hone your management skills!

My advice is to avoid them since their motivations are guided by malice.

It won’t stop their sinking, but taking shots at you warms the water…

Philosophically speaking, life is like a path. If we live according to tolerances with the aim of meeting minimums, we’re rewarded with insecure footing on a dark and narrow precipice. In contrast, if we live according to targeted beliefs, we’re rewarded with wide open lanes which reveal more of what’s to come.

The obstacles on that path aren’t about logistics, data sets, or market trends. The real obstacles are the choices we make knowing they’re wrong. Simple answers often demand hard choices. Ask yourself if professionals fifty years from now will still face these obstacles or if this is the generation that removed them for good.

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282 Comments | tags: Computer Aided Design, Design professionals, Incomplete plans | posted in Uncategorized

April 17, 2015

Why is everything a secret?

By Anton Takken

“Discretion is the better part of valor” : Shakespeare.

The life of an estimator involves a great deal of discretion for some very good reasons. For example, subcontractor (sub) bid amounts are kept confidential to maintain an ethical bid. Sharing subcontractor bid amounts with their competitors to achieve advantageous pricing is bid-shopping which is unethical.

Bid shopping: Not a good look

Beyond the mechanics of maintaining a fair bid for the subs, an estimator must be aware that their competitors are watching. Revealing how you’re winning bids can be a costly misstep. Developing leads can be a very expensive proposition, so it behooves the savvy estimator to be discrete. The same goes for a subcontractor distribution/invitation lists. These are the “nuts and bolts” of an estimators operation and should be considered confidential.

Design professionals face an incredible challenge to generate a perfect set of drawings. GCs should show deference and discretion when they find mistakes in the plans because strong working relationships are built on respect. Embarrass an Architect at your peril!

Code of silence

Many estimators are tight-lipped about everything. This code of silence begins to work against them in quiet ways. It should be obvious by now that communication is a vital aspect of successful business. Feedback is the first victim to overriding caution. Most General Contractor (GC) estimators have a bid results policy of “given when asked” which means the subs must hound the GC for bid results. Often the answer is a terse and nearly meaningless reply such as “we lost“, “you were third“, and the perennial favorite: “your number was competitive“.

“I’d like to give you better answers but getting to those files is tricky…”

Forcing subs to bid blindly means they’ll spend more time missing than hitting. GC estimators who won’t share timely and meaningful results leave little incentive for subs to continue trying. GCs who expect bids anyway are communicating a lack of concern for wasting the subs time.

It bears mentioning that its standard practice for estimators to withhold bid results on projects they’ve won in order to allow the project manager (PM) time to review the bid for errors, omissions, and inconsistencies. Obliging the PM to contracting with a sub who was not actually the legitimate winning bidder is a serious problem . As a result, many firms have a policy against providing bid results before contracts are settled.

GC estimators should nonetheless provide bid results whenever they lose, and they should actively circle back after contracts are settled to provide feedback on wins as well. Proving that you’ve nothing to hide is an excellent way to build subcontractor loyalty. It’s seldom mentioned but the typical exchange between GCs and subs is like this: GC invites the sub to bid, the sub bids the job. The next reciprocal, logical, and ethical step is for the GC to provide bid results to the sub voluntarily. It’s a huge waste of everyone’s time making the subs nag for bid results that could easily be emailed the moment you know you lost the job.

Honest dealing is the hallmark of a professional which attracts market-leading bidders. It may seem counter-intuitive, but sharing how you lost directly leads to winning more often. Rapid bid results and high hit rates are constant companions in the hard-bid world.

Avoiding responsibility

The pre-bid stage of a project can be a very fluid process involving changes to the plans, scope, and budget. Often there can be substantial contradictions in the Construction Documents (CDs) that need clarification. Some estimators don’t bother to do Quantity Take Offs (QTOs) of subcontractor scope. This invariably means they aren’t pursuing Requests For Information (RFIs) like they should. Worse still, some GC estimators are afraid to “appear stupid” for asking a question that may be answered in the plans. The subcontractors questions go unanswered by the GC, whose “strategy” is to simply demand all subs bid per the plans and specs.

“Pssst! Dude! You’re giving away my trade secrets!”

This is bid collecting instead of estimating. Some firms have secretaries collecting bids which is arguably better because at least the secretary will reliably answer their phone .

Since the subs are barred access to the design team, they have no way to know if the GC wrote an RFI or not. Lacking acknowledgement or direction, the sub is left to decide what the GC’s silence implies. Jobs can be expected to suffer any time there’s an obvious lack of leadership, accountability, and communication. This adds to the subcontractors risk which raises their prices. This kind of secrecy is costly.

GC estimators who quickly acknowledge the issue, state that the RFI’s been submitted, and provide intermediate direction for everyone affected earn their subs best efforts.

Match existing: I don’t know what’s existing and neither do you. But it won’t be me that pays, it’ll be you!

There are design teams that offer discounted services to clients which cut out site visits and fully vetted plans. Low-end remodels are particularly given to notes requiring “field verify”, “match existing”, and so forth. Imagine trying to bid a job where the finished items in question are 30′ off the floor in an occupied space. How would a bidder go about determining the make and model of existing materials during their site walk? Bidders trying to price the work off these plans often wonder why this information is a secret. The design team doesn’t know what’s existing, so they place design responsibilities on the bidders. It’s unprofessional, unfair, and it happens all the time. The only way it will stop is if these designs fail to attract bidders.

If the client couldn’t or wouldn’t provide the team with as-built drawings, the design team will often resort to depicting minimal areas of the project to reduce drawing costs. This creates many predictable problems for bidders.

“You may notice that the addition is better suited to… a different building entirely”

For example: A grocery store remodel may have a frozen foods section with miles of wire running to a panel that’s not located on the plans. RFI’s asking for the panel location go unanswered because the engineer never made a site visit and doesn’t have access to as-built drawings! Rather than admit they don’t know, these design teams opt for silence. The risk this creates for bidders is unconscionable.

Remodel projects are the most likely to omit basic information like; utility locations, deck heights, even the correct address! GCs seeking to help these clients can contribute greatly to resolving these problems with well-written RFIs. Alternately, these GCs could provide bid directives that provide the stipulated conditions of the GCs proposal. By limiting what you’re promising to do, you can reduce the risk for everyone. Be wary of landing a hornets’ nest in the process. Some of the worst projects start with trying to “help” a client with their poorly drawn project.

Transparency: The great reducer of risk

GC estimators who make it a point to ensure that every bidder gets the same information, the same opportunity, and the same amount of time can actually spend less time running down loose ends. In today’s age of communication it’s easier than ever to instantaneously share information. Subs can run an estimator ragged trying to answer all their calls about a project issue. Letting them pile up on your voicemail leads to a whole lot of incomplete proposals on bid-day. One email to everyone can make the phone stop ringing.

But what if I don’t know the answer?

If the subs are stuck on; do I do this or that, questions, you might respond by admitting you don’t know yet, but that you’re rolling with option 1 until told otherwise. The GC estimators goal should be to provide uniform, and reasonable direction whenever there isn’t a firm answer. Telling them “I don’t know, I’ll have to ask and get back to you” is a huge mistake because you can’t be sure the answer will come before the deadline. Pick a direction that you’d be willing to stipulate to on bid-day as your fall-back plan. If the design team response is completely different before the deadline, adjust accordingly.

Your approach may change but the goal is the same.

Show your team that they have a leader at the helm. Leadership isn’t gifted guessing, it’s about taking risks, accepting responsibility, and maintaining momentum.

On some occasions it’s appropriate to ask the sub what’s at stake. If a given issue has only two reasonable solutions, it might be best to price them both. Asking the sub what the approximate cost, schedule, and risk differences are between options can quickly narrow things down. If the “premium” option is nearly the same price, but take substantially longer to get, you might clarify that detail on your proposal rather than asking the subs to price each option separately.

Wait and see…what a mess you’ve made.

An awful lot of GC estimators respond to questions with a request for alternate pricing. The intention is to “wait and see” if the question really merits their investigation or not. In practice, this tends to generate a maelstrom of prices which may not be presented in the orderly manner you imagined. Each sub might choose a different way of adding up all the options. As the deadline grows closer you’ll be burning up the keys on your calculator trying to sort it all out. Unwarranted alternates are a terrible burden to put on yourself when time is short. They can also increase the subs workload exponentially. In some cases alternate requests are so burdensome subs will decline to bid.

GC estimators should make decisions when they’ve got time on their side. Plus there’s always the possibility that you’re the only responsible GC estimator answering questions. The entire subcontractor market may default to your directions which keeps your competitors from receiving incomplete (and cheaper) proposals. Being a professional can pay dividends in unexpected ways.

Time bandits

There are some subs out there who will find a question to worry about no matter how straightforward the CDs are. Entertaining their anxieties is worthwhile in direct proportion to their ability to deliver market-leading prices. Risk is costly, so anxious bidders are rarely market leaders.

I’m not saying you should ignore the worry-wart bidders. In good market conditions, these folks won’t send a bid until they’ve been answered. Their bids tend to be very thorough and low-risk which can be a huge help on complex projects. The questions with merit are worth the full effort, whereas the anxiety is best handled through mutually understood default assumptions.

Nurture the nature of the best bidders

Still, there are some really excellent subcontractors who’ve got an estimator who simply won’t bid unless you actually talk to them beforehand. As a GC estimator, you’re trying to reduce risk by attracting market-leading subcontractor proposals. Sometimes that means maintaining relationships with difficult people. If it’s any consolation, these people are just as difficult for your competitors who might lose out on the winning number for lack of patience.

Discretion vs. Secrecy

Discretion is sharing information judiciously as opposed to secrecy which is simply withholding information. Earlier I touched on bid-results being withheld until contracts were resolved. This is an act of discretion to allow reasonable precautions. Every businessperson can understand the need for discretion. However, making necessary information a secret is bad business. Secrecy is a poor substitute for knowledge as it serves to keep out as much as it keeps in. Business depends on relationships which are social at their roots. Short-changing the social obligations brands a relationship as one-sided.

Like a wall blocking the sun, secrecy stifles growth. Discretion can quietly move mountains by building trust in relationships.

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April 6, 2015

Subcontractor loyalty

By Anton Takken

Business is about relationships. Teamwork is critical. Building relationships. These phrases are repeated constantly in various publications, speeches, and meetings. However the mechanisms that connect these ideals to actions are left undefined. Effort thrown behind these unguided ideals can be likened to stoking a locomotive. There’s no end to the effort that engine will consume but where is the train headed?

It turns out that building on good intentions has a few notable flaws…

General Contractors (GCs) exist to be responsible for the entire contract scope. Contracts are written to make that singular entity responsible for any and all failures. We often lose sight of this fact because the vast majority of GCs reduce their risk by subcontracting portions of the project scope. This is never a 100% risk transfer for several reasons.

First, the subcontractor may fail to perform. This leaves the GC to remedy the situation at whatever cost, with whatever time remains. Replacing a subcontractor can be a devastating loss on a project.

Second, subcontractors are autonomous firms. As such, they are free to independently decide the risk versus reward relationship each opportunity presents. They can (and do) exclude scope to reduce risk.

Third, the subcontractors do not have any input on how the GC wants to divide the contract scope. More often than not, the GC makes subcontractors blindly compete on whatever portions of the scope the subcontractors decide to price. Personal choice, local tradition, and GC idiosyncrasies largely define who is “supposed to bid” what. This is hardly foolproof, even in ideal circumstances.

Fourth, Construction Documents (CDs) are a contractual instrument to be taken as a whole. If a scope requirement exists anywhere in the CDs, the GC’s contract will enforce it. Buried scope items in unlikely areas are common with shady design teams. Some specification manuals even stipulate that when facing internal conflicts in the CDs, the GC shall default to the most costly option.

“Designated nature areas must use compactable fill from the adjacent parking lot…”

That’s a tough requirement to fulfill when the only way to win the contract is by being low bidder!

Taking all of this into consideration, it’s time to reevaluate how relationships come together at the bid. Invitations to bid (ITB) are the contract instrument that GCs use to initiate a contractual exchange with the bidders they’re looking to invite. Distilled to its simplest parts, the ITB defines the who, what, when, and where’s of the project. The ITB is an open agreement for bidders to submit proposals in exchange for contractual award to the best value bidder. Best value is generally defined as the lowest bidder with the most complete scope inclusions.

Here’s where we hit upon something very significant. GCs are seeking to relieve their contractual risk by transferring scope to subcontractors. In order to do this, GC estimators must actually know what the project scope is. This can be very difficult to do especially when considering the vast specialty knowledge required in the skilled trades like the Mechanical, Electrical, and Plumbing (MEP). A common short-cut is to demand “per plans and specs” be included on all subcontractor proposals. This “puts them on the hook” for any nasty surprises buried where nobody would dig.

Driven to wits-end, Steve takes a more thorough approach to his digging…

The thought is that the GC can’t be expected to know what they’re bidding, so they must rely on subcontractors to know their scope. That’s not estimating, it’s collecting bids.

GCs control their risk via inclusions, clarifications, and exclusions. Barring subcontractors from these risk control measures is an obviously unethical action. Missing scope items are the GC’s responsibility to catch.

For example: MEP trades routinely clarify that they’re ONLY bidding per the MEP pages on the plans and specs. GC’s who’ve carefully reviewed the architectural pages looking for buried requirements can alert their bidders in advance leaving far less to chance on bid-day. GC’s who found buried requirements are in a much more reasonable position to demand scope inclusions of their bidders. They can, and absolutely should, expose these unprofessional tactics via RFI’s to the design team before the bid. Forcing the competition to include all the buried stuff via the Architects response to bidders allows responsible bidders to remain competitive. Plus making the design team spend time and money acknowledging their shoddy work discourages them from continuing the practice.

All of which leads to subcontractor loyalty. GCs are relying on subcontractors to deliver market leading pricing on bid day. Market value is most often determined by competitive bidding. Therefore GCs need both winners and losers to bid in order to prove they’re hitting the mark.

Savvy estimators will note the middle bid has half the lightning as the other two…

There’s always more losers than winners in competitive bidding. GCs don’t always win even when they’ve got the best bidder in the field. Statistically speaking, most of the ITB’s crossing a subcontractors desk are dead-ends. In contrast, the GC’s capacity to win is very much proportional to their ability to attract top subcontractors consistently.

I don’t think that word means what you think it means…

Looking at the market as a whole, the vast majority of GCs and subcontractors are going home empty-handed on any given hard-bid. This business relies on relationships to improve the odds of success for all involved. Many GCs view this relationship through the prism of subcontractor loyalty. They provided project leads, they’ve hired subs in the past, their firm is the one everybody wants to work with. It’s a natural extension of this to assume that any lead is a potential gold-mine to every subcontractor on the market.

Like any business, economies of scale will play a role in determining which prospects are the most viable for any given company. GCs who carry the same ITB roster from a successful $300M job, shouldn’t expect much interest for a $100K opportunity. Yet it happens all the time.

Headed the wrong way on a one way track, stoking the boiler like there’s no coming back.

Subcontractors are expected to loyally bid work they don’t want, to GCs who won’t win, lest they be cut from the rare good opportunity. GCs who knowingly waste their subs time struggle to get enough coverage to know whether their maintaining market value. These GCs rarely respond well when subcontractors decline to bid because they can’t attract bidders to replace them. Subs who stick it out with these GCs, minimize their wasted man-hours by bidding high. All this wasted effort and misinformation serves to stoke the metaphorical locomotive further from the destination.

Time to make a decision

The entire problem starts with getting on the right track. GCs need market leader subcontractors to bid to them. You attract market leaders by being a market leader. As with all simple solutions, it’s a lot of hard work getting there.

It starts with pairing the right team to the opportunity. Many GCs have pre-qualification paperwork meant to screen out subcontractors who pose too great a risk. In the best examples, the pre-qualification process pairs an approved subcontractor with a subset of project values and types.

Looking at pre-qualification forms, it’s noteworthy how little focus is on what the contractor is actually good at. Subs see this and are pitching their answers towards what they think the GC wants to hear. GCs are rarely aware of the staggering resources required to be a “mid-sized” subcontractor. These firms typically built up to their level which means they’ve tailored their people, their tools, and their vendor relationships to be successful at the kind of work they’ve been doing along the way. Past performance is the best indicator of future success.

The concept of “mid-sized” as it applies to projects isn’t merely square footage, or building function. For example; a warehouse, a small restaurant, and a parking lot might all have the same electrical cost despite their differences. These same projects could have wildly different concrete costs. The invite lists should be tailored accordingly.

GCs who fail to align subcontractors with pertinent project scope are wasting resources. Bids lost this way are often described as “bad luck“.

When he wakes up, Ross will have learned a valuable lesson on how size applies to competition.

Well-defined market sectors with associated project values can define which opportunities are a better fit for that subcontractor. GCs who painstakingly pair their teams to opportunities have higher hit-rates because everyone is doing what they’re best at.

GC estimators who primarily focus on reducing risk for their subcontractors are rewarded with market leading prices. Answering questions, defining scope limitations, and carrying subcontractor exclusions into the GC proposal are all viable options. Not every request for proposal (RFP) is a sound opportunity. Avoiding bad-actors by not bidding is absolutely crucial. GCs who consistently “win” projects with clients who can’t pay aren’t doing the market any favors.

Performers in the spotlight…

Beyond the GC estimators desk, the legacy of the GCs past performance plays a role. Ethical GC’s who complete jobs on time, for clients who pay promptly are clear front-runners. Good communication, clear expectations, and reasonable timelines are all hallmarks of professionals that subcontractors will flock to.

Bug lights in the alley

Weak project managers, screaming superintendents, and pedantic project engineers are all risk-factors for subcontractors considering the ITB. Many PMs attempt to write subcontracts without the bidders exclusions and clarifications included. This is unethical because their bid-day price was for the work defined on their proposal, not the work the PM sees fit to stuff in the contract. The industry push for PMs to bid their own work has resulted in a dramatic decline in GC hit rates. PMs that aren’t winning competitive bids should consider what this feedback suggests about their reputation and their future.

This proves nothing!

GCs who accept incomplete subcontractor proposals discourage legitimate bidders. As do GCs who bid-shop, or re-bid work they’ve won looking for better options than their bid-day leaders. The local market is a small world and memories are long.

Looking at all of this from a different direction, a lack of subcontractor loyalty may be a symptom rather than a cause. Business may depend on relationships, but paying the bills requires profitability. Lots of firms are packed with great people who can’t get it together to bid, win, and build profitably. Nice folks or not, nature will take its course on mismanaged firms. The good news is that being more selective, protective, and proactive about their bidding is less work than losing. Just as slow hits are better than fast misses, estimators must strive to bid less and win more. GCs that walk that talk have no trouble attracting attention.

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2 Comments | tags: GC | posted in Uncategorized