Q: We continue to get beat by 10-20% on projects using a minimal markup on product and bare bones labor. For every 10 jobs bid, we maybe get 1. What in the heck is going on?
A: From my vantage point I see companies in our industry taking enormous risks on jobs. One problem being reported in a flood of out-of-town bidders on jobs who choose to forego the pre-bid meetings. Fundamentally I have a huge problem with the CM firms allowing that. I’m also hearing about a wave of underestimated initial cost estimates causing integrators to get in under that budgeted price and/or all the bids rejected and rebid exposing all the numbers.
And it’s not always the margin on products that make you high. As we reported earlier in the year we are seeing huge discrepancies in the overhead costs as selling expenses from one company to the next. It’s important to measure your cost of doing business against others to find out where you might be misaligned with the realities of today’s competitive landscape. Remember that the traditional business model has changed.
The biggest risk I’m seeing is substitutions. Sad but true, some systems contractors play the game of submitting alternative product under the premise of being “or equal,” and betting on someone in authority stamping it “no exceptions taken.” That then opens the door for them but often leads to more legal woes than ever imagined. Here’s the situation; many A/E firms have so few staff no one has time for a comprehensive review of the submittals. On the other hand; some have so little work that they pour over submittals with relentless attention to detail. Contractors who are willing to play this game often get by, or can easily get burnt. The “no exemptions taken” type stamp isn’t necessarily a green light to install whatever you want; it simply moves it on to becoming somebody else’s problem.
My advice if you are trending at a 10% close rate is to be more selective. Only bid work when you know the consulting firm or design team. Bid work closer to home where you know the reputation of the other contractors and CM firm. Bid jobs that require prequalification and mandatory pre-bid meetings. Bid on jobs where you know the spec will stick through the submittal process. Bid on jobs where you know the rules on allowable “value engineering.” Be smart about bidding jobs that tie up your bonding capacity and credit line. Most importantly, don’t bid any job where you know that you will have to drop below your minimum mark to get it. — CW