By Ed Krum
In today’s competitive market, everyone is looking for ways to reduce overhead in every aspect of their operation. This includes the basic costs associated with estimating projects.
The old adage, “it takes money to make money,” has gone out the window. The opportunities to connect with your clients, subcontractors and suppliers via the internet has changed the way most companies look at estimating.
In the past, procurement of the plans and specifications by means of either a deposit or direct purchasing was both costly and cumbersome. With the advent of electronically distributing the bidding documents either via disk, FTP site or electronic plan room, you can reduce the cost to only printing the plans you need and, in most cases, a reduced size set (11×17). This now allows the general contractor more access to many more subcontractors in various trades to ensure a quotation is received. This makes things much easier, since sorting through pages of documents is no longer necessary.
While electronic document management may seem very obvious, it takes a dedicated person to contact each and every subcontractor and supplier to remind them of the proposal required from them.
Owners, developers and other entities that bid out work are slowly catching on to benefits of electronic submissions and are now letting contractors submit their bid/proposals electronically. This change in attitude by owners has now allowed contractors to take advantage of the “late” arriving subcontractor bid, thus reducing the overall cost of the proposal to the owner among other benefits.
Although there is no sure-fire way to reduce bidding cost, prudent general contractors only peruse the bid jobs that have the best advantage in their favor of winning. While larger projects are tempting, they also draw the most bidders and, therefore, are harder to compete. This type of bidding is like throwing money away. Ardent contractors will try to find those projects where the amount of bidders is limited in order to increase their chances of being successful.
Whatever type of project you choose to bid on, electronic bidding allows you to streamline communications, check on bidding subcontractors and suppliers, and use the system for document management.
Ed Krum, Senior Estimator for Triune, is a highly accomplished, multi-talented project manager with over 25 years of commercial construction experience. He is skillful and highly regarded in value engineered, conceptual, competitive, negotiated and design-build estimates.
The Punch List is Triune’s proprietary blog for discussing issues and providing insights specific to the commercial construction industry. Copyright 2013 TMV, LLC (Triune). Any and all rights reserved.
Increasing your bid-hit ratio
By Ed Krum
Competition in business is often fierce. In order for a company to thrive, it must achieve reasonable growth by means such as increasing profitability, jobs and sales volume. With contracting businesses, one of the primary means to obtaining jobs is through bidding.
The bid-hit ratio shows the percentage of jobs bid on in relation to jobs/contracts secured. A ratio of 5-to-1 would indicate that a company is averaging one contract for every five jobs being bid upon. In a perfect world, a low bid-hit ratio, like 2-to-1, would be ideal. A company that typically negotiates their jobs creates a false bid-hit ratio because they count all work under contract vs. work that they actually bid. Contractors that get most of their jobs from bidding public works or from bidding against a long list of competitors have a higher bid-hit ratio.
Once a contractor has identified the specific customer types that he wants to pursue, there are some simple strategies for increasing the bid-hit ratio and maybe improving overall profit margins.
- Limit the Competition. Typically all contractors want to bid on projects that have only 3 or 4 contractors selected to bid. Look for opportunities where the owner procures work through a short list of bidders. Pursue potential customers where you can compete on value and qualifications. Find those owners who recognize that the services that you offer are not simply commodities meant for the lowest bidder. Such opportunities exist, but you will have to cultivate them. This strategy will definitely increase your chance of a greater bid-hit chance. Obviously, less competition equates to a higher probability for success.
- Try Something Different. Getting stuck in chasing after the same types of projects and customers over and over hurts your bid-hit ratio greatly and reduces the efficiency of your estimating staff. Be more selective, eliminate jobs with long bidder lists and pursue only the jobs where you have some type of competitive advantage. Having a strong relationship with someone on the selection committee is one example. Making this a top priority and working hard to get pre-qualified for the targeted projects greatly increases your bid-hit ratio.
- Let yourself be Known. Try not to bid projects without first getting a chance to meet the decision maker. Your goal should be to find owners that are concerned with more than just price. When you meet the decision maker, ask questions such as: a) How many are bidding? b) Who are they? c) Who won your last project? d) How will the bids be opened and evaluated? e) What is the most important factor in selection of the contractor? f) Will they negotiate?
- Limit your Affinities to Others. As a subcontractor, why not send your proposal to every contractor bidding on that project? Oftentimes trades have an affinity to one or a few general contractors and will bid only to them. While loyalty is important, you should not utilize this practice if it negatively affects your bid-hit ratio and, ultimately, your business.
In closing, these simple guidelines may prove to substantially help your company win bids, stay competitive and increase profitability, and, in an ever-increasing market, not much could be more valuable.
Ed Krum, Senior Estimator for Triune, is a highly-accomplished, multi-talented project manager with over 25 years of commercial construction experience. He is skillful and highly regarded in value-engineered, conceptual, competitive, negotiated and design-build estimates.
The Punch List is Triune’s proprietary blog for discussing issues and providing insight specific to the commercial construction industry. Copyright 2013 TMV, LLC (Triune). Any and all rights reserved.