Winning a bid in a tough economy is like squeezing blood out of a turnip, says a Texas electrical contractor. More contractors are competing for less work, which has turned the Dallas market into a feeding frenzy.
“We are probably estimating more aggressively than we ever have in the 20 years that I've been in business,” says Keith Bell, president of Intex Electrical Contractors, Inc., Forney, Texas. “Today in the electrical business our conference rooms have turned into casinos. We really roll the dice every job we take, every decision we make, and every bid we put out. My lawyer calls us the last of the Riverboat Gamblers.”
Intex shifted its focus from private to public work due to increasing competition in the design-build office warehouse market. The contractor recently wrapped up construction on a power plant and is now wiring five schools. To win the projects, Bell says his company needed to first become the low-cost provider and then devise a way to turn a profit through purchasing, partnering, productivity, and value engineering. Because the jobs are so thin, Bell has to carefully manage every dollar and plan for additional margins.
“In Dallas, there is hardly any negotiated work anymore,” Bell says. “It's a dangerous game when the economy gets like this. There are some contractors out there that have to sell the next job because they have to keep the money flowing through the company.”
Don Short, president of Tempest Co., an Omaha, Neb.-based estimating and consulting firm, advises his clients to be careful when playing the competitive bidding game.
“In a hard bid situation the low bidder almost always wins,” he says. “There is not much of a way to stand out unless you have a goofy low price, and then you don't want to stand out that way. The contractor who is just trying to take work just to keep his people busy is not being a smart businessman. If you continuously bid a job without profit, it is going to cost you your company.”
With the number of bidders skyrocketing on individual projects, some contractors are putting out numbers that are below cost, says Victor Salerno, executive vice president of O'Connell Electric Co., Victor, N.Y. But unless contractors make money on their jobs, they face the threat of going out of business. This article offers 10 tried-and-true strategies that contractors should follow in order to win bids without losing their livelihood.
- Analyze your market
Electrical contractors need to do their homework before diving into the bidding process, says Steve Chilton, executive vice president of Cache Valley Electric, which has been in business since 1915. The Logan, Utah-based contractor hired a business development employee to track down leads and meet with potential customers. “We try to be as far ahead of our competition as we can possibly be by knowing about work from the start rather than waiting for someone to call us,” he says. “We do strong business development in our area.”
- Do some competitive shopping
By learning more about the other bidders on a project, contractors can better understand how they stack up against the competition, says Short, a former president of the American Society of Professional Estimators (ASPE). Companies who want to keep tabs on the competition without divulging their bid information can perform a market bid analysis. By putting together a bid but not turning it in, a contractor can compare his number to other bidders. “They can check the market without anyone knowing about it,” Short says.
- Hire a team of quality estimators
An estimator can make or break a project, says Bell of Intex. “If the estimator makes a mistake, you are doomed from the beginning,” he says. “That's just the risk there is in this business, and that's why they call it estimating. You have a set of drawings, and one person is sitting down and discerning how many hours and how much material it's going to take to get the job done.” To minimize mistakes, Bell says he hires estimators who are detailed, thorough, meticulous, and have previous field experience. “I want my estimator to be a realist,” he says.
- Focus your bids
Select projects that best fit your company's market strengths, Short says. As a rule of thumb, contractors typically win about one out of every seven jobs. By bidding everything in sight, a contractor could be wasting valuable time and money. “You have to focus on what your market is,” Short says. “You can't just take a shotgun approach to estimating and bidding.”
- Make sure you have the adequate resources to do the work
Don't bid a project unless you know that you have enough estimators, project managers, purchasing personnel, journeymen, foremen, and superintendents to get the job done. When you win a project, manage it down to the last detail, Bell says. “Project management has become more of a key because our upfront margins are so thin,” he says. “The only way that we are making some decent profits is through cost management and project management.”
- Get your financial house in order
Contractors need to be fiscally responsible to weather the financial storm, Bell says. To stay in business, a company needs to be in a liquid position with limited liability and long-term debt. Owners may also consider a contractor's bonding capacity in a negotiated bid situation. For this reason, Short advises contractors to make sure they have adequate bonding to support a project's scope of work. “A lot of people have tightened up their margins so they are not making as much money,” Short says. “Because they have fewer assets, they have a reduced bonding capacity.”
- Don't count on change orders
Companies who bid at or below cost may no longer be able to recoup their losses through change orders, Short says. “Once you have the bid, then you're faced with trying to perform the work at the lowest possible cost while still meeting the plans and specifications requirements,” Short says. “To do that, you have to have good field and office personnel and be able to track and forecast your costs.”
- Control labor and material costs
To provide a lower bid, a contractor can look at one of two things — labor or material. One way to lower labor costs is to hire electrical apprentices, Salerno says. “There are apprentices available from the union, and we try to mix them in as best as we can to get the prices as low as reasonably possible,” he says. “You have to train the future workforce, and that's one of the ways that you do it.” The New York contractor also works closely with its vendors to try to drop material costs. “Some of them are in the same boat we are,” he says. “It trickles up and down the line. It's not just the contractors. Sometimes the suppliers are willing to drop their margins, and you have to take advantage of that and pass it on to a customer if you want to get a job.”
- Emphasize safety
Contractors who have a strong safety record can often get a competitive edge in negotiated bid situations. O'Connell Electric increased its focus on safety by hiring a safety manager. Salerno says it has paid off handsomely for the company by lowering their workman's comp rates. “It's also a good marketing tool because owners like to see that you feel as strongly about safety as they do,” he says.
- Shift to different market segments
Contractors who are continually losing bids may need to expand their reach to other markets, Short says. For example, if a contractor's business is 75% private and 25% public, but the public sector has more activity, they might want to consider shifting their focus to public work. Contractors can also branch into new market segments like home networking or photovoltaics to pump up their profits. Cache Valley Electric started a controls and automation group, expanded its teledata group, and formed a technologies group in conjunction with Qwest Communications and Sprint. “It helps us look to the future and grow our business,” Chilton says.
In the past few years, the number of bidders on individual projects has doubled or tripled in some areas, forcing contractors to lay off electricians, reduce margins on projects, or go out of business. The strongest contractors often survive, however, by finding a way to squeeze a little more blood out of those turnips.
Sidebar: Dos and Don'ts of Competitive Bidding
Ask lots of questions prior to bid day.
Thoroughly investigate the jobsite.
Have an open line of communication with your client.
Understand the scope of work.
Make sure you do your homework.
Try to put a bid together too quickly.
Get wildly optimistic.
Get caught up in the reverse auction.
Leave anything out of the bid.
Continuously bid at or below cost to keep your electricians busy.
Sidebar: Recommended Competitive Bidding Practices
The American Society of Professional Estimators (ASPE), which has 2,500 individual members worldwide, recently published a booklet of recommended bidding procedures. Here's a short list of some Q&As as noted in their report.
Q. Should prime bids be received from any prime bidder, or should bids be received only from pre-qualified bidders?
A. Many public owners are required by law to solicit and accept bids from any bidder, which meets the criteria set forth in the bidding documents.
Q. How should a bid be advertised?
A. A typical bid advertisement may be mailed to individual firms, published in newspapers or magazines, or posted in plan rooms. The ad should be circulated 30 days before the distribution of bidding documents and contain a short description of the project.
Q. How much time from the issue of bidding documents should be allowed for bid preparation?
A. Allow three weeks minimum preparation for small projects under $1,000,000 and about four to six weeks for large or complex projects.
Q. How many sets of plans and specifications should be issued to each prime bidder on a project?
A. Each prime bidder should be allowed at least four sets of bidding documents for its use and the use of some of its subcontractors and material suppliers.
Q. Should the architect or owner supply plans to the local plan rooms and plan services?
A. Each local plan room should receive, free of charge, two to four complete sets of bidding documents at the time of initial issue.
Q. Should pre-bid conferences be held?
A. Pre-bid conferences should be organized at the project site at the mid-point of the bidding period, but no longer than 10 days prior to the bid date.
Q. What constitutes ethical practices in bidding and contracting construction projects?
A. Owners should award construction projects to the responsive and responsible prime bidder that submits the low bid on bid day.