Stop me if you've heard this one before. You get a call inviting you to bid on a project.
You schedule time to meet with him to start the estimating process. You pick up the plans and specs, you do your material take-off, figure labor costs, visit the site, figure rental equipment needs and costs, and attend pre-bid meetings. Finally, you add in enough profit so everyone makes money but the company stays competitive.
At this point, you might have already invested days, weeks or months, depending on the project, in addition to the money spent in gasoline, copying services, couriers and salaries putting it together.
Of course, all of your hard work, diligence, time, and money you spent putting this bid together will be worth it, right? Probably, if you're the winning contractor. As it turns out however, despite your best efforts, yours wasn't the winning bid. Now what?
Every contractor, including me, has experienced this. We've all invested our valuable time to assemble the most competitive bid, only to come up empty-handed.
But was all of that time truly wasted or is there any payoff to be had? I've learned a project is not mine and have never thought about it again. Why dwell on that lost project when all my competitors are out there bidding the next one? Shouldn't I chase the project?
I've learned from experience and through talking with other contractors that there just might be something to be gained from those lost jobs.
First, disregard the bizarre reasons your bid didn't win, especially on a residential job. Maybe a distant friend or relative had a chimney repointed. He can't remember the company's name that did the work, but their truck signs were red, white, and black. Your signs also happen to be red, white, and black, so the homeowner didn't want to take a chance. It sounds crazy, but it happens. There's not a lot to do but get into your truck and go to the next one.
But the commercial side of the business can be a little different. This is where you can try to get some return on your investment. So how do you know when to look back and try to figure out what happened and when to move on?
First, carefully examine the winning and losing bids. “It all depends on the size of the project and how much higher your bid is than the low bid,” says Jerry Painter of Painter Masonry in Gainesville, Fla. “It's easy when the spread between your bid and the low bid is significant. If you've been in the business for a decent amount of time and are bidding against other contractors that are experienced, the bidding should be pretty tight.
Painter uses 20% as a loose guideline. “If the bids come in and I'm around 20% higher or more than the low bidder, then I know something is probably wrong with their bid,” he says. “At that point, you check the blueprints and your math to make sure you didn't add in an entire extra building and then move on.”
You know why you bid what you did, but there is no good way to figure out what went wrong with someone else's bid. Assuming you didn't miscalculate, it's probably time to focus on bidding new work.
But when it's a smaller job, and you're in the bottom two or three and the bids are running tight, dig in and see where you can trim the excess fat.
Examine material costs
The first place to look is the unit cost of the materials. Try to find out if the people you're bidding against are buying their materials from the same vendors. Maybe they found a vendor that has CMUs cheaper by 20 cents per block. Or maybe they got a deal on their sacks of mortar or the steel reinforcement. The point is, shop your vendors around. On an average job you can start to save some serious money.
Next, look at your operations. How efficiently is the job set up and managed? You can affect your labor costs by changing the type of scaffolding. Would it be more cost-effective to use a piece of equipment that you own or should you rent it, have it delivered, and not have the responsibility and costs of transporting and maintaining it?
Also, stay current on emerging products and technologies that can save time, money, or both. This can be huge in giving your company the competitive edge.
“Unit costs and operations should be evaluated before the final piece can be addressed. That piece is productivity,” says Clint Horn, owner of Sturgis Tuck-pointing Co. in Saint Louis, who happens to also be my father and the person who taught me the business. “After a certain amount of time, you, as the contractor, should know the business and know your workers well enough that the total man-hours should be a pretty accurate part of the estimate, with not a lot of room to cut costs.”
The simple truth is that no one is going to win every contract, but in certain situations, it is worthwhile to analyze your unsuccessful bids. Interestingly, the steps you take while doing this are also the steps that the successful contractor is going to take on a regular basis anyway.
In a healthy economy, it's very important to keep your operation as competitive as possible. However, in a poor economy like we are currently experiencing, keeping your costs low and streamlining your operations are not only important, but necessary for survival.