Tag Archives: GC

October 17, 2014

Bid Scoping

I’ve touched on bid scoping practices in other posts. In this post I’ll attempt to show how professional estimators can dramatically increase the odds of arriving at the winning combination of factors for a successful job in the hard-bid market.

It’s bid day and the clock is counting down to your deadline. The estimate template is complete, the proposal is roughed in, the bid runner’s packet is prepared, all that’s left is to figure out who’s going to build this job with you.

This sure would be easier if everyone would bid early!

As competing bids pile up, it become more and more important to focus on where your attention is needed and even more important on where it’s not. In a perfect world subcontractor bids would arrive days in advance of the deadline allowing leisurely bid review and perhaps even the odd interview or two. The hard bid market will not allow that to happen for three main reasons.

“The driver? Oh yeah, he went ahead on foot…muttered something about … faster that way…”

High speed

First of all, hard-bid jobs mean there are competing firms in the running. The less selective the client is about who may compete, the more competition a job stands to have. Clients putting work out to hard-bid are seeking to use market pressure to lower prices. One means of increasing the pressure is to reduce the amount of time to prepare a bid. I’ve lost count of how many addenda answered “no” to a bidders request for more time.

Major drag

The second reason subcontractors bid at the last-minute is to limit opportunity for bid shopping. A new-lowest bid delivered 5 minutes before the deadline leaves just enough time to carry their proposal but not enough to get a conspirator to beat it. Supply chain vendors and product representatives delay their bids to prevent subcontractor level bid-shopping as well. Some play “king-maker” by giving only favored subs a timely proposal, leaving the rest to trail in after the deadline. Estimators are well advised to reconcile themselves to the existence of corruption in their market. Chasing work involving dirty players means you’ll encounter more last-minute and late bidders. Working with and for honest people has the opposite effect.

Pedestrian on the highway

The third reason is that the bulk of a subcontractors bid effort is going to last-minute, high pressure deadline races. Interrupting that packed pipeline of obligations to send in a proposal way early for GC convenience is like asking for a deli counters wine list during the lunch rush! Leisurely bidding is completely foreign to hardscrabble subcontractors. It smacks of dilettante privilege and conveys a lack of commitment to a common struggle for work.

I should also point out that the corrupt people I’ve encountered were entitled raconteurs with all the time in the world. If you’ve got the luxury of time, be careful of how you appear to your bidders lest they get the wrong impression!

“No, no, I see what you’re saying…”

As time runs out, focus shifts from need to want

Most estimators start and end bid scoping from opposing perspectives. To start, estimators are worried that the bidders missed something that leaves them exposed to risk. Everything is compared to the quantity take offs (QTO’s) and discrepancies are noted for follow-up. As more competing bids arrive, it becomes necessary to focus efforts on only the lower priced options. When the deadline is fast approaching, the focus becomes exclusively about deciding whether to take the lowest price (and higher risk) compared to other options. Time is no longer a luxury, it’s a liability.

Knowing at the forefront that you’ll need to make difficult decisions that the last moment, it’s critical to consider the relative merit of every scoping effort from the very beginning. For example; painters notoriously send in hand scribbled bids with “paint everything” and a dollar total next to it. On an average remodel, paint is typically much less expensive than other trades. That means that paint bids will have little impact on your odds of winning that particular job. Opting to carry a slightly higher paint bid from a known-good subcontractor allows the estimator to move on to more influential trades. Following up after the bid may put a little extra funding in the project if a lower paint bid is legitimate. Generally speaking, low dollar impact subs shouldn’t command as much of your time.

Ankle biters can take you down

However there is a catch; if you’ve got project with very limited scope for a given trade, there’s a good chance that subcontractors won’t bid on it because it’s too small. For example, many remodel projects require roof penetrations for Mechanical, Electrical, and Plumbing trades. Very often these new penetrations will require the attention of a roofer to maintain the existing roof’s warranty. A Roofer couldn’t be reasonably expected to go through every page of a drawing set looking for piecemeal work to bid. If there isn’t a roofing plan, they’re going to ignore the bid entirely, especially if they’re busy. It’s up to the estimator to pull these limited scope issues out and directly contact necessary bidders to get coverage. Simple piecework like roof penetrations are often quoted over the phone or via email. Don’t wait till bid day because you’ll surely be leaving voice-mails for people who are out of the office till after your deadline!

Savvy estimators work out mutually acceptable “menu pricing” with trusted subs for items like this so they’ve got a solid plug number in their bids. Make sure you stay up-to-date on those subs because they might be swamped with peak season work and unable to get to your little job.

Fancy footwork

Some estimators request “scope letters” in markets where subcontractors traditionally withhold their numbers until the last moment. These are roughed in proposals with “To Be Determined” in the place of a dollar amount. Ideally these proposals allow estimators time to verify that all scope inclusions and exclusions conform to their expectations. In practice, these generate a “running game” where estimators are asking subcontractors for adders, deducts, and alternates to a total bid amount they haven’t seen. Since all scope letters are “technically equal” this means that the estimator is all but guaranteed to waste time on bidders who never stood a chance of winning.

Doing something stupid to counter something stupid, does not make stupid things wise.

The practice is cheating the GC’s out of time to make informed decisions on the grounds that they can’t be trusted with the subcontractor’s best effort. Cheating for fear of being cheated is hardly the modus operandi of an esteemed professional. Subcontractors should simply stop bidding to cheaters. Let nature take its course removing them from the market. If a GC would willfully hurt your business on a typical bid, imagine how savage they’d be if your bid had a mistake!

“I’m not sure if this counts as a problem or a solution!”

GC’s asking for these scope letters should be working towards building trust with market-leading subcontractors. Often that means committing to working with only a few bidders in that trade. If they are truly market leader subs, the GC would only lose the hack and high bidders that gum up the works. This practice requires diligent checks of market pricing to keep their short-listed subs honest.

Trouble brewing

Beyond the short-sighted practice of working for corrupt people, there’s a quiet risk, gathering like a storm cloud over everyone involved. Contract case-law underpins the why’s and wherefore’s of the entire project cycle. All too often bidders assume that whatever is in their contract is the legal boundary of their situation regardless of any mistakes. In fact, there are legal provisions that allow for contract relief due to an honest error in their bid.

Many GC’s operate on the misguided notion that “plausible deniability” is sufficient to excuse them of their obligation to thoroughly review subcontractors bids. Contracting with the apparent low despite suspicious differences in price is a difficult position to defend in court because it lacks “good faith”. If something looks too good to be true to a judge, it won’t end well for anyone who foolishly contracted upon it.

Nuclear option

Court cases are generally the most costly option for companies to resolve a dispute which means there’s an incentive for all parties to be reasonable. GC’s who bid-shop may lose their claim to compensation because they acted in bad faith. Subcontractors who agree to bid shopping may likewise lose their claims to compensation for the same reason. Court cases are rarely simple and a great many factors influence how a particular case will unfold. Being honest, professional, and forthright is easier to defend however the best defense is to never conduct business with dishonest people. Not winning a job is less risk to your firm than depending upon a court battle to eventually deliver justice.

Vampires must be invited in

It’s really common to hear about the importance of relationships in business. While it’s undeniable that human endeavors will revolve around relationships, much of the individual’s success depends on their ability to see beyond their individual circle. Some firms or people will cheat you just because they can. Looking back at firms that cheated me I can recall that most of them cheated me after I’d done my first job. They didn’t cheat me on that first job. In fact, I recall being told my firm was something of a hero on those jobs because nearly every other trade was under-performing, falling down, or outright sabotaging the job.

Game time

Now it’s obvious to me that a firm who bid-shops, cheats, and undercuts their subcontractors would naturally have projects staffed with surly, uncooperative, and under-performing contractors. That firm only hired legitimately low bidders on their first project. All projects after that first one ended up with a call to “help them out of a jam” . Promises to make it up elsewhere were empty. The “relationship” established on that first job was a pretext for cheating the uninitiated.

Subcontractors do the same thing. Many times a new subcontractor would deliver very competitive prices right from the start. Those first jobs would often go without a hitch but following projects would have gradually increasing change orders for scope items they’d previously never mentioned. Estimators are well advised to stay appraised of what their Project Managers’ are facing to keep the bidders from gaming the bid scoping. It’s terrifically common for a subcontractor to be much more compliant for the Estimator than for the Project Manager.

Ethical Bidding and Pacifism don’t mix

Losing an honest bid is an acceptable (if disappointing) outcome; professionals will concede the victory with grace and decorum. Make no mistake, the bid is no friendly raffle for charity! Losing a bid has consequences for all involved. Many people focus on “not hurting anyone” as a guidepost to their professional endeavors. Often this leads to honest estimators validating a dishonest win by maintaining stoic silence.

Too many professionals feel they “don’t have a dog in the fight” even as their local market constricts further every year. Hard bidding means that the (often poor) odds of winning are countered by the bidders good faith expectation that a legitimate winner will receive a contract. It’s therefore in the interest of all honest bidders to ensure that legitimacy.

Tradesman shortages and market declines are all partly attributable to short-sighted greed that honest people meet with diffidence. The truth is an amplifier, and you’ve much to lose by giving ground to the lowest operators. Conversely, some of my most cherished business relationships come from a shared commitment to beating the cheaters by working together. It’s immensely satisfying to land a good job with reputable firms knowing the cheater was in hot pursuit.

Throw the stink-bomb back.

Sometimes markets will reward bad behavior in the short-term. Bid shopping GC’s abound during market downturns when subcontractor options are limited. This doesn’t mean that we have to go along peacefully. Entirely too much of public bidding is concealed by professional silence. Nobody can act against cheating because nobody will say what’s going on.

Anonymously notifying a competitor that they’re being shopped helps to stem the practice without putting a target on your back. GC’s that lose because they opted not to carry an illegitimate subcontractor bid should QUICKY make their bid results public to give their responsible subs a shot at notifying the winning GC and/or client of the problem. Beware that spreading gossip and misinformation will sully your reputation in the long run. Stick to the truth and be forthright with everyone.

Don’t count on any three or four letter acronym trade organizations to do anything, every cheater I’ve encountered was an active member of at least a half-dozen of them. It’s not necessarily the organizations fault, these people will happily perjure themselves to stockpile credentials against their legacy of deceit. Nevertheless, these associations are antithetical to their purpose if they won’t part with charlatans.

“Oh yeah Bob’s an ass…wait, he’s standing right behind us again isn’t he? Everybody just act natural!”

To reverse decline, it must become fashionable for honest people to doing the right thing.

Bidders are a motivated bunch with many intersecting channels of communication. The individual fears of being “exposed” as the whistle-blower might be weighed against a developing reputation for being unable to compete at market value. There are lots of people losing bids because they don’t know what they’re doing. Nobody’s knocking on their door with good opportunities as a result. Subs aren’t motivated to “help” a GC who won’t level the playing field for everyone (including themselves). After a while these GC’s will get courtesy bids that maintain the appearance of trying, while allowing the sub to get on to more viable opportunities. It’s not long before the GC can’t win even fair contests because they’ve become irrelevant.

The next time a proposal lands on your desk, consider how your actions in that moment, will go on to define your future and the market where you’ve made your home. Make your part of the skyline something to be proud of.

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5 Comments | tags: GC | posted in Uncategorized

August 26, 2014

Why are we bidding this anyway?

By Anton Takken

Hard lessons on hard-bidding for the hard-headed.

Most estimators are working for someone else. For simplicity’s sake I’ll refer to that person as the boss. The boss often weighs in on pre-construction decisions to include what makes the bid list, what margins to carry, and what jobs they don’t want. It’s their company and they call the shots.

As an estimator, you’re looking for low risk, high profit, easy wins to keep the company working. That seems like something the boss would be after as well. A lot of estimators end up wondering to themselves why it doesn’t always seem like it.

Everybody’s coming from somewhere

Entrepreneurs are remarkable people who see opportunity in adversity and often move in opposition to safe, secure, and easy ideas. These traits help define why they’re successful and also explains why they’re often not… The point here is that the opposition to an estimator’s priorities is a natural one. They hired you to provide the counterpoint to their perspective, not that it’s a guarantee you’ll change their direction.

Sure boss, I see exactly where you’re going with this…

What is the mission?

Despite repeated failures, the boss is pushing for yet another bid just like those before it. Nothing’s changed and the outlook is bleak, why won’t the boss see the obvious? Sometimes the answer is frustrating: the boss doesn’t have the same definition of success as you do. Some bosses don’t view estimating as pre-construction so much as an amalgam of marketing, posturing, testing, and placating. The endless marketing pitches about “building relationships” dissolve into playing head-games with the market.

Here are a couple of examples to illustrate how this can happen.

Imagine if you’d spent half a year getting on to a new clients bid list. You can hardly turn down the first invite when the job turns out to be a stinker.

Going another direction, imagine you have a valued client who’s added a disreputable competitor to their bid list. A good client will only need a few bad experiences before they reject disreputable firms. Depending on how frequently they bid projects, you may have to lose several jobs before the client has learned their lesson.

What if your current market sector is shrinking? A boss would need to find new sources of work which means trying out new things. Not all sources of work will have the same profit margins so they might need to test the waters in several markets to see if regional differences change anything. In effect they’re generating bid results.

Conversely, what if your market is expanding? Does it make sense to chase work in new areas with local staff, or should a satellite office be opened? Is there an existing subcontractor base capable of supporting the venture?

Planning for success

Few companies have a corporate culture where the long-term planning is accurately and convincingly presented to the estimating staff. A boss who views bidding as “turning the crank” on the estimating machine is unlikely to harbor much sympathy for anyone asking why they’re bidding bad jobs. As an estimator you may not have much latitude on the decision-making but that’s not a reason to give up trying to improve the situation. Bid results when presented properly can reveal constructive options that the boss may have overlooked. Some estimators feel as though they must reflexively apologize for every lost bid. This fosters the notion that every bid was really an opportunity. It should be obvious that many factors influence the likelihood of a profitable win. Unless all the jobs are literally the same, the odds must be different. Learning to define, to accurately define what influences winning should be the cornerstone of your craft and the basis of your counsel. Be advised that excuses are not a substitute for knowledge or fact. Some losses will be your fault and some wins will be too. Credibility builds on honesty.

Getting to the wheelhouse

If you don’t have an impartial and informed insight, you can’t reasonably expect corporate planning to be shared with you. Respect is often earned through consistently knowing what you’re talking about. Depending on the individuals involved, you might be able to help steer towards better opportunities once you understand where the boss wants to end up. Understand that the people in charge may be reluctant to divulge their plan, especially when they lack one! Go with caution.

“What you’ve gotta do is make sure everyone’s on the same level, then you’re home free.”

Learning by erosion

It’s a fact of life that some bosses are better than others. Despite our dearest hopes to the contrary, sometimes life brings unqualified people to leadership positions. The boss may have irrational, uninformed, emotional, and philosophical reasons to do something stupid and most of the time, it’s their right. Estimators dealing with this frustration should take heart. Incredibly hard-headed bosses can learn by erosion. The Grand Canyon wasn’t carved in a day. Erosion is slow but it’s sure. To be effective, it’s important to understand that you’re seeking to avoid “I told you so” moments where you become the lightning rod for their frustration. The goal should be to give a high level analysis of the situation including a survey of the project’s high and low points. Try to deliver them in equal detail and enthusiasm but be sure to define how a stack up of low points creates a failure mode.

For example: “This job is a remodel of a very large building which means we’ll be busy for the next six months out there. We’ve got strong competition on it so our number needs to be tight. The design calls for a bunch of new roof top equipment and the architect put a note on the plans calling for us to field verify and design as needed. There was no job walk or as-built drawings and the building’s currently occupied so we can’t just get in and see what we’re up against. The client requires all bids on their forms which don’t allow for exclusions. Our competitor did one just like this last month only it didn’t have the roof equipment and the note’s buried on an elevation drawing so they’ll probably miss it. If we include money for engineering and structural support, we’ll surely lose. If we bid without the structural revisions, we may win but we’ll have to pay for it leaving us stuck on an unprofitable job for half a year.”

The idea is to patiently explain how the influencing factors are pointing to bad outcomes. If the boss decides to pursue it anyway and it goes as you predicted, they’ll remember your insight even if they won’t give you credit.

Sometimes it’s not the bid that’s the problem, but the client. Here’s another example.

Following the bid, the client sends additional pricing requests for items that were not on the plans claiming it’s necessary to make a snap decision. It starts with one or two items, then grows to a long list of several items that the client wants priced separately. After some delay the client calls and says that the project is over budget $X amount but that they “really need” all the items you’ve priced. The client says they’re hoping you can “find savings” to hit their budget and do the extra work for free.

This is a textbook example of how unethical clients begin a job. It’s been said that “you can’t change human nature, you can only change how you feel about it“. Bid shopping is unethical and serves as an insight into the clients values. These clients are telling you who they are, only the most naive or foolhardy interpret this as anything but a promise to screw you over every chance they get. There are few guarantees in this world, but you may rely on this: a bid shopped job will eventually cost you money, and diminish the standing of your profession.

Nevertheless, your boss may elect to take that bait. These are the jobs it behooves you to warn Project Managers about. No change order work should be priced without documentation from the design team. No additional work should be started until a signed change order has been physically produced. Informalities and “trust me” moments cannot exist. Any gap will hemorrhage losses with unscrupulous clients.

Teaching by evaporation

Some bosses stubbornly refuse to admit when one of their initiatives is failing. A pattern emerges where the work isn’t profitable and there’s never enough of it. The boss answers this by demanding more bidding of the same kind of work. The estimator is putting in considerable hours fruitlessly landing a small percentage of terrible work. This is like being knee-deep in a swamp where continued struggle only traps you further.

There are a few things to get clear on. Number one: the swamp is killing your business. There is no opportunity and it’s consuming resources that could be successfully applied elsewhere. Hard headed bosses who learn by erosion are often “swamp dwellers”.

Number two: You must find somewhere to be successful while you’re stuck in the swamp.

Pro tip: STOP DIGGING!

Landing a low risk, profitable job, for a good client is like having the sun dry out the swamp. The boss wants success – giving them something more likely to be successful is leading by example. The difficultly about an exemplary action is that it’s really, really difficult to do. Some bosses will be willing to concede to a pitch where you might say “hey instead of bidding swamp-thing, let’s try this job instead”. It’s more likely they’ll allow you to bid swamp thing and the new thing. This means you’re required to invest your own effort into your idea. Uncool bosses will mercilessly undercut you if your idea doesn’t pan out.

Try anyway

A consummate professional rises above the challenge. Your job is not only to bid jobs, your job may also be to protect your company (and your job) by performing above your pay-grade. Life is long and you never know who’s watching. You can be helping an unworthy boss and furthering your career. It’s important to remember who you want to be regardless of where you are.

Remember that wherever you are on your way to the top, turds float.

Leadership

Poor morale can be like cancer to a company. Dissent grows until it overtakes all motivation and positivity. The economy won’t always be on your side and making headway can feel like you’re swimming against the tide. A subtle feature of depression is that it saps motivation to change course which threatens its existence. It’s a parasitic mindset that feeds off the status quo by believing everything would improve if only life were fair.

Life isn’t fair which is why market constructs are so complicated. Contracts seek to protect parties from undesirable outcomes. Which is another way to contain risk. The risk eventually boils down to life not being fair.

An estimator must maintain perspective. The unavoidable risk is why you’re there. Make the most of the opportunities and lead with enthusiasm. Act with wisdom and follow your conscience knowing that not every invitation to bid is an opportunity, not every win is a success, and not every job is a career.

Communication

There’s an old proverb that reads: “If you want to go fast, go alone. If you want to go far, take a friend.” Long term plans should be clear and inspiring to everyone. Effectively communicating the long-term plan and the enthusiasm to everyone builds trust and commitment so the group moves in unison.

However when things are going wrong, a company can be like a stampeding herd. There are only two ways to affect the course of a stampede. Be an immovable force like a mountain, a cliff, or the person who signs everyone’s checks. The second, is to outrun the herd and make your path the one they want to follow.

In practical terms this means building a personal plan to bring new opportunities to the front. Research what’s out there, who’s winning it, and how you can emulate their success with your firm. This also means adding more bids to the workload as mentioned above.

Stay focused on fixing the situation through sound decision making and things will improve.

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67 Comments | tags: Bad jobs, Ethics, GC, Hard Bidding, Solutions | posted in Uncategorized

August 21, 2014

Relative Detail

By Anton Takken

Plans offer an estimator an incredible level of detail to build the project in your mind. Lots of people new to estimating feel that too much is better than too little which leads to thick stacks of measurements.

Take a moment and consider what’s really going on. The client described their desired project to the design team . The design team translated that project into construction documents. Now the estimator is trying to translate the construction documents (CDs) and the project, into a competitive bid.

Just as the construction documents must be useful for more than attracting bids, so too must the estimate accurately convey the relevant project features for the build team to be successful.

What are you trying to achieve?

Breaking it down, the estimator needs to accomplish several tasks. First off, the estimator will need to ensure adequate subcontractor coverage by determining what trades are necessary and which contractors are best suited to the project.

Second, the estimator needs to be prepared to scope subcontractor bids. If only one subcontractor bid comes in on bid day, the estimator will need to compare bid inclusions against their own measurements. Accurately priced measurements give a meaningful metric to determine if there are errors or omissions.

Third, sometimes things go wrong and it’s necessary to “plug” a cost into the estimate to cover something that none of the subcontractors included. Depending on the value in question, this can be a mighty test of an estimators confidence in themselves.

Fourth, the take offs need to be flexibly done to provide accurate comparison data regardless of how the work is pieced together. For example, a concrete foundation may have separate firms providing rebar, concrete, formwork, and placing labor.

Fifth, the estimate needs to provide the basic project structure for the build team to work with. Complex and needlessly detailed estimates discourage the build team from relying on your work. Any significant item you caught then buried in minutia will get missed by the build team.

Guy’s…that’s not what green building means at all…

Again, the answer seems to be “more detail is better” since so much rides on this information. In fact, the answer is to pull out MEANINGFUL detail. Rebar and structural steel are priced by the ton, which means that there isn’t much pricing granularity. Major assemblies need to lead the show, followed by a list of ancillary items that are easily overlooked. A classic example in structural steel are embeds for masonry connections. Their weight won’t drive the cost but they will appear in the inclusions/exclusions sections of the proposals. Oddball stuff like structural steel awnings should be broken out as well. Especially if there are requirements for specialized manufacturing-level coatings like anodizing, galvanizing, or ceramic coating.

Scale it back

There are certain trades where a high level of precision isn’t necessary because they are relatively inexpensive. Paint is a good example, if you’re off by a couple of square feet, it’s not going to change much. Painters don’t often list their square footages so it’s more important to touch on the areas by name or material. Stuff like “conference room ceilings” will prove more useful than a square footage of all painted surfaces. Takeoffs should be geared towards precisely measuring items that are likely to be overlooked by your bidders. It should go without saying that anything self-performed should be measured and priced with precision commensurate to the value of the work involved.

Be cautious about what you’re spending your time measuring. The Mechanical, Electrical, Plumbing (MEP) trades can demand a very high level of knowledge to accurately price. Unit costing fixtures and equipment can be very difficult because complex issues drive the cost. Consider the MEP systems to be like the circulatory system in a body. Cost centers will be around major organs and arteries so don’t spend your time measuring capillaries or counting hairs!

How much vs. how little

Speaking generally, the level of relative detail should be inversely proportional to the professionalism and directly proportional to the overall budget impact of the trade in question.

Don’t let the fancy hat fool you – that guy’s a snake.

Material vendors like door hardware suppliers will be inclined to list out each individual hinge which implies that anything not listed is excluded. This is a very unprofessional way to bid the job because you’re inundated with inclusions, and never alerted to exclusions. If there isn’t much scope for the door guy, it’s not a big deal to really drill this down. Whereas on a really big job, the door hardware supplier isn’t necessarily likely to influence you’re odds of winning or losing compared to trades like concrete, structural steel, HVAC, or electrical.

If there’s time, by all means get after the details but understand that pedantic spreadsheets don’t win bids. It’s about having the tools on hand to aid your judgment on bid day. Being “really sure” about a dimes difference is less useful than knowing when something looks to be a dollar off. Quantity take offs for scope that you’re subcontracting should be optimized for reviewing subcontractor bids, not replacing them. An awful lot of estimators forget that.

Too much of too little

At the opposite end of the spectrum is the square foot methodology. An example is “Plumbing: $8/ SF” This is a “fair weather” method that’s only going to give you a single theoretical number to compare the subcontractors to. Lots of bid-mill GC’s employ this tactic because there’s no time to be professional when there’s so many bids to crank out. Square foot costing does have its place in conceptual bidding because it’s unethical to have subcontractors pricing work without compensation or intent to award.

Plus it’s more constructive and honest to tell a client’s design team that you know the market price of similar work runs $X amount than it is to pretend their conceptual design is definitely going to cost $Y amount. The design team should adhere to market norms of their own accord rather than treating the pricing exercise as a budget maximization process.

Balancing point

When the right balance of detail has been achieved you’ll find you are able to compare notes with subcontractors on the scope of work without having to extensively refer back to the plans. It should be obvious that anything you’ve missed previously should be a point of special focus on your future estimates. So too, should be any detailed inclusions that make it to some but not all of your subcontractor bids. If the subs are commenting on it, there’s a reason for it and you should be verifying that everyone’s apples to apples. With practice and experience you’ll quickly learn what’s necessary. Keep in mind that some subcontractors just love to send hoary tomes of boilerplate legalese. That certainly doesn’t make them more qualified. Maintain perspective and use your best judgment before assuming any given subcontractor’s view of bidding is industry standard.

Depending on how the estimate is configured, the estimator may be able to output checklists for subcontractors to individually verify that they have everything. These can be of great help to the build team since subcontractor proposals are often so committed to listing exclusions that it can be hard to say for certain what they’re actually promising to do.

Checkmate the dodgy bidder

Be advised that any error in the estimators checklists can be exploited so it’s often better to be more general with skilled trades, and more specific with unskilled trades. Savvy estimators with time to spare scope the subcontractor bids first to tweak their checklists before sending them out. The time saved by avoiding phone tag and laundry list scope readings with all the bidders can be impressive . However this is not a recommended methodology for a highly competitive hard-bid situation. The subcontractor bids often won’t come in early enough to allow time for that process before the deadline.

Some firms will send their checklists after the bid deadline when they have reason to believe they will be awarded the work. Getting the subcontractors to answer “on the record” in simple, easy to read terms helps the PM to get subcontracts written without a lot of “gotcha” nonsense. Bidders are a LOT more amicable about scope inclusions before the contract is written than after.

Getting the show started

Circling back to some of the other objectives of an estimate we should touch on the subcontractor coverage. Unless you’re bidding nearly identical projects, each project will have a unique subcontractor list.

The goal of an estimate at this point is to ensure there are no bid-day shortfalls in coverage. This starts by defining who’s going to be involved. Scaling the scope of work to the subcontractor is a good move because some projects will have a very minor amount of work for a subcontractor and it’s not always cost-effective to mobilize the “big dog’s” to take care of it. Plus it keeps a more diverse subcontractor roster allowing your firm greater flexibility in terms of what you can bid profitably at market level pricing.

Softly spoken danger

If there are MEP drawings, chances are excellent that you’ll need an HVAC (Mechanical), Plumbing and Electrical sub. Be advised that on plans lacking these sections, they may be necessary to “safe off” areas of demolition. These hidden requirements fall to the bidders to figure out. Interior design plans are often studded with key notes that require specialty materials in odd installations. Catching these items early is critical to give yourself enough time to track down the correct supplier and/or installer.

For example; “artisanal glass”. I’ve encountered some examples that were hundreds of dollars per square foot and the only indication on the plans was a single key-note on an elevation drawing of a doorway transom. Nearly $2,000 of material hung on that solitary key-note. Keep in mind that “per typ.” means everything in that detail, note, or icon is a typical installation multiplied by however many locations the architect considers “typical”. Designs with extensive shorthand can compound the effect of anything you missed. Lazy notation should signal a need to slow down and be very detailed about what’s going on.

Disorganized design calls for detailed exclusions

Don’t forget the specifications. I’ve written about FF&E packets before. If your project has one, there’s a strong probability of design conflicts. It’s really critical to be precise about what you are and are not including in your bid because these problems are never resolved prior to bid day.

With the possible exception of the door hardware schedule, any time you see fixture or equipment schedules listed in the specifications, you should announce their existence to the bidders.

Speaking of specifications, lots of projects use “canned” spec’s which means that the design team is re-using a very long and extensive specification manual. They include sections for materials, processes, and installations that aren’t part of the project. Some estimators make the mistake of using the specification sections to determine their subcontractor list. Canned specs end up as “false alarm” bid invitations and subcontractors get tired of following up with the GC to see if they missed something. Learning that you didn’t bother to check the plans to see if there was anything for them to bid tells them you’re not checking facts.

Not a good look.

Big money on little notes

While reviewing the specifications, take note of any material or vendor suppliers that are mandatory. National accounts are fairly common on chain restaurants, stores, hotels, etc. These stringent requirements are often thoughtfully buried in an easily overlooked note or midway through a lengthy specification section. The cost implications can be huge and can greatly influence who will be bidding your work.

Sole specified vendors can become prima-donnas who expect the work to come to them. You can’t expect these folks to announce themselves before the bid. But rest assured, if you try to build without them they will spring from the sidelines to demand their contract. They are never cheap because they don’t compete.

With the answer in hand, the perspective changes

Understand that no matter how difficult it is to determine that some specialized material, vendor, or subcontractor relationship exists, the build team will assume the perspective that you should have caught it. Design teams often give a lot of thought to specialty materials so they’ll be quick to identify where they were shown on the CD’s. Asking why important details are so poorly conveyed is better muttered to yourself. But I digress…

National accounts or sole specified vendors are typically more important to the client than the design team which may explain why these requirements lack prominence on the plans. Maybe some day professionals will realize that C.Y.A. is a policy that ensures you’re always sitting on your hands when things go wrong for predictable reasons. If you find this nonsense, make a point of calling everyone’s attention to it with Request For Information (RFI’s).

The sooner and more accurately you pull these specialized items to the forefront, the more likely you are to get complete and correct bids from your subs. The build team will be spared unpleasant surprises as well.

Time is a finite resource

Astute readers will note that I’ve focused more on finding hidden requirements than painstaking measurements. Estimators for GC’s are looking to reduce the risk of a project by ensuring that the scope of work they’re planning to subcontract is complete. Obsessively measuring obvious stuff that every bidder will include consumes a great deal of time that isn’t going towards discovering the little details that make one bidder more complete than another. Just because you can do takeoffs at an impressive level of detail doesn’t mean that you should. The goal is to profitably win work at an acceptable level of risk. Risk isn’t controlled by pedantry, it’s controlled by thoughtful analysis of contributing factors. If some factor doesn’t contribute, it’s not relevant. It’s hard for some folks to accept but you don’t actually need to know everything to make the right calls. You need the right information and enough time to act on it. Prioritize your work accordingly and you’ll be successful.

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2 Comments | tags: GC, Measurements, QTO | posted in Uncategorized

August 14, 2014

Bidding Philosophy

By Anton Takken

The various personalities that come together in the market have remarkably different philosophies when it comes to bidding. Broadly speaking I have found three prevalent schools of thought and some work considerably better than others.

Some firms are constantly pushing out bids for short notice, limited scope, high competition, and low profit work. They never seem to win anything so they attempt to make it up by bidding more often. I call such firms “bid mills” because it’s endless grinding out bids without any concern for winning or losing.

These bidders aren’t sophisticated, they do the same thing over and over again because survival is their only goal. This mindset carries beyond just mindlessly chasing whatever is in front of them.

Eddie chases things too, but he doesn’t win much work.

If you always do what you did, you’ll always get what you got.

Often they become hostile with subcontractors that are reluctant to bid to them. They adopt a mindset wherein opportunity is a top down proposition and can be lorded over those who work for you. It’s unfortunate because the opportunity only exists if they win. It never dawns on these folks to reply with “you may want to reconsider – we’ve won X amount of work last quarter and we’re gearing up for the summer rush”. They bid for survival so they view every invite as a lifeline. Essentially they have nothing to offer beyond shared survival.

Lots of firms start out with a similar mindset. They believe that it’s a simple matter to just “win whatever” then build it profitably with folks they hire once there is work for them. The “plan” relies entirely on luck and growth to return a profit.

They will likely discover that they need to include more overhead to deliver quality work AFTER they win a job. Then they will want to add more overhead to the next bid, so they’ll lose. They won’t be winning enough work so they will want to bid more jobs and so the bid mill is open for business!

These folks live in a state of constant disappointment going from week to week or job to job hoping for a big break. It’s depressing to think how long some companies have been doing this.

Bidding Philosophy

It ain’t gonna happen buddy…just let it go

Sow before you reap

There’s another group I call Farmers. These folks have a very short client list, sometimes only one or two. They tailor their operation to please their client(s) and they rely upon the work they’re given for their survival. Farmers are as good as their client. In most cases Farmers with good clients are relying on relationships built over long periods of time. Establishing those relationships is incredibly difficult. In most of the cases I’ve seen, it’s some combination of being in the right place at the right time and doing a good job. It’s pretty easy to know when you’ve found a farmer with a good client because they don’t try particularly hard to announce their existence. They get known for doing whatever they’re good at and subcontractors flock to them. Farmers like this are generally very risk averse so they’re not as focused on low bid as they are on perfect performance. They’re also some of the happiest people you’ll meet, it’s a good life if you can get it.

That’s not fertilizer I smell…

Farmers with bad clients are as pitiful and dangerous as an abused dog. They flinch every time their client rattles the chain, and they pass every abuse down the line. There’s a national grocery chain that used to conduct “reverse auctions” that’s a prime example of this. A reverse auction has all the bidding contractors submit their bid to a website by a deadline. A moment after the deadline, the website posts the current low bid amount along with a countdown timer for the amount of time you have to revise your number. It depends on the conditions set by the client but I’ve encountered such bids where you must cut a minimum percentage of the low number in order to revise your bid amount. Some display all the bidders, some just show the low number. If they only share the low number, you don’t necessarily know that you’ll stay the low bidder. Even worse, some of these systems keep updating the timer to prolong the bid for as long as people are cutting their bids (hurting themselves). Some go for hours.

There’s no pot of gold at the end of that particular rainbow…

It should go without saying that the countdowns don’t allow sufficient time to contact subcontractors to ask for better pricing, or to consult with anyone. GC’s have certainly cut beyond the lowest number they could achieve on bid day. Where’s that money going to come from? It will come out of the subcontractors pockets one way or the other because the farmer with a bad client can’t/won’t get work elsewhere.

Top Guns

The last group I’d identify are targeted bidders. These companies are very selective about what they will bid because they know that bidding less means winning more. They don’t chase low profit work, bad clients, or pick fights with farmers. Targeted bidders generally have more success and less relevant competition because they started by defining where the profitable work is in the marketplace. Next they establish a plan to become qualified bidders for that work. Essentially targeted bidders are “working backwards” in that they start by picking the best work they can find, then they lay a plan to address all the requirements to get there. They may very well have to start at the bottom like everyone else, but they don’t stay there for as long.

It’s not enough to win and build the work. To be a strategic move, those first projects must be the foundations of a reputation for excellence. To clients, this means doing the right thing without generating lots of “static” in the process. Smoothly run work is noteworthy work. To the subs, this means prompt and fair payment. Insulating the subs from unfair clients/design teams is a strategic investment in the GC’s reputation. Rewarding good work and constantly keeping an eye out for new talent is how a GC can keep their subcontractor bids low.

Once the GC has a reputation for winning – they can call in loyal subs and offer strategic partnerships in exchange for better pricing. Giving a sub no or limited competition (1 or 2 other bidders) greatly increases their odds of winning with that GC. Asking for better sub pricing in exchange for reducing their risk is a fair deal. Using this advantage to further their plan is how this GC works towards their goals. Until the GC has hit their target market, they use this pricing advantage to snag better work in line with their intended outcome rather than consume it as available profit. The very best work will have elite competition backed with extensive experience. Gaining a foothold in their market will not be easy. Long term commitments to staying “lean and mean” are necessary for success. However, once established, these firms are able to capitalize on their pricing advantages to an incredible extent.

How do you like me now?

A survey of the field…

I can tell you that there are very few target bidders on the market. Some of them do really small work but they’re always profitable. That’s an important point, it’s not about having huge capital behind you, it’s about knowing what you’re good at, scanning the field, picking a worthy target, and applying your resources to make it successful. Companies that do that are consistently at the top of their game.

Farmers are a little more common. A bad economy is especially tough on good farmers because they struggle with how to scale back their operation to compete profitably on the hard bid market. They’re also relatively unknown to the hardscrabble subs who are offering market pricing. They also fall into traps with bad clients because they’re entire mindset is on cherishing a single client rather than appraising them more critically. Farmers with bad clients in a recession are in a perfect storm of misery, subcontractors should beware. It’s not unheard of for such farmers to put one subcontractor out of business for each project they complete!

Know what your good at and go where it pays.

There’s never an end to the bid mills, they’re just the lowest common denominator wherever they reside. It’s really hard to tell someone at the bottom that they should be a picky bidder. These guy’s all believe the “big job” is going to come along and it’ll be a gold rush for them. Lots of gold prospectors died broke while grizzly’s got fat swatting salmon out of the same river.

“Prospector’s are tasty”

Stupid ideas

There is a pervasive and loathsome notion going around that I should address. The idea is to bid the first projects of the year with enough overhead to cover all work for the remainder of the year, after which bidding becomes “gravy” since any wins thereafter are presumably “all profit”. This is the sort of stupidity that can only come from collegiate isolation. In practice this can create an “unforced error” where 1st quarter projects can fail to materialize as expected leaving everything awarded through 2nd quarter bidding underfunded. Lots of companies have found themselves in dire straits because they failed to make every job pay for itself. Overpricing work is a great way to lose bids and very few Project Managers will run a padded job with the restraint they’d have on a tight budget.

Stupid actions

It seems like common sense but I’ll state it anyway. Overpricing work is not building relationships, honoring the client, or furthering the profession. Good value, honesty, integrity, and knowledge are all reasons a business will succeed. Getting away with harebrained schemes when clients are fat, dumb, and happy won’t count for much when times are tight. Whatever works during a recession will work in times of prosperity.

Stupid outcomes

The connections between the bidding and the corporate philosophies are important. There are firms with estimators who are bid milling and project managers who are farming. This “crop dusting” technique results in a lot of low-budget clients getting high level service at the cost of the GC and their subs. If the client is obligated to hard bid all their work (i.e. municipal work) then there is no chance of negotiated work in the future. Basically the farmer is planting weeds.

Jammed gears

Firms with misaligned priorities will find themselves in unpredictable situations. Estimators must be careful to observe what’s going on and advise to correct course accordingly. Strategic investments are only realistic when everyone understands the strategy. Many firms fail to properly develop and communicate their strategy in finite terms to everyone involved. General platitudes dissolve into messages like: “do this, for money” . Even small firms can fall into patterns of cloistered communication. If the person doing the takeoffs doesn’t know why this project is worth bidding it’s not realistic to expect their best effort when the work is thankless.

Why we’re all here

There’s an old parable about a Bishop inspecting a Cathedral under construction. The Bishop asked a Mason what he was doing – “Laying out this archway” replied the Mason. The Bishop asked an Architect what he was doing – “Designing this buttress” replied the Architect. Finally the Bishop asked a laborer pushing a wheelbarrow loaded with trash what he was doing – “Building a cathedral” he replied.

Bid with purpose and professionalism so that others will follow.

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13 Comments | tags: Bid mills, Clients, Farmers, GC, Strategy, Targeted bidders | posted in Uncategorized

August 13, 2014

Principles of Estimating

By Anton Takken

“So…how do you figure out how much it’ll cost?”

There’s a lot to it but everything builds on one concept; estimating is about systematically getting closer to the answer. The most simplistic method is bounding the answer. By defining the range that contains your answer, you’ve reduced the problem. The next step is to determine what you need to know to reduce that range further. As counter-intuitive as it may seem, asking yourself what you don’t need to know can be very helpful. The idea is to reduce uncertainty by systematically answering questions that divide the range sort of like playing “I spy”. For example: a client asks for conceptual pricing on an office remodel. The number of occupants and what paint colors they’d choose are irrelevant. The square footage of the space won’t change in a simple remodel and the cost of paint isn’t typically driven by color choice.

Right off the top it’s important to understand that it’s very hard to remove all uncertainty. Better design, or past-project similarity can help to reduce the uncertainty but some will always remain. I like to think that estimating is actually about controlling risk rather than pricing stuff. There are lots of ways to arrive at a price – heck you might even win a competitive bid by throwing darts at numbers. But here’s the thing that makes the estimating mindset different from an Entrepreneur. It’s never the job that you lose that puts you out of business, it’s the job you win. Look at it this way, the total bid amount is the company’s minimum risk for not completing the job. That risk goes down as the project reaches milestones, and only goes away entirely after the warranty period. All the projects a company has underway have risk which added together amounts to running risk. More than one company has had to drop everything to jump on a project that was going badly. That can make every job suffer which is why it’s important for someone to be thinking about this at the bid stage. Every time I think about the risk to reward ratio in the construction market, my respect for the entrepreneurial spirit grows.

Especially the cat washing contractors…

So how do you reduce risk? As a bidder there are several approaches. The most common is to define what is included and what is excluded from your bid. Contract parlance refers to these as inclusions, and exclusions which appear on the bid proposal. These can range from standards like “daytime working hours”, to more project specific details like “excluding carpet on floor two”. Remember they’re called “General Contractors” instead of “Builders” for a reason!

Another way to reduce uncertainty is to put part of the work out to bid. Things go out to bid for several reasons. The first and most obvious is to use market competition to keep the price down. A less obvious reason is to reduce risk. Let’s say that three subcontractors bid on a project. The two low bidders are 3% apart. If you win the bid with the low bidder amount and later learn they’re missing something huge, or they back out, you can hire the 2nd low for 3% more which makes your minimum risk 3% for that trade.

A good principle of business is to have a policy of “the record is always on”. Anything you put in writing, you should expect to be saved and used later. The subcontractor bids will have inclusions and exclusions on them. Comparing them against each other is very illuminating. It won’t take long to see that exclusions are the embodiment of the expression “The devils in the details“! I’ll get more into reading bids which is called “Bid scoping” in a later post.

For now, it’s important to see that risk is contained by knowing the spread (difference between bids), and knowing the differences in the exclusions. Sometimes the high bidder picked up on something significant that the competition didn’t which spells disaster if you’d hired the low bidder. Remember to call your clients attention to anything you’ve included that was tricky to see, or understand. For example: the plans may show something is existing that you find missing during your job walk.

It’s a terrific illusion that the construction documents will provide enough information to know every quantity, every time. In the commercial construction world, the owners and architects expect the estimator to “make reasonable assumptions” often based on “standard means and methods” when a design fails to cover something. The consequence of these expectations is the practice of stating assumptions via inclusions and exclusions on the bid form or proposal letter. Control risk by clearly defining what you are and are not including in your scope of work.

This brings us to the Estimators Paradox which is:

When you win you worry about what you overlooked, but when you lose, you worry it’s because of something you shouldn’t have included.

Next I’d like to cover a few principles of effective estimating. It’s hard work to count and measure everything on a project. Conceptual or budgetary efforts for a client or an Architect are “free” services that consume valuable resources. Many times historical data, allowances and minimal research will provide adequate accuracy for the purpose. Having Subcontractors price conceptual work should be studiously avoided whenever possible. Every bid should be retained for use as historical pricing. I’ll get more into how to track your files to make this easier in a later post.

Historical pricing is only as useful as your records, and your efforts to improve on what you’ve learned. At the General Contracting level there is a tremendous range of acceptable detail for estimating measurements called Quantity Take offs. (QTO). In my experience, a more detailed QTO is a more useful QTO provided the detail exists on the plans. For example, If the plans resolution is to the nearest foot, there is no advantage to QTO’s carried to the nearest inch. While on the topic of inches, it bears mentioning to those inclined to the metric system that a decimal foot is a far more useful system for QTO’s i.e.twelve feet, six inches would be notated as 12.5′. No accuracy is lost and the spreadsheets are immensely simplified.

Measurements alone are not useful without showing how they relate to cost. I’ll provide some simple template ideas in a future post. Speaking of units, the unit of measurement for materials aren’t always obvious. For example carpet is measured by the square yard whereas floor tile is measured by the square foot. The “RS MEANS” series of books will provide valuable insight into both the units of measure, and what ballpark price to use. There are other similar resources, but I’m most familiar with RS Means. Beware of trusting one source implicitly. There are many factors that must be adjusted to reflect the exact situation you’re facing. Anything that strives to be all things to all people fails on both fronts. Get used to the idea that you’ll have to use multiple references to check accuracy.

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2 Comments | tags: Estimating process, GC, Risk, RS Means, Uncertainty | posted in Uncategorized