Construction company estimating departments are sometimes like sausage machines turning out price after price, quote after quote, working on a number of estimates at any one time. I’m amazed at how estimators manage to keep the different projects separate, how they isolate and review different supplier and subcontractor quotes for the different projects, how they manage to do this without making mistakes. Or do they?
Unfortunately contractors do make mistakes pricing projects. These mistakes might increase their price, probably meaning they don’t win the project. Sometimes they fail to include documents requested by the client resulting in their proposal being disqualified or going in the trash (a waste of effort). Other times they under-price an activity and they lose money when they construct the project.
Of course companies can avoid some of these problems by being more selective with which projects they price, discarding projects which are unsuitable and concentrating on those that they really want. However, even so mistakes happen.
What to ask when bidding on a project
It’s prudent to carry out a few checks before submitting your bidding. Ask yourself and your team these questions:
1. Have we included all documentation asked for in the RFP?
Customers often ask for a whole host of documents which could include forms the contractor is required to complete as well as other documentation such as the contractor’s insurances, process manuals, project schedule, estimated cash flows, safety plans, quality assurance plans and bid bonds. Failure to include one of these documents could result in your price being disqualified.
2. Will the person reviewing our bidding proposal find the documents requested?
You may have included all the documents but it doesn’t help if the person scrutinizing your submission can’t find them. This may lead to your price being discarded or at best the customer becoming frustrated. Include an index which will help the client. Also clearly highlight the relevant documents requested.
3. Have we priced everything the customer requested?
Do we understand the scope of work? Often the project scope is read at the start of the pricing exercise and then forgotten. It pays to review it from time to time to ensure you haven’t priced something that is actually the customer’s obligation or left out items you should have priced.
4. Is our price competitive?
We sometimes know who our competitors are and how desperate or not they are for the project. Sometimes we even know the customer’s budget or price expectations. If we believe our price isn’t competitive and we really want the project it may be necessary to reduce our profit margin. We could also revisit some of our calculations and quotations received from major suppliers and subcontractors. Don’t do anything stupid by cutting your price so you lose money – rather take a critical look where there are real savings possible. Conversely if you know the competition is going to be pricing high you could decide to increase your price by increasing your profit margin.
5. What are the project risks?
Have we considered all of the project risks? Have we been too conservative when looking at the risks? Some contractors almost blindly price a project assuming everything will go as expected and are then surprised when things go wrong – even though they could possibly have been foreseen. Other contractors see a risk around every corner and add contingency for every eventuality. By preparing a risk schedule we will have a better understanding of our risks and the steps we should be taking to mitigate them. Reviewing this schedule before submitting your price is always good practice.
6. Will it be clear to the customer what’s included in the price?
Contractors sometimes think their customers have ESP and should know what the contractor has priced and what is allowed in their price. If you have had need to assume something or you haven’t priced an item ensure that your customer knows this. If you’re pricing a new house it should be clear from the information provided with your price what the house will look like and what finishes have been included.
7. Is the math correct and have we carried all prices into the final contract price?
This sounds simple yet many a contractor has gone out of business with simple bidding math errors. We often trust in our computer spreadsheets and software, but unfortunately these often depend on the formulas we enter. Check and recheck. Sometimes customers ask contractors to include a provisional amount of money for a section of unknown work, but I’ve known contractors who left this amount out of their final price, and had to later carry the cost of this amount themselves.
8. Have we added in all the costs for our subcontractors?
It’s important when we receive subcontractor bids that we include all the money they require in our bid. Sometimes subcontractors exclude certain items or request that the general contractor supplies cranes, scaffolding or other equipment. It’s important to ensure that you have included for all the unpriced items as well as equipment or other items the subcontractor requires supplied by the general contractor
9. Have we done enough to sell our company and our team to the customer?
Will they want to do business with us? Will they have faith in us? In most cases it’s not good enough to only give the customer a price. You need to tell the customer why you are the best contractor for the project. Convince them you have the best people and equipment to deliver their project safely, on time, with the best quality, within their budget and with a minimum of hassle and risk to them. We have often won projects even though we didn’t submit the lowest price. We just convinced the customer we offered the best value.
10. Do we know where and when the price must be submitted and have we allowed enough time?
Will it reach there before the specified time? I’ve known many prices that arrived late, and were disqualified. Some have been delivered to the wrong address. Estimators have spent literally weeks on pricing the project and it’s all wasted because their price isn’t even considered. When you don’t start work on a bid early enough, mistakes are often made when missing materials prices or subcontractor are guessed.
Unfortunately some contractors end up submitting their price without checking it properly. A poor bidding submission may end up in the wastepaper basket. Worse a price that has errors may mean the contractor wins a project with a price that’s too low which results in them losing money on the project.
What mistakes have you made in your bidding proposals?