How to Successfully Bid for Profit

Fri August 18, 2006 - National Edition
Michael W. Benton

When bidding, do you want your company to be known as a McDonald’s type of bidder for which lowest price is the objective, or do you want to set your company apart as a quality or Ruth’s Chris Steak House brand of bidder seen as a “valued subcontractor” that can be trusted to perform the job with minimal problems?

The reference to McDonald’s isn’t meant with disrespect. McDonald’s competes — and competes well — in a market of “the lower the price, the better,” while maintaining quality. Ruth’s Chris Steak House, on the other hand, competes with high-end restaurants that normally strive to deliver value, irrespective of price, which usually means it is not the least expensive alternative for the customer.

If successfully bidding for profit means getting profitable work of the kind a subcontractor wants, then the subcontractor’s estimator or estimating team must know that this is the subcontractor’s objective, and the subcontractor must be able to accomplish the work.

Know Thy Competition

The art of bidding revolves in part around pure economics; however, successfully bidding for profit requires a subcontractor’s estimator or estimating team to be more than a bid provider. An estimator needs knowledge of the products/services that his or her company provides. Moreover, an estimator needs a keen awareness of market conditions and especially the competition.

Markets with work force and materials shortages provide examples. If an estimator knows that the competition is swamped with work, the subcontractor can take a job at a better profit margin because it has the advantage of being able to staff the job. An estimator may also know how to get materials that are in high demand on a timely basis for the project. A customer that wants to get the job done on time and with minimal problems will happily pay a higher price just to get the work done.

A subcontractor that sells on value and not just price can and should increase prices (profits) even if it frequently charges more than a competitor does. This subcontractor may well be able to avoid hard-bid situations altogether.

Estimators have a number of sources they can tap for market intelligence, such as supply house sales people, who know which companies are bidding and performing work. Often, these sales people are required to send in weekly reports on which companies are doing what jobs, and work anticipated to start within 30, 60 and 90 days — even a year.

They also hear local gossip such as who is relocating to what company. Outside sales people are an excellent source of intelligence gathering, and they are usually happy to share this knowledge when they visit a subcontractor.

Another source of information is association meetings where people share their knowledge of industry conditions with peers and associates. Local chapters of the American Society of Professional Estimators and the American Subcontractors Association meet monthly in most of the larger metropolitan areas.

Know Thy Customer

An excellent estimator will have not just general knowledge about market conditions but also be intimately familiar with clients. He or she will have the skills to negotiate “on the fly” and give the subcontractor a more complete picture of how to acquire work that it actually wants to perform. This is far more than a mere “bid provider” could ever provide.

When work is plentiful, an estimator’s relationship with the subcontractor’s preferred general contractors/at-risk construction managers can be invaluable. If the Prime contractor’s staff believe in one subcontractor’s abilities more than another’s, then the former subcontractor will have value that can supersede price considerations. The excellent estimator will know this about the prime contractor’s staff and capitalize on it.

Consider the situation in Florida, where many general contractors are not “hard-bidding” any projects. There is too much work, not enough labor, and it’s difficult to obtain materials at reasonable prices. As a result, general contractors have raised their margins and will only negotiate against one or two other contractors, at most.

If an owner/developer insists on the old-style five or six bids, most contractors decline the opportunity. The most successful general contractors are doing design-build or negotiated work only. Their preferred subcontractors are aware of what this situation means for them: They will invariably need to provide the extra service that comes with the “preferred” status.

For example, the prime contractor will count on its preferred subcontractor to get the best prices for materials and propose cost-saving construction methods. The working relationship becomes a team effort by result, even if not by design.

The estimating team’s ability to show the subcontractor’s value is even more important in a highly competitive market in which work is scarce and profitability decreases. A good negotiator on the estimating team will strive to show value in the bid package , such as the ability to communicate using the prime contractor’s electronic project management system or to implement cost-effective safety strategies.

Subcontractors that have followed the Ruth’s Chris Steak House model and established their value can still compete even if their margins shrink a little.

In general, there are only two situations in which a subcontractor cannot rely on its service “intangibles” as advantages when bidding:

• on public work where the lowest sealed bid is used and

• in dire economic times during which companies take work at-cost just to keep their doors open and create cash flow.

Delivering as Promised

If your company is committed to bidding for profit on value and not just price, probably the biggest challenge it will face is the ability to deliver the work it promises. Increasingly, the successful bidder is the one with the work force that can perform the work.

Consider Microsoft, which is running a commercial that states that all their competitors have everything they have — efficiency, the latest and greatest technology, lean and mean aggressive corporate strategies, etc. The camera focuses on the employees, and asks, “What sets us apart?” and responds, “We have them.”

The message this ad delivers is: Never underestimate the value of the employee to the company.

Subcontractors that want to successfully bid for profit need to exercise some creativity to encourage employees to stay with them, no easy feat given the “X” generation’s indifference to corporate loyalty. An employee retention plan will involve training, advancement opportunities, compensation and incentive programs, and more.

Armed with a knowledgeable estimating team and a work force that can perform the work, a subcontractor will leave the competition “in the dust.”

(Michael Benton is principal of Benton Construction Services, New Port Richey, FL.)

(Reprinted with permission from the 3rd Quarter 2006 edition of the American Subcontractors Association’s quarterly educational journal, “The Contractor’s Compass”

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