You are patient zero: How to diagnose and cure your bidding maladies

by Dave Wolfenden, CPA, CVA, MS, Managing Director

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Many people outside construction think the hardest part of the job is the labor required to build or renovate structures and infrastructure. But insiders know the toughest part is often bidding on the project itself.

No matter how strong your body of work might be historically when it comes to winning bids, any system can break down over time. The good news is that the cures to your bidding maladies lie within your construction company alone. You are patient zero!

Here are a few diagnostic questions to ask yourself and your leadership team regarding how you might become a healthier enterprise in this area.

Are we moving fast enough?
One of the easiest ways to win more bids is to submit first — before the competition does — so that your proposal becomes the standard against which others are compared. To get early leads on jobs coming down the pike, tap into your professional networks regularly and visit online construction bidding marketplaces.

When it comes to creating the bid, which admittedly takes time, there are ways to standardize and streamline the process, such as by creating templates that allow you to plug in numbers and see projected results, rather than crafting each proposal from scratch. Technology tools, such as estimating software, also can help to speed the bid process and increase accuracy.

Are we building relationships?
Keeping a detailed database of past clients and projects enables your staff to easily identify key contacts as well as find optimal projects to reference for a proposal. This can lay the groundwork for a successful bid because you’ll be building on previously established relationships.

In cases where you’ll be working with a new owner, take the time to research the client (assuming it’s a developer or business) and look at some of their past projects to better understand their priorities. Doing so could make a key difference in helping you tailor a bid that fits the owner’s style and needs.

In today’s technologically based business world, it’s easy to get in the habit of communicating electronically. As feasible and appropriate, set aside the time to pick up the phone and talk to decision-makers about their project expectations and why your proposal is the best solution. Face-to-face meetings are even better.

Are we setting ourselves up to win?
Ensure that you’re bidding on jobs that are profitable and that you have a high chance of winning. Avoid projects that are outside of your construction company’s niche or area of expertise, or that are in locations where you simply won’t have the workforce or resources to successfully fulfill requirements.

It’s also a good idea to refrain from bidding against a large pool of competitors. This scenario lowers your chances of winning and may tempt you to bid too low and potentially lose money if you win the project, after all.

In fact, consistently coming in as the lowest bidder is usually a recipe for profit-margin disaster. Owners will generally pay more for value if you can clearly show them how you’ll provide it. To that end, identify what you do better than anyone else — whether it’s your stellar safety record, excellent customer service, unparalleled niche expertise, vast experience, or all or some of the above. Find ways to clearly communicate these advantages to owners without being too heavy-handed.

Do our estimates reflect true job costs?
If you don’t have a complete understanding of costs, both direct and indirect, you could either be selling yourself short or overinflating the numbers. The former results in projects costing more than anticipated, and the latter may make the overall price less competitive when bidding. Either way, you risk losing either profit or jobs.

Naturally, project estimates should be as close to the final job costs as possible. One way to ensure accuracy is by using methods such as job costing or activity-based costing to place price tags on individual jobsite tasks or activities based on the resources each consumes (for example, materials used, equipment hours or labor hours).

Those jobsite activities then become line items that you can easily add or delete if the scope changes. Your estimators can divide the project into defined tasks/activities and add up the cost estimates of those activities for an overall project estimate.

It all begins with bid-hit ratio
A bid-hit ratio is the rate at which a construction company successfully bids on projects. For example, a 6:1 bid-hit ratio would mean that, for every six jobs you bid, you’re winning one project on average. What’s considered a good ratio is often subjective, because it depends on the size of your business, your specialty and the competitive level of your market. Nonetheless, knowing your bid-hit ratio can help you measure the success of your bidding process.

If you follow your bid-hit ratio over time, you may discover patterns in the types of jobs you’re winning, where they’re typically located, which clients are giving you a higher percentage of their work and even which competitors are consistently outbidding you. As you track these data points, you can create a breakdown using various categories — such as customer, project type, location, competitors / number of competitors and profit margin — to determine the kinds of jobs you have a high chance of winning, as well as which projects you should avoid.

Overall well-being
Just as a physician needs to ask questions to begin diagnosing a patient, you and your management team can pose these and other questions to improve the overall well-being of your bidding process. Of course, a doctor may consult specialists, and you can rely on your CPA to help you crunch the numbers that lead to better bids.

We welcome the opportunity to put our construction industry expertise to work for you. To learn more about how our firm can help advance your success, please contact Dave Wolfenden at (302) 254-8240.

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