Competitive bids are essential in winning construction contracts, but making them competitive might require adjusting the estimate.
In construction, there is a natural and continual conflict between thorough estimates and turning in competitive bids. In a way, many contractors delude themselves when they rely on spotty estimates, thinking that if they include what it will really cost for the project, they won’t win the bid. But that sets up a scenario where if they win the bid they’ll have to:
- make up for unaccounted costs through change orders, materials selections or other means; or
- rob money from overhead to make up for shortfalls; or
- loose money.
Accuracy Supports Competitive Bids
When estimates are highly accurate going into the bidding phase you have a true picture of what the project will cost. That’s not to say there isn’t any chance to change the cost so you deliver a competitive bid. But if you don’t know the real cost because your estimate hides it, you won’t know to look for cost adjustments.
One key way to adjust costs before the bid is to work backward from your complete and thorough estimate. Suppose your estimate shows the project costing $500,000. Take some steps to determine if yours is a competitive bid.
- Isolate similar projects you’ve done in the past and compare their final costs to the estimated cost of the project you’re bidding on.
- Look at the owner’s track record to see what they’ve built before, how those other projects compare with the one on the boards, and if possible what those other projects cost.
- Compare the final costs of projects built by others to the one you’re bidding on.
- Use national, regional or local cost data from similar projects to see how your estimate on the pending project compares.
Find the Savings
Now, looking at your research you see a more competitive bid might be $475,000. Go through your estimate looking for items that don’t directly affect function and form. For example, scrutinize the items under general requirements. Are there alternatives to temporary facilitates and controls that would cost less without compromising operations or safety? How about project management and coordination? Are there places within that category where you can use more efficient methods or tools to reduce those costs? Other places to look at closely, include:
- Progress documentation
- Quality control
- Product Requirements
- Execution and closeout
You do these kinds of adjustments directly to your estimate so they get reflected in your prime bid, as opposed to being offered as alternatives to your prime bid.
Optimize Cost with Function
Next, look for places where you could save money if the owner agreed. Maybe collaboration tools you use would reduce the meeting requirements. Maybe there are other options that could replace or reduce the number of mockups. Some might say this is a form of pre-bid value engineering, and they’d be right. The idea is to deliver the same value, but at a lower cost than what you know it would really cost. You’d normally provide these options to the owner as alternatives to your bid.
When you get done with this process you’ll have a prime bid that is as close to the competitive number as you can make it. Then, you’ll also have one or more alternatives that hit the competitive number, or, are lower than that number. You’ll also be secure knowing that if you win the bid, you’ll have a very high chance of delivering it profitably.