I recently found myself in a discussion with colleague of mine who, like me, has for many years been employed as a construction estimator and project manager. Out talk centered on whether a good construction estimator was merely a “technician” who was simply more detailed and skilled in the nuts and bolts of compiling an estimate, or whether there was more to the picture. We both easily agreed that nothing could replace sound, technical experience and attention to detail, but then we went on to explore what we called certain “human intuitive qualities” that separate the good estimators from the truly great. We then attempted to identify qualities; the professional and (perhaps more important) personal traits that often separate the two levels. It was an interesting conversation, and soon it became evident that though
seldom discussed, there’s clearly far more
that goes into winning in the construction
estimating game than good estimating
alone. You also have to know
how to bid.
Estimating Versus Bidding: Sticks and Stones
So what’s the difference between estimating
and bidding?, you may ask.
Aren’t they essentially the same thing? Risk and Reward
The answer is no. Estimating the cost of
a construction project whether it be
the smallest garden sheds or the most
massive skyscraper is still at any level
only a game of Tinker Toys’. It’s the
gathering, organizing and presenting of
many pieces to make a whole, and to
ultimately arrive at a cost for that particular
project. Period. The estimator has
gathered up (what is commonly called)
the direct costs (the cost of the actual
“hands-on” construction), general
requirements/conditions (the cost that
is not directly attributable to the physical construction itself; think of it as
“hands-off” construction, like the field,
trailer, phone, transportation costs) and
indirect costs (the cost of performing the
business of construction—costs such as
bonding, insurances, office overhead,
labor burdens and so on).
Let’s call all these numbers the “body” of
the estimate. Once the number is determined
and every effort has been made
within the individual line items to be as
complete and competitive as possible,
the number rendered is, for all intents
and purposes, finite and dormant. The
estimating exercise is finished. With the
body finished and already as competitively
priced as the estimator’s talents
allow, all that awaits is the addition of a
percentage most often referred to as
profit margin.
Yes, I know people calculate profit margins
in different ways. Different criteria
are often used. And sometimes (sadly),
no criteria are used. But for our purposes
and for clarity, we’ll view the margin
percentage as that which is enough to
potentially obtain growth for the company’s
future and to allow for specified
personal and professional goals.
It was here in our conversation where we
felt that things were really starting to get
interesting, because this is where the
human factor took over. Here’s when the
sweating really started. It’s here where
the estimate become a bid.
Risk and Reward
Unlike the term ‘estimating,” “bidding”
carries with it the implication that you
(the contractor) are indeed going after
the job. You want the work. You may
even need the work to keep your people
working and crews loyal to ensure them
not wandering off seeking steady work
with your competitors.
But herein lies the dilemma in determining
that final percentage: You’re now
faced with the challenge of having to be
comfortable that your proposed margin
is safe enough to be profitable and helpful
to your company (should you win),
yet still aggressive enough to win the
work without accepting an irresponsible
level of risk against your business should
something run afoul during the construction
process. Believe me, this is not
an easy determination. But the bid
deadline rapidly approaches, and that
very decision is in your lap. Now you’re
faced with the (paradoxical?) task of not
being overly aggressive while at the same
time not being too passive.
So it’s time start feeling. It’s time to add
a little human element and employ
some of those human “intangibles”
that can’t be taught. These are those
indefinable elements such as how you
feel toward the market all around you,
or how you feel about the passiveness/
aggressiveness of your competition
. . . or even how you feel about the
potential players with whom you’ll be
involved, should you win.
There’s much to consider and digest, but
time is growing short. Your base, lifeless
estimate number at the bottom of the
paper awaits your decision. It’s time to
adjust margin accordingly, and it’s time
for strategy, experience, instinct and
(sometimes) just plain ol’ “guts” to take
over.
Breakdown: “Human” Considerations
I know this all may seem a bit nebulous
in concept, so let’s see if we can identify
some of the items to which I refer. Let’s
examine further some human “intangibles”
that I’ve encountered over the
years—those additional considerations
that “fall outside the spreadsheet” and
that turn an estimate into a bid:
The Players. If you win the project, how
well do you work with the potential
people and firms who will make up the
construction team? Very often you’ve
had previous experience good or
bad—and you know that working with
one architect can be a cakewalk while
working with another can be a trip to
hell. The same goes for the owner,
inspectors and jurisdictional regulators.
What about that city’s engineering
department? Are they going to run you
through hoops and not return your
calls? What about the subcontractors
and/or suppliers with whom you’ll be
working? Have you had a bad experience
with a proprietary supplier in the
past? Has a particular subcontractor (the
one you listed on your bid form) been
petty with change orders and demands
in the past? The point is, there really is a
difference among building teams, and
those differences do (sometimes vastly)
translate into money. They affect your
potential margin during construction,
and it’s only now, during the bidding
process, that you can adjust your margin
to accommodate the costs associated
with working with just such a brood.
Ugliness (The Project Itself). Sometimes
you get a project that just looks
plain “ugly.” I use this term a lot and
people laugh, but I think most estimators
know what I’m talking about. These
are the projects where (for instance)
accessibility to the work is difficult or
many of the details on the plan have
(what could be) hidden consequences
that linger ominously in your mind,
even though they’re not delineated in
the documents. These often include jobs
with a lot of “selected demolition” (sawcutting,
knocking out for new
doors/windows/vents, etc.) or “scary”
subterranean details where (if you’ve
been in the business awhile) you know
anything can pop up. The ugly jobs are
the opposite of a nice, cleancut brand
new block building on a nice rectangular
new slab—straight-forward and
clean. Assuming there’s no clear cut contingency to cover such costs and take it from me, contingencies, if even present,
are never clear cut I’ve adjusted
profit margins according to “ugly.”
Ugliness (The Bidding Documents). I
could write a book on this, but my experience
certainly has been (and many others
have told me the same thing over the
years during my speaking engagements)
that there is a vast chasm between the
best and the worst of architectural/engineer
documents. These bidding docu-ments
most often include a set of working
drawings and a specification guide
and the quality, completeness and accuracy
(or lack thereof) can definitely
effect your margins. Personally, I’ve built
projects from documents that fall into
any of these categories:
Detailed, complete and accurate. My
hat’s off to these firms.
Detailed, complete and entirely inaccurate.
This includes specifications that
don’t match the drawings, working
drawing pages that don’t mesh with other
pages, detail notations that lead
nowhere, cross-sections/specifications
taken from boiler-plate books circa
1890, structural elements held up by
“magic” and much more.
A growing favorite: You get the
architectural pages but with no reference
as to how electrical, HVAC, plumbing
or equipment will fall into place. (Phone
call: “Oh,” comes the reply. “We’re
gonna ‘design/build’ those aspects.” Uh
huh.)
“Renderings,” as I call them, of what
the designer wants the project to eventually
(kinda’) look like. Hardly more
than outlines, with little or no detail . . .
often on 8-1/2-by-11 paper or napkins.
And yet, with all this variation, we contractors
still bid on and even take these
jobs because of (say it with me):
Market Competitiveness. How competitive
is this bid going to be? Are there
three bidders? Six! Twentyeight? True
note: I actually bid and then attended an
open letting with 28 bidders. Now ask
yourself, “Would you really want to be
the low bid out of 28 bids?” I thought
so. But the number and quality of your
competitors can affect your thinking
and often play a role in determining that
final proposed margin.
Your Own Need for Work. Most any
contractor will admit that there have
been leaner times when the only important
thing to do at the time was to sacrifice
margin in order to get the work
and keep crews and staff loyal and busy.
And I’m not sure this is a bad thing. If
it’s applied wisely, it can be sound business.
If it happens too much, that clearly
signals something is wrong and that a
thorough re-examination of processes is
in order.
Your Goals
How badly do you want to work with
this new owner? Sometimes, it’s just
good business to get your foot in the
door. Yes, I know some people call it
“low-balling,” but let’s face it: It’s certainly
no secret. It’s done all the time,
and sometimes it works. The danger, of
course, is that if it’s only a one time
affair, you’ve only given a job away with
little margin.
How badly do you want to work with
this new architect? Particularly in commercial,
A/E firms control the front end
of many meaty construction projects
and therefore it behooves the contractor
to get in their good graces. In many
locales, there’s only one or two major
architectural players who handle the
majority of work, and they keep a “preferred” bidders list that’s handed out to
the owners who bring them projects.
How badly do you want to beat a competitor?
Is your competitor someone
who has taken the last four jobs away
from you? (Admit it . . . you’ve done it!)
How badly do you want to increase sales
volume? Even if it means a decrease in
profit? Depending on your business philosophy,
there are some contractors who
strive to reach a certain sales plateau
before focusing on profit and processes
alone. I find this a bit backward myself,
but I’ve known many contractors who’ve
taken just such an approach. With some,
it’s worked tremendously well, and the
others are out of business.
Now this is just a sampling, but I think
you get the picture. Clearly there’s more
to bidding than simply adding up numbers.
We’re in a service industry that is
arguably more social than it is technical.
Human intuitiveness and life experience
is paramount to success and often spells
the difference between being a winner
and being an also ran. I don’t know
about you, but for some reason, that’s
comforting to me. With the advent of
computers, powerful software programs
and automation that does everything but
dress you in the morning, it’s nice to
know that we puny humans still play
some role in this whole thing.
About the Author
S.S. Saucerman retired last year after 26
years in the construction industry. He
also taught part-time in the Building
Construction Technology program at
Rock Valley college in Rockford, Ill., for
11 years. Today he is writing, speaking
and consulting on a full-time basis.
