The Art Of The Bid
Recently, I found myself in a discussion with a colleague who (like me) has for many years been employed as a construction estimator and project manager. Our talk centered on whether a good construction estimator was merely a “technician” who was simply more detailed and skilled in the nuts and bolts of compiling an estimate, or whether there was more to the picture.
We both easily agreed that nothing could replace sound, technical experience and attention to detail, but then we went on to explore what we called certain “human intuitive qualities” that separate the good estimators from the truly great. We then attempted to identify qualities -- the professional and (perhaps more importantly) personal traits that often separate the two levels.
It was an interesting conversation, and soon it became evident that, though seldom discussed, there’s clearly far more that goes into winning in the construction estimating game than good estimating alone. You also have to know how to bid.
So what’s the difference between estimating and bidding? I mean aren’t they essentially the same thing? Well, the answer is, “No.” Estimating the cost of a construction project -- whether it’s the smallest of garden shed or the most massive of skyscraper -- is still at any level only a game of Tinker Toys?.
It’s the gathering, organizing and presenting of many pieces to make a whole, and to ultimately arrive at a cost for that particular project. Period.
The estimator has gathered up:
- Direct costs -- the cost of actual “hands-on” construction;
- General requirements/conditions -- the costs not directly attributable to physical construction. Think of it as “hands-off” construction (i.e., field, trailer, phone, transportation costs); and
- Indirect costs -- the cost of performing the business of construction, such as bonding, insurance, office overhead, labor burdens and so on.
With the body finished and already as competitively priced as the estimator’s talents allow, all that waits is the addition of a percentage referred to as profit margin. And it was in our conversation where we felt that this was the point where things really started to get interesting, because here’s where the human factor took over. Here’s where the sweat really started. It’s here where the estimate becomes a bid.
More Than WordsUnlike the term estimating, “bidding” carries with it the implication that you (the contractor) are indeed going after the job.
You want the work. You may even need the work to keep your people working and crews loyal to ensure they don't wander off to seek steady work with competitors.
But herein lies the dilemma in determining that final percentage. You’re now faced with the challenge of having to be comfortable that your proposed margin is safe enough to be profitable and helpful to your company (should you win), yet still aggressive enough to win the work without accepting an irresponsible level of risk against your business.
And believe me, this is not an easy determination. But the bid deadline rapidly approaches and that very decision is in your lap. Now you’re faced with the paradoxical task of not being overly aggressive while at the same time not being too passive.
The Human TouchSo it’s time to start feeling. It’s time to add a little human element and employ some of those human “intangibles” that can’t be taught.
These are those indefinable elements, such as how you feel toward the market all around you or how you feel about the passiveness/aggressiveness of your competition -- or even how you feel about the potential players with whom you’ll be involved should you win.
There’s much to consider and digest. But time is growing short and your base, lifeless estimate number at the bottom of the paper awaits your decision. It’s time to adjust the margin accordingly and it’s time for strategy, experience, instinct and sometimes just plain ol’ guts to take over.
I know this all may seem a bit nebulous in concept, so let’s see if we can identify some of the items to which I refer. Let’s examine further some human “intangibles” that I’ve encountered over the years -- those additional considerations that “fall outside the spreadsheet” and that turn an estimate into a bid.
Very often you’ve had previous experience -- good or bad -- and you know that working with one architect can be a cakewalk while working with another can be a trip to hell. The same goes for the owner, inspectors and jurisdictional regulators.
What about that city’s engineering department? Are they going to run you through hoops and not return your calls? What about the subcontractors and/or suppliers with whom you’ll be working? Have you had a bad experience with a proprietary supplier in the past? Has a particular subcontractor (the one you listed on your bid form) been petty with change orders and demands in the past?
The point is there really is a difference between building teams. And those differences do sometimes vastly translate into money. They do affect your potential margin during construction and it’s only now, during the bidding process, that you can adjust your margin to accommodate costs associated with working with just such a brood.
These often include jobs with a lot of “selected demolition” (saw-cutting, knocking out for new doors/windows/vents, etc.) or “scary” subterranean details where anything can pop up. I refer to these types of jobs as “ugly” as opposed to a nice, clean-cut, brand-new block building on a nice rectangular new slab.
Assuming there’s no clear-cut contingency to cover such costs (and take it from me, contingencies, if even present, are never clear-cut), I’ve adjusted profit margins according to “ugly.”
These bidding documents most often include a set of working drawings and a specification guide, and the quality, completeness and accuracy (or lack thereof) can definitely affect your margins. Personally, I’ve built projects from documents that have been:
- Detailed, complete and accurate -- my hat’s off to these firms.
- Detailed, complete and entirely inaccurate (i.e., specifications not matching drawings, working drawing pages not meshing with other pages, detail notations that lead nowhere, cross-sections/specifications taken from boiler-plate books circa 1890, structural elements held up by “magic,” and much more).
- Market Competitiveness -- How competitive is this bid going to be? Are there three bidders? Six? Twenty-eight? True note: I actually bid and then attended an open letting with 28 bidders. Now ask yourself, would you really want to be the low bid out of 28 bids? I thought so. But the number and quality of your competitors can affect your thinking and often play a role in determining that final proposed margin.
- Your Own Need For Work -- Most any contractor will admit that there have been leaner times when the only important thing to do at the time was to sacrifice margin in order to get the work and keep crews and staff loyal and busy. And I’m not sure this is a bad thing. If it’s applied wisely, it can be sound business. If it happens too much, that clearly signals something is wrong and a thorough re-examination of processes is in order.
Now this is just a sampling and there’s certainly more, but I think you get the picture. Clearly there’s more to bidding than simply adding up numbers. We’re in a service industry that is arguably more social than it is technical. Human intuitiveness and life experience is paramount to success and often spells the difference between being a winner and being an also-ran.
I don’t know about you, but for some reason that’s comforting to me. With the advent of computers, powerful software programs and automation that does everything but dress you in the morning, it’s nice to know that we puny humans still play some role in this whole thing.