The Rush to Bid Low
In my early years as a cost estimator, I received the most useful advice from the owner of the company I was working for. He told me: “your job as a cost estimator is to figure out the best price our company can do this project for and not win the bid”. And I kept that in mind throughout my whole career. It can get very lonely working as a cost estimator and bidding high on the project after project after project.
But, more important than being the low bid is to have the right price for the job. If that happens to be the low bid, the combination is a winning one. No contractor who is to remain successful and build/keep a great reputation can sustain the low bid without the right price to match it.
More prevalent in a slow economy, competition on construction projects can be ferocious. This forces contractors to bid very low, sometimes below cost, to secure work. Competition is healthy until it becomes deadly. So what options do contractors have to be more competitive and keep a reasonable profit margin?
Winning the Bidding War
Winning the game of bidding in construction can be achieved by implementing clear and healthy business strategies.
- Implement business marketing and development. This is an area that small(er) contractors tend to ignore. Some trade and general contractors rely on their cost estimator to find and track down project leads. Proper business development is achieved through analyzing the various markets available and desirable, meeting with potential customers, following projects throughout the various stages of design, building relationships with potential clients, focusing on projects/markets that best fit the company’s strengths, analyzing new markets and the possibility of entering such new market segments. For contractors concerned with the additional costs of implementing business development, it can be achieved by hiring a third party to provide such services on as needed basis instead of hiring a full-time employee.
- Invest in quality estimators and estimating tools. Finding the appropriate estimator for the job is not an easy task. Some important traits of a great estimator are: meticulous, realistic, thorough, detailed and have previous field experience. And the estimating tools are as important as the estimator. The right tools can drastically reduce the margin of error in cost estimating, the time required to complete a cost estimate and the time and accuracy to fill in the tender form(s).
- Have a better handle on costs. Keeping a low bid requires a lot of thinking and coming up with ways of keeping the costs low: labour, material, and equipment. It is not always up to the cost estimator how to approach the cost of these resources. This is a task that the company management is in charge of establishing viable strategies for reducing such costs: implementing an apprenticeship program, negotiating better deals with suppliers, investing in new technology and equipment, finding ways to improve performance on job sites, etc.
- Keep the financial house in order. Needless to say, the company needs to be fiscally responsible and be in a liquid position with limited liability and long-term debt. Keeping bonding capacity available to bid on new work, increasing company assets and making a profit on each job is essential for sustaining continuity.
- Maintain a great safety record. It is common for contractors to disclose safety records to be awarded a contract. And for good reason, a bad safety record means trouble down the road of project execution. On some contracts, having a bad safety record can mean losing the award of a contract.
- Make sure that there are available resources to do the work if awarded. Yes, it is an obvious one. But, not to be surprised that some contractors ignore this aspect. The focus is mostly on getting the contract and then realizing there is not enough cash available to start the project, some equipment is still on another project that was delayed, etc. Nothing is worse than getting a contract just to realize the timing is wrong regarding available resources.
- And, in the age of networking, implement a sound social media program. More and more contractors are starting to build a presence on social media platforms. What it used to be of interest only for the large corporations, being present and building a brand and relationships on social media platforms is a must for all contractors, large or small. Not to say that if a contractor does not have a Twitter account, it will not be able to secure new contracts. But, the age of having a static website and considering that a proper web presence is long gone. Building a brand and interacting with potential clients, mentors, associations, employees, etc., is what the definition of being present on the web is now, to put it simply.
- Participate in industry training and shows; keep up with the new trends. This task needs to be embraced by all within a company, cost estimators included. Self-development for a cost estimator should not be seen as some activity that the employer needs to initiate. And, with so many resources available via the internet, gaining new skills and knowledge to improve our work as cost estimators is easier than ever.
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Thank you for reading my post.
