Another company I worked for elevated the office runner to estimator. He had never even visited a construction project!
Yet I have also worked with fantastic well organised estimating teams and we won numerous projects due to our competitive pricing, our knowledge of the market and our competitors, the quality of our bid submission and our relationships with the customer – more importantly these projects were profitable.
I certainly wouldn’t like to be an estimator. Preparing and submitting tenders/prices/quotations day after day with little reward. A large multi-national construction company I worked for had an excellent estimating department and we were frequently complimented on the quality of the bids we submitted. Yet even with this expertise we only won around 10% of the projects we priced. We checked this over the years and our success rate was always around 10%, whether measured by the value of the work, or the number of projects, we won.
But estimators don’t just have to deal with this low success rate they invariably get blamed for losses and mistakes with their price on the projects the company wins. Listening to most construction managers it would seem the price on their projects is always riddled with errors – all costing the job of course! Seldom do construction managers compliment the estimator for their good work or for a well-crafted bid. You never hear of the positive errors in the price – errors that actually mean that the project will make more money than expected. A profitable construction project always seems to be only because of the construction team.
But are estimators solely to blame for the low success rate and are all the errors in the price only due to the estimator?
Who is responsible for the success of tenders, bids and quotations?
Management role in winning projects
Management plays a key role in winning work by:
- Ensuring that the estimating department has sufficient resources and experienced estimators.
- Gathering market data, which includes:
- Understanding the pipeline of work that will be coming out for pricing. Knowing this they can ensure that when work is scarce the company reduces profit margins to secure the work, while when work is more abundant they can become more selective with the projects that they bid for and also increase profit margins.
- Understanding the opposition – This includes how busy they are, what projects they are involved with, the type of projects they are looking for and their likely level of profit they’ll add to their price.
- Selecting the right project to price – projects where the company will be most competitive, projects that might grow in scope or lead to further work and projects which don’t have excessive risks.
- Discarding projects (early in the bidding process before estimators have committed too much time on the project) so the estimating team isn’t overburdened with pricing projects that aren’t suitable, ones the company has a low chance of winning, or projects that the company doesn’t have the resources for.
- Talking to prospective customers to ensure that the company will have the opportunity to price their next projects. Building good customer relationships is essential for every construction company.
- Developing new markets, engaging new customers and moving away from difficult customers and markets that are overly competitive.
- Supporting the estimating department with the right resources to submit a winning price. This might include delegating project managers experienced with the type of work to assist the estimating team.
- Selecting a reasonable profit margin which won’t make the price uncompetitive but one which will maximise the company’s profits.
- Reviewing bids before they are submitted to ensure that the company has sufficient resources, the contract conditions are acceptable, there aren’t excessive risks, the estimating team has come up with the best construction methods and there aren’t obvious errors in the price and construction schedule. This review process could include developing alternate proposals which could provide the contractor with a winning edge.
Many project managers perceive their role to be only about getting a project finished on time while maximising profits. But project managers can play an important role in winning new work (or losing work). But their role is more than this and includes:
- Ensuring that customers are satisfied. Customers don’t just want their project finished on time but they also want to deal with a contractor that creates the least problems for them, one that is a pleasure to do business with and one that delivers a quality product that they perceive as being of fair value. Most of my projects resulted in repeat work and for some customers we were their preferred contractor. That didn’t mean that we were compliant or didn’t submit variation claims. To the contrary, most of my projects increased in scope and had numerous variations and almost all of my projects were profitable, frequently exceeding the original expected profit margins. Yet, customers were prepared to pay a premium for us to build their next project.
- Providing constructive feed back to the estimating department. This doesn’t just entail telling the estimator where they made mistakes costing the project money. It means giving the estimator production figures for labour and equipment. It may mean that the estimator can cut some of their rates in future bids which might mean the project manager has to work harder on the project to ensure it’s profitable, but, cheaper rates in the next bid and quotation may just mean the difference between winning and losing the project. It’s also important for project managers to keep the estimating team informed of new suppliers and subcontractors that performed well on the project and should be approached to price other work. Of course the estimating department also needs to be aware of those subcontractors and suppliers who should be avoided.
- Project managers are constantly interacting with customers, designers, engineers, project managers, subcontractors and suppliers. They often get to hear of new projects long before management does. These potential leads to new work should be followed up and passed onto management.
- Project managers have the opportunity to build relationships with the customer and the customer’s project management team. We won many new projects, even when our price wasn’t the lowest bid, simply because the customer wanted to work with our team who they trusted and enjoyed working with.
- Project managers who have a good working relationship with customers often understand what they are looking for on their next project. These bits of information can be invaluable in ensuring that the bid meets the customer’s requirements.
Submitting the lowest price doesn’t automatically ensure that you are going to win the work. Customers often look at more than just the price. Savvy customers check that their contractors have the ability, experience and the resources to deliver their project to the required quality, without incident, with the least problems and on time. Contractors need to ensure that their price submission can satisfy all these requirements, convincing the customer that their price is the best (even though not necessarily the cheapest).
After examining the various prices customers often ask bidders questions to clarify and confirm the contractor’s price. Sometimes these questions are designed to get the contractor to reduce their price, but frequently they are just to confirm details and allay fears, ensuring that each contractor has priced the same products. It’s important these questions are dealt with promptly. Management may have to provide additional support to the estimating team and should certainly be consulted when the customer is looking for a discount or when the customer is materially changing the conditions or scope of the project.
Many customers summon bidders to clarification meetings to further discuss the contractor’s price. It pays for contractors to be prepared for these meetings. As managing director of a construction division I always attended these meetings with the estimator. In many cases we took our proposed construction project manager and, in some cases, other key members of the team. If we knew that the customer placed extra emphasis on safety, scheduling or quality we would ensure that we included the relevant experts in our negotiating team. Indeed, I know when leading our team on many occasions we persuaded the customer we were the best contractor for the project. Unfortunately, I’ve no doubt that on some occasions I blew the negotiations and we walked away empty handed. But, being at those meetings gave us an opportunity to sell our company, and we could better understand any doubts and concerns the customer had with using us, enabling us to present a case as to why these doubts and concerns were unfounded.
We depend on our estimators to bring in a constant stream of profitable new projects. They are the engine room of every construction company and the rest of the company depends on them. But the estimating team cannot win projects alone, without help. They need the support of management and the project teams. It is a team effort to find new projects to price, then to submit a winning bid and finally negotiate a successful project award.
In your company who is responsible for securing new projects?
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This article was first published in estimators playbook and written by Paul Netscher
Paul Netscher is the author of the popular books 'Successful Construction Project Management: The Practical Guide' and 'Building a Successful Construction Company: The Practical Guide'.'Construction Claims: A Short Guide for Contractors' has just been published. These books are available on Amazon and other online book stores. Paul publishes articles regularly on LinkedIn and his website.
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Paul writes regular articles for other websites, gives lectures, mentors, and is available for podcasts and interviews.
© 2016 This article is not to be reproduced for commercial purposes without written permission from the author.