Bidding Insights eBook

A CONSTRUCTION DATA PUBLICATION

BIDDING INSIGHTSTHE COMPLETE GUIDE

INSIDE ADVANTAGE. SUPERIOR INFORMATION, DELIVERY AND SUPPORT

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TABLE OF CONTENTS

BIDDING INSIGHTS: PART 1 ............................................................................. 3

Finding the Right Work ............................................................................... 4 - 5Work Acquisition - Winning a Project .............................................................. 6Using Construction Data ........................................................................... 7 - 8Finding the Right Work: Market Analysis .................................................. 9 - 12

BIDDING INSIGHTS: PART 2 ........................................................................... 13

Marketing and Selling ............................................................................ 14 - 18Marketing and Data .............................................................................. 19 - 24Conclusion .................................................................................................... 25

BIDDING INSIGHTS: PART 3 ........................................................................... 26

Estimating and Bidding ................................................................................ 27Best Estimating Practices: Estimating Cost and Proposing Price ......... 28 - 29Bidding: The Price Proposal Process ...................................................... 30 - 33Bidding: Pressures of Being the Low-Bidder ........................................... 34 - 35Bidding: Odds and Ends ........................................................................ 36 - 38The Pipeline: Aligning Work Acquisition and Field Staff ........................ 39 - 41Conclusion .................................................................................................... 42

TRY CONSTRUCTION DATA FOR YOURSELF ................................................... 43

CREDITS / FOLLOW US ONLINE ..................................................................... 44

2 | Bidding InsightsINSIDE ADVANTAGE. SUPERIOR INFORMATION, DELIVERY AND SUPPORT

BIDDING INSIGHTSPART 1


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C onstruction Data (online at www.cdcnews.com) has teamed with Matt Stevens of the Stevens Construction

Institute (www.stevensci.com) to bring Construction Data’s readers a series of executive briefs titled Bidding Insights.

These executive briefs are not meant to be a step-by-step guide to bidding; nor are they designed to be an instructional guide as to how to put together a bid. Our aim is to assist firms in winning more bids by provoking thought in the minds of our readers and initiating an ensuing discussion across our readers’ companies that will lead to the self-analysis and

market analysis necessary to grow their businesses.

(Note: In order to assist our readers, we have p rov ided suppor t ing spreadsheets that may be accessed through links in the text. We recommend you save the spreadsheet locally before you close it to preserve any changes you decide to make.)

FINDING THE RIGHT WORK A Construction Data Publication



www.stevensci.com

Winning more bids is not simply a function of bidding more. Companies that take the “throw enough on the wall until it sticks” approach rarely, if ever, succeed. Companies that know the area in which they operate best, the type of work they best perform, and the owner’s with whom they work the best will experience improved margins, a higher winning percentage, and larger growth rates. Winning more bids re-quires an investment in time and resources.

Before investing the time and resource; however, the company needs to eva luate the i r cur rent b idding procedures and make an honest assessment of what they’re doing

right and what needs to be changed in order to remain competitive. As the famed Chinese general and strategist Sun Tzu wrote in The Art of War, “It is said that if you know your enemies and know yourself, you will not be imperiled in a hundred battles; if you do not know your enemies but do know yourself, you will win one and lose one; if you do not know your enemies nor yourself, you will be imperiled in every single battle.”

It is our hope that this series will provide the rationale for our subscribers to begin the process of understanding themselves and their competitors, unleash their inner Sun Tzu, and win 100 battles of their own.

“It is said that if you know your enemies and know yourself, you will not be imperiled in a hundred battles.

- Sun Tzu

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T h e p ro c e s s o f c o n s t r u c t i o n c o n t ra c t i n g b e g i n s w i t h wo r k acquisition. In order to build a job, a contractor must first win the job. Winning more bids begins long before the ultimate submission of a bid or proposal. In order to win more bids, contractors must understand that construction contracting requires dedicated study, field experience, and business knowledge.

Unique to the construction industry, construction contractors must win three times in order to win a project.

1. Pass state licensing requirements and a surety examination.

2. Qualify with the client – that is, the owner or general contractor.

3. Offer the client specific value that matches the client’s specific needs. This may include price, service, and/or competitive price.

Winning on a consistent basis requires knowledge – knowledge of local legal prequalification processes; knowledge of the prospective client; and knowledge of the prospective client’s expectations.

WORK ACQUISITION Winning a Project


The knowledge required to win more work, either through bidding or negotiating, comes from many different sources. Construction Data is one such source.

Aside from providing project leads, C o n s t r u c t i o n D a ta c a n a s s i s t their subscribers in acquiring the information they need to win more bids.

Subscribers to Construction Data’s pub l ica t ions have a va luab le

resource in the form of Construction Data’s network of regional editorial offices. Each region’s editorial staff is familiar with state-level certification requi rements and can prov ide subscribers with the contacts at various state agencies who handle the certification process.

USING CONSTRUCTION DATAThe Best Resource


Subscr ibers can also ut i l i ze the contact search function in Lead Manager (Construction Data’s online product) in order to view the projects currently posted for a particular owner, developer, architect, engineer, or GC. If a subscriber needs additional historical project information beyond w h a t L e a d M a n a g e r ’s 9 0 - d a y window provides, Construction Data’s Commercial Construction Market Intelligence allows subscribers to

search Construction Data’s bidding archives by companies or geographies all the way back to 2009.

Construction Data is certainly not the only source that a company should utilize for market research; however, it is a good start for subscribers. Our local editors are available to discuss additional ideas and resources.

“ Construction Data can assist their subscribers in acquiring the information they need to win more bids.



In order to select the right work, contractors should rev iew past projects and determine what type of work they are actually good at doing. This may be different from the type of work that the contractor likes to perform. Contractors need to conduct this review in an objective, data-driven fashion. This is no time for intuition or gut feelings.

In order to analyze their market, it is recommended that contractors use a Closed Job Analysis which consists of reviewing what a contractor has

bid on over the past year, as one quantitative method to determine the best work for the firm.

SELECTING THE RIGHT WORKMarket Analysis


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Contractors can develop a simple spreadsheet showing, among others:

1. Project Name

2. Year Completed

3. Type of Work

4. Final Contract Amount

5. Final Cost Amount

6. Final Margin

7. Gross Profit %

8. Original Contract Amount

9. Estimated Margin

10. Original Gross Profit %

Additional categories could include field supervisor, project manager, c l ient , and locat ion. By sor t ing this spreadsheet by various fields, contractors can obtain a picture of their most profitable type of work, location of work, clients, etc.

A n o t h e r m e t h o d o l o g y t h a t i s recommended for contractors is the Focused Market Analysis. In this type of analysis, based on the firm’s own data on projects over time, the contractor is looking for what makes the perfect market for the firm. A perfect market is defined by clients, work types, and locations. There is no set correct answer to these questions and the answer will be different from contractor to contractor.


What is standard among contractors is that the definition of “perfect” contains, in some aspect, the fact that the client, type of work, and location are highly profitable.

Each of the factors of the market must be clearly defined by the members of the team conducting the analysis. The Client Type and Customer Rating is simply a listing of clients over the past year. The Focused Marketing for Location is defined geographically – e.g., states/counties, rural/suburban/urban, cities, or military bases. The Work Type Rating includes a level of

specificity that is determined by the team conducting the self-analysis. Contractors may define work type by the type of structure – apartment, hotels, office buildings, etc. – or the type of construction – new construction, renovations, fit-outs, etc.

The firm must then develop the criteria that help to define what is “perfect” in each market category. For the client rating, firms may decide that perfect clients are those that pay on time, have predictable bid scopes, and demand quality work.

“ A perfect market is defined by clients, work types, and locations.

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F or the location rating, firms may decide that the perfect locations include those with a large number of suppliers

and/or subcontractors, the cost of travel, etc. These criteria are then assigned a level of importance, on a 1 to 10 scale, to profitability. The most important criteria are assigned the highest weight. In order to ensure a complete and clear analysis, no two factors should have the same weight or rating. Each contractor must dedicate t ime and energy to determine the “perfect” market for the firm. This involves reaching a consensus among those team members involved in the firm’s self-analysis.

The analyses for each of the market factors are completed separately in order to develop a clear picture of each factor. The members of the team develop a score for each of the categories and the score is multiplied by the weight of each criteria. The total gives an overall score for each category.

The categories that score highest are considered the most ideal (“perfect”); while those that score the lowest are less than ideal. Through this method a firm can determine the “perfect” client(s) to work for, the “perfect” location(s) in which to perform work, and the “perfect” type(s) of work to perform.

Firms must position themselves for winning more bids by becoming more selective in terms of the clients, locations, and types of work they bid upon.




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I n this, the second part of the Bidding Insights series brought to you by Construction Data (www.cdcnews.com) in cooperation

with the Stevens Construction Institute, (www.stevensci.com), we address the marketing and selling of your firm.

As with Part I, this is not meant to be a step-by-step instructional guide; but rather, a conversational piece designed to assist your fi rms in winning more bids by presenting several thought provoking ideas.

As we saw in the first part of this series, winning more bids is not simply a function of bidding more. Winning

more bids requires an investment in time and resources. Part of this investment includes conducting a proper market analysis which will lead companies to determine the right kind of work they should be bidding on and negotiating for.

Once the r ight type of work i s determined, a firm must market and sell themselves to prospective clients – owners, developers, architects, engineers, and GCs. This marketing and selling of one’s firm is the focus of this executive brief.

MARKETING AND SELLINGA Construction Data Publication


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Marketing and selling, though on the same spectrum, are not one and the same. In order to successfully acquire more work – and, more specifically, more profitable work – firms must become discipl ined enough to employ the marketing-selling process across the entire spectrum. Although a fi rm can st i l l acquire work by shortcutting the process, they will acquire less than “perfect” work – i.e., work that does not meet the newly defined “perfect” clients, work types, and locations.

As a firm moves across the marketing-sel l ing spectrum, the processes utilized include:

1. Market research to determine the firm’s best geography, client, and work type. This involves determining the best business/project situation and planning accordingly.

2. Discovery of prospects. Firms must use all avenues such as project leads services, the Internet, attending conferences, etc.

3. I nd i rec t commun icat ion to prospects. This includes letters, phone calls, adver t isements, conventions/trade shows, etc. directed toward a target audience.

4. Direct communication to the prospect’s decision maker. This involves directly meeting with the prospect’s leadership, presenting to them, and then following up.


Many const ruct ion fi rm owners and senior level executives begin the process with step #4. Often this is through happenstance rather than planned action – construction executives meet potential clients at local business functions or while travelling and, naturally, strike up a conversation.

Unfortunately, by shortcutting the marketing-sel l ing process, these firms find themselves performing work at a loss or with a client that is far from the firm’s defined “perfect” client. Construction firm executives who find themselves in contact with prospective clients should redefine this fortuitous encounter in terms of the marketing-selling spectrum.

“Marketing and selling, though on the same spectrum, are not one and the same. In order to successfully acquire more work – and, more specifically, more profitable work – firms must become discipl ined enough to employ the marketing-selling process across the entire spectrum.”

Af ter the encounter, and upon further evaluation, if the prospective client is one which fits the firm’s “perfect” location, client type, and work type, then the “lead” should continue through the marketing-selling spectrum, albeit at a high priority.

“In order to successfully acquire more work – and, more specifically, more profitable work – firms must become disciplined enough to employ the marketing-selling process across the entire spectrum.


Construction Data can assist firms th rough the marke t ing - se l l i ng spectrum. Both Construction Data’s products and local regional offices can be used as a resource to help determine a firm’s best geography, client, and work types. In addition, Construction Data can assist in the discovery of, and communication with, prospects.

Not only do subscribers find project leads, but also a wealth of contact information. Construction Data’s reports contain contact information, including contact persons’ names and email addresses (the latter is available if a firm subscribes to Lead Manager, Construction Data’s online product.) Lead Manager subscribers also have access to hyperlinked company names which show other projects with which those companies are involved.

Prospective clients who do not meet the “perfect” definition should not be ignored or discarded. Follow-up is still required, even if it is to decline the oppor tunity to pursue work with their organization and express appreciation for their consideration. This is difficult to do, but it is a necessary process if firms are to ensure that they are only pursuing projects with their ideal clients. Failure to do so will result in both a client and a contractor who are unhappy.

In add i t ion , fo l l ow ing up in a professional manner, your firm leaves open the possibility of work in the future. As a firm grows, its definition of “perfect” location, client, and work type changes. File this under never burning a bridge.


Several key things to remember concerning the marketing-sales spectrum:

• A break in the process slows or stops it. Firms must stick to the process and don’t allow any discontinuity.

• Discovering prospects is the most cost intensive portion of the spectrum. Although costly, it is necessary for the continued growth of the firm.

• All company activities communicate something about the firm. Everyone in the firm should be made aware of this. A company truck that drives recklessly on the highway or is seen parked outside of a “gentleman’s club” sends a message about the firm.

• When it comes to direct communication, preparation is the key. Firms should be certain to rehearse their presentation, have answers for anticipated questions, and have enough material to distribute to each participant in the meeting.

• Firms should be as diligent in their follow up after a meeting as in their attempts to get the meeting.

• Firms should be aware not to sell when they should be marketing.

• Marketing to prospective customers is more expensive than marketing to existing customers. No amount of marketing can overcome poor construction.

“ “No amount of marketing can overcome poor construction.”

- Construction Data Company

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MARKETING PRECEDES SELLING. The two key functions of marketing are:

1. Understanding the market in which the firm operates

2. Bringing prospective clients to a point at which they’re interested in the firm’s services.

In order to accomplish the fi rst function, construction companies must not only conduct a self-analysis to determine their ideal cl ients, location, and types of work; but also, determine the percentage of market share that the firm’s work represents.

Market share is the value of work won by the firm divided by the total

market value of work available. (See: Market Share Scenarios). This can be extremely difficult due to a lack of reliable data. Although a single, specific percentage may be difficult to accurately pinpoint, firms should attempt to determine a mean market share based upon the trend of data which is graphed over the course of a year.

MARKETING AND DATAThe Process Before The Sale


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Construction Data can be of some assistance in this endeavor. One way to gauge market share is to compare the amount of work completed by the firm against that of other firms. Construction Data’s Lead Manager can provide a 90-day window of historical data including the work on which a firm has bid. Construction Data’s new Commercial Construction Market Intelligence allow subscribers to search Cons t ruct ion Data ’s bidding archives by companies or geographies all the way back to 2009.

In order for market share to make sense, it must be viewed in relation to a profitability number. It is recommended that contractors calculate their Gross Profit Percentage, which is what remains from revenue after direct (or field) costs are deducted over a specified period (quarterly or monthly). Just as with market share,

gross profit percentage is tracked on a trend line. Comparing the two trends shows the results of a con-tractor’s work acquisition efforts – the ability to gain work and the profit margin while doing so. In order to provide the clearest picture of how gross profit percentage and market share compare, it is recommended to view both values over a three year period. (See: Three Year Trend on Profit and Market Share).

“ Marketing precedes selling.

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There are nine possible interpretations of this data:

1. M a r ke t S h a re U p / P ro f i t Percentage Up – This is the ideal situation. The firm is winning a higher percentage of bids and earning more profit on each job.

2. Market Share Level / Profi t Percentage Up – The company is keeping market share while finding more ways to profit.

3. Market Share Down / Profi t Percentage Up – The firm may be taking the opportunity to price higher and lose market share, but gain in profits.

4. M a r ke t S h a re U p / P ro f i t Percentage Level – The company is keeping profit level but also winning more work. At a future date, this can be “harvested”.

5. Market Share Level / Profi t Percentage Level – The company is holding its own, not gaining or losing in either area.

6. Market Share Down / Profi t Percentage Level – This is a red flag. The firm is losing profit. Are clients leaving the firm?

7. M a r ke t S h a re U p / P ro f i t Percentage Down – This happens when the contractor attempts to “buy” market share by cutting profit margins. The firm is working harder for less profit.

8. Market Share Level / Profi t Percentage Down – The firm’s market share is maintained, but its profitability is losing ground. In this case the economy may be poor and the firm has had to cut its margins.

9. Market Share Down / Profi t Percentage Down – This is the most stressful business scenario. The firm is winning fewer bids and at a lower profit margin.


Construction firms can utilize this quanti tat ive model to generate d i s c u s s i o n a m o n g t h e f i r m ’s m a n a g e m e n t te a m , a s s i s t i n spotting negative situations and/or opportunit ies for growth, and even measure the performance of sales people, field supervisors, and division managers. This has become even more imperative in today’s market. Construction has become a sophisticated, data-driven profession. Contractors can no longer rely on their gut feelings. They must utilize data to make educated decisions regarding their marketing and work acquisition efforts.

S e l l i n g i s t h e f i r m ’s p e r s o n a l presentation to prospective clients and is, largely, a quantitative process. The use of a personality-based sales

process is of little value in construction contracting. You have to understand your costs and the buyer who is sitting across the table from you.

Before the selling process can begin, firms must define and identify what exactly is a highly qualified lead/prospect. Quality leads/prospects share the following characteristics:

• Having need for the firm’s services.

• Having an allocated budget.

• Having a deadline to make a decision.

• Open to a relationship.

• The person is the decision maker.

• Having an identifiable want.

“ Construction has become a sophisticated, data-driven profession.

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A p ro s p e c t t h a t m e e t s t h e s e characteristics is someone to whom the firm can market and sell with confidence. Once the firm’s marketing effor ts has identi fied the highly qualified lead/prospect, it’s now time to engage in the six steps to selling in construction:

1. Gather Information – Know the clients and their circumstances. Subscribers to one of Construction Data’s products have access to a wide array of information that can assist the firm in these efforts. Either through Construction Data’s online product or through a call to one of Construction Data’s local offices, sub-scribers can begin preliminary research into the number and types of projects in which a prospective client has been involved over the past several years.

2. Meet Potential Clients Face-to-Face – This step is crucial, especially when dealing with a new client. Even though this is the age of technology, email is no substitute for a face-to-face meeting.

3. A s k D i re c te d Q u e s t i o n s – Questions should focus on what the prospect likes about its current source; what they fear or don’t want in a new contractor; and

reflect the strengths of the firm (such as certifications, safety, etc.).

4. Support the Answers – Once the prospect shows interest in the firm and its attributes, be ready to prove your worth. It is recommended that contractors keep a binder available that includes information such as insurance coverage, bonding capacities, reference letters, safety records, etc.

5. Closing the Agreement – The only close to use in construction selling is the assumptive close. When the firm and the prospect are ready to move to the next phase, the firm’s representative should pull out their daybook, look at the calendar, and provide a date at which they can expect to meet the next milestone. If the prospect begins to look at their calendar, the firm has closed the deal.

6. Moving Forward – After leaving the meeting, the firm should follow up with the prospect-turned-client that afternoon to confirm the decision to meet again. This limits changes of heart and “cold feet”.


There are, of course, common errors that affect the selling process:

• Sounding and looking l ike a sales person – Do you remember the old Joe Isuzu commercials? Simply put, don’t be that guy!

• Introducing price before you have communicated all your benefits – Don’t be impatient.

• Not knowing or following the marketing message – Remain on track with the firm’s stated (and previously relayed) marketing message.

• Asking for a referral when you haven’t earned one – Again, don’t be impatient. It is recommended that firms wait until they have completed three or more projects with a client in order to ask for a referral.

One area that is often overlooked by contractors is that of building value. If the Value Perception equals Perceived Benefit less Perceived Cost, then in order to increase the Value Proposition to the client, a firm must increase its Perceived Benefit. Some ways in which a firm can increase its value include:

• Accurate as-builts.

• Paperwork submitted timely and accurately.

• Seamless reporting in the client’s format and desired method.

• B e i n g a t te n t i ve to u n i q u e construction needs.

• Offer ing helpful suggest ions whenever inevitable problems occur.

You’ll note that lowering costs is not listed there. Cutting project costs for the sake of cutting costs is never a good idea. Lowering costs must be conducted with the specific needs of the client in mind.


I t is quite obvious that the modern construction company is one that needs to be data driven in order to obtain the success

(profitability) it seeks. The owner and management team of the firm need to devote the time and resources to developing these metrics and have the wherewithal to perform a true self-evaluation. As Sun Tzu wrote, “The general who wins the battle makes many calculations in his temple before the battle is fought. The general who loses makes but few calculations beforehand.”

It is our hope that this series will provide you with the information you need to successfully lead your firm to growth and increased profitability.

MARKETING AND SELLINGConclusion




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I n the third part of the Bidding Insights series brought to you by Construction Data (www.cdcnews.com) in cooperation

with the Stevens Construction Institute, (www.stevensci.com), we address estimating cost and proposing price.

As we saw in the first two parts of this series, winning more bids is not simply a function of bidding more. Winning more bids requires an investment in time and resources. Part of this investment includes conducting a proper market analysis which will lead companies to determine the right kind of work they should be bidding on and negotiating for.

Once the r ight type of work i s determined, a firm must market and sell themselves to prospective clients – owners, developers, architects, engineers, and GCs.

However, successfully marketing and selling the firm to prospective clients is not the end of the fight to win more work. To borrow a phrase from former British Prime Minister Winston Churchill, “it is not the beginning of the end, but rather the end of the beginning.” Firms who have reached this stage of the process must now submit a winning bid, which starts with effective estimating. This is the focus of this executive brief.

ESTIMATING & BIDDINGA Construction Data Publication


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Once a prospect is interested in the firm’s services, the firm must estimate cost and propose a price. Although “estimating” may mean different things to different people, for the purposes of this brief we will define estimating as all activities necessary to arrive at cost of construction, part

of which is quantity count, and part of which is cost per unit. This is no small undertaking. There are costs associated with developing an estimate, both in terms of time and material. This is why it is essential that firms stick to the target market they identified earlier.

BEST ESTIMATING PRACTICESEstimating Cost & Proposing Price

“ “It is not the beginning of the end, but rather the end of the beginning.”

- Winston Churchill

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There are four principles of estimating:

1. Estimating is the prediction of final cost in the future after a short term study of the plans.

2. Estimating is essential to all construction companies’ continued existence.

3. Estimating is mostly science which includes:

• A thorough and written review of project plans and specifications.

• Accurate take-off of work quantities.

• Costing of installation of work.

• General conditions of staffing the project.

• Sound overhead allocation methods.

• Bidding strategy.

• History of margins.

4. You will know if you estimated the right cost only after the project is over.

Estimating is a complicated process. Utilizing a Bid Summary Sheet and a Cut/Add Sheet, along with the historical data kept in spreadsheets, can simplify and speed up the process. The speed of the work acquisition-installing work-being paid process is the keystone to a profitable construction firm.


There are three components of the price proposal process:

1. Bid/No-Bid Decision Making

2. Yearly Job Cost Budgeting

3. Applying the Correct Overhead Cost in a Bid

The first component – Bid/No-Bid Decision Making – is a thorough review in which the firm makes an assessment as to whether or not to submit a bid/proposal on a project. It takes many profitable projects to pay for one money-losing project. In addition, submitting a bid uses up a firm’s resources in terms of both time

and energy. Firms need to eliminate low-value opportunities and focus their resources on opportunities with higher profit potential.

Subscribers to Construction Data’s online product, Lead Manager, have resources available to assist in making the Bid/No-Bid Decision.

BIDDINGThe Price Proposal Process


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The first resource, available to all Lead Manager subscribers regardless of their subscription area, is the project tracking function. This allows you to not only save projects to a Project Tracker folder, but also enter notes on the project. Estimators and business development managers can utilize this function to keep track of a project through the various stages of planning and into bidding.

At the same time, they can notate various contacts with the project principals, as well as any internal notes they deem necessary. This

information can be utilized in the Bid/No-Bid Decision making process.

The second resource, avai lable to Lead Manager subscribers, is Construction Data’s Total Access Plans Online. Subscribers are able to view the plans from their desktop. By utilizing Total Access Plans Online, subscribers can save valuable time and make a more informed Bid/No-Bid Decision.


The second component in the price proposal process – Yearly Job Cost Budgeting – is a prediction of the costs of the projects the firm expects to complete during the next year. (See: Data Sort for Bid Strategy).

This is critical for every contractor. If the firm forecasts a higher volume of work than what actually occurs, the firm will recover less overhead in each bid. If the firm forecasts a lower volume of work than what actually occurs, the firm will recover extra overhead in each bid. It is recommended that firms keep overhead costs as low

as possible and their projections slightly pessimistic. This will help keep the overhead cost prediction within reason. After all, any surprises that develop throughout the year will most likely be negative toward a firm’s budgeting.

“ Any surprises that develop throughout the year will most likely be negative toward a firm’s budgeting.


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The third component, Apply the Correct Overhead Cost in a Bid requires the firm to predict or forecast for the future. In order to apply the correct overhead cost, the firm must first calculate the overhead costs incurred by the firm. (See: Budget Worksheet for Use in Creating Bids) This requires a firm to calculate the following:

• The total amount of labor and equipment direct cost;

• The total amount of material, subcontractor, and miscellaneous direct cost; and

• The total amount of home office overhead cost needed.

Once this information is generated, the firm can utilize one of the following methods to determine overhead costs:

• General Conditions Costing

• D a i l y R u n R a te M e t h o d o f Overhead Costing

• Single Rate Method to Determine Overhead Cost

• Dual Rate Method to Determine Overhead Cost

• Overhead Sizing

(See: Overhead Sizing Calculation)

Each of these methods has various advantages and disadvantages. The firm’s management team must decide which is best suited to their operating budget.

“ In order to apply the correct overhead cost, the firm must first calculate the overhead costs incurred by the firm.


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http://hosting-source.bronto.com/6283/public/CDC_bidding_insights/General_Conditions_Cost_Template.xls

http://hosting-source.bronto.com/6283/public/CDC_bidding_insights/Overhead_Sizing_Calculation.xls

One cannot discuss est imating wi thout ment ioning one of the overriding pressures that are brought to bear on contractors of all sizes – i.e. to be the lowest bidder.

Like it or not, many owners still utilize the low bid system to determine who will be awarded the contract. Whether or not the low bid system is ideal in selecting a contractor is a discussion beyond the purview of this summary; however, its existence cannot be ignored or diminished.

Under the low bid system, contractors are under the following pressures:

• To Make a Profit

• To Retain Crews

• To Keep Equipment Utilized

• To Enter a New Market

• To Get Convenient Work

• To Win a “Portfolio” Job

• To Beat Competitor(s)

BIDDINGPressures of Being the Low Bidder


Firms must be careful not to adopt a low bid mentality on all of their projects. Yes, there are projects in which the owner is only looking for the lowest bidder; however, firms must decide whether or not these are the type of owners and projects that fit their “perfect” profile. Value orientation is a much preferred alternative to the low bid system.

For those who primarily bid public sector work, Construct ion Data can help relieve some of the stress associated with the low bid system. Subscribers can access both similarly bid projects from the past, as well as

the original bid results in the case of a rebid. Depending on the timeframe, this information will be available either through Lead Manager™ or our Commercial Construction Market Intelligence™. Subscribers can use this information for comparison purposes, both in terms of their own prospective bid and the bids submitted previously by competing contractors.

(Note: This assumes that the project information was previously released to Construction Data. Some jurisdictions have provisions that do not require original bid results to be released in the case of a rebid.)


T h e re a re o t h e r f a c t o r s a n d considerations in the bidding process that firms should consider.

First is determining whether or not to create a small projects division. By utilizing overhead sizing, firms may be left with the question of whether or not they are competitive against a smaller contractor on smaller projects. Since small projects don’t require the higher overhead of larger projects, a firm may consider starting a small projects or special projects division. In order to do so successfully, the firm must establish a division that exhibits the following characteristics:

• A manager with high energy and low maintenance. The person must be independent and able to function autonomously.

• An office that is austere. No frills means low overhead.

• The paperwork is chaotic, but the manager knows everything about it.

BIDDINGOdds and Ends


Adding a small projects division can be a profitable and successful venture for a firm, assuming overhead can be kept at a bare minimum.

Second is bid condit ioning. Bid conditioning could be considered a best practice. It is not an option on public work, but it does present an opportunity in the private sector.

A firm should think about getting into the practice of conditioning their bids by adding the following:

• Plan Pages

• Date of Specifications

• Work Exclusions

• A Schedule of Values

• Certificate(s) of Insurance

• An Exclusion of Depositions in Any Mediation or Arbitration Process


Third is the critical consideration of when should cost savings be reflected in bids. It is recommended that a firm’s cost savings should not immediately result in lower bids. Firms should keep their bids at the same market level which will assist the firm in overall wealth building. Firms should start bidding lower when their competitors start bidding lower and when the firm is losing their normal share of the work.

Fourth is to beware of questionable procurement procedures to win bids. The biggest concern in this area is Electronic Reverse Auction Bidding

(ERAB). Owners are using this process via the Internet to drive down prices. Since ERAB involves a bid period as opposed to a single submission, this method of procurement takes all of the pressures to be the lowest bidder and multiplies them by adding the increased pressure of seeing other bids, despite the fact that they’re anonymous. Some firms may feel pressured to alter their bids on the spot and file a revised bid as they see the bid prices spiral downwards. This is a no-win situation for the firm, even if it wins the bid.


Just as those on the construction firm’s management team must reach a consensus when it comes to the ideal – “perfect” – locations, clients, and work types, the focus of the field staff and the focus of the firm’s work acquisition efforts should be aligned.

The way to do this is through a metric that compares the Gross Margin Produced by Field Operations to the Gross Margin Predicted by the Estimating Group.

Another key metric a firm can utilize in aligning its work acquisition efforts and its field staff is that of backlog.

The backlog measures the amount of future work in the pipeline (See: Labor Hours Backlog).

This approach smoothes out the labor hours by demonstrating how labor hours are trending and allows the field staff to properly schedule.

THE PIPELINEAligning Work Acquisition and Field Staff


http://hosting-source.bronto.com/6283/public/CDC_bidding_insights/Labor_Hours_Backlog.xls

http://hosting-source.bronto.com/6283/public/CDC_bidding_insights/Labor_Hours_Backlog.xls

An example of this metric in effect can be seen through the Associated Builders & Contractors. Their national organization has created a construction backlog indicator which they utilize to gauge the health of the construction industry.

According to the ABC, this is a “forward-looking national economic indicator that reflects the amount of work that will be performed by commercial and industrial contractors in the months ahead.”

The final metric, or rather series of metrics, measures work acquisition success. A firm can select any number of available ways to measure their success rate.

One method is hit rates – the number of jobs won divided by the number of projects bid. Another option is to measure the gross amount of contract value in a given year and compare it to previous years. Either way, being able to evaluate performance is a powerful tool.


The Stevens Construction Institute has created one index that will assist firms in measure their work acquisition activity – the Bidding Power Index. This index measures, on a graph, the two related metrics in the work acquisition process – bidding hit rate and percentage of gross profits.

Ideally, a firm will see its hit rate increase and its percentage of gross profits increase as well. However, this is not always the case. Other scenarios include:

• Hit Rate Percentage Up / Gross Profit Percentage Down – This indicates that the firm may be sacr i fic ing margins to win a greater number of clients.

• Hit Rate Percentage Steady / Gross Profit Percentage Down – This indicates the firm may have a problem with craft skill or estimating cost.

• Hit Rate Percentage Down / Gross Profit Percentage Down – This may be an indication of a worsening economy. I f the economy is stable, then this may be a reflection of poor craft skill. To compensate for this problem, the firm has been forced to cut margins and it’s still not winning their normal share of bids. This is the worst of all work acquisition outcomes.

• Hit Rate Percentage Up / Gross Profit Percentage Up – This is an envious position for the firm. The firm is winning more work and increasing gross profit margin at the same time.


http://hosting-source.bronto.com/6283/public/CDC_bidding_insights/Bidding_Power_Index_Examples.xls

B idd ing & Es t imat ing are processes that need to be data driven in order to obtain the success (profitability) a firm

seeks. The owner and management team of the firm need to devote the time and resources to developing these metrics.

Sun Tzu recognized this concept centuries ago when he wrote, “The good fighters of old first put themselves beyond the possibility of defeat, and then waited for an opportunity of defeating the enemy.”

By utilizing data to develop a firm’s overall marketing, selling, estimating, and bidding st rategy, fi rms win long before their non-data driven competitors decide whether or not to bid a project.

ESTIMATING AND BIDDINGConclusion


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