How can you overcome the challenges and win in the projects’ competitive bidding battlefield?!
Let’s say you work for a contractor organization, and your organization decided to bid for a large-scale commercial project tender that a renowned client has floated. Tensions are high, and as a contractor, you face a massive uphill battle in front of you.
You have to wage war with several other bidders competing with you for this project and work around so many unknown factors and risks to create bid estimates. These unknown factors or risks force you to make assumptions and plan contingencies that could drastically impact your ability to win the bid.
Sometimes you might find yourself going in blindly into the competitive bidding, not knowing what you are truly getting into, only to find out things are not really like you thought them to be.
There are other times when you did all the right things but lost the bid to a competitor after having invested a lot of effort into this process, which can get very disappointing.
Bidding for a project is a battle where at the end of it all, only one wins. So, you need to understand the challenges and learn the right strategies and tips to help you during the competitive bidding process and make you emerge as the winner.
We had Bill Canterbury, CEP, PSP, PRMP, CCM, a Cost Estimating SME, and the President of Canterbury Construction Management Services joining us for a LinkedIn Live session exploring this topic and answering some great questions that were put across by the audience. Watch this video for more details or continue reading.
Let’s explore the tips and strategies that Bill shared with us about competitive bidding best practices based on his decades of experience in the industry.
Assumptions and Contingencies in Projects Competitive Bidding
Cost estimating is one of the most significant challenges you might face while bidding for a project.
On the one hand, you cannot overprice because that would mean that you probably would not be winning this bid. While on the other, you absolutely cannot afford to under-price the project because you might win the bid only to realize later that you are in deep trouble and cannot turn a profit from the project.
It’s difficult for cost estimators to find the right balance.
To top it all, most times, cost estimators don’t have much information to work with in the first place due to unclear specifications or technical drawings.
The ideal situation would be to have 100% of all the engineering drawings, technical specifications, and other documents early during the bidding phase. This would enable you to estimate costs and plan contingencies better, but sadly this doesn’t often happen in the real world.
Instead, you might receive a set of drawings and technical specifications from the client that is certified as 100% complete and issued for bid, only to realize that this isn’t the case and you only have around 80% of the drawings. As you start reviewing the drawings and specifications, you begin noticing missing pieces of information critical to estimating costs.
This forces you to gather assumptions about the project while preparing the cost estimate and planning contingencies.
So how can you go about this issue?
Assess Project Scope Definition & Assumptions
The good news is that there are recommended practices from organizations like AACE International that have developed estimate classification systems specific to different types of construction projects with rating systems in place to classify based on phases and stages of project cost estimate together with project scope definition maturity and quality matrix.
The CII (Construction Industry Institute) based out of the University of Texas also offers a very powerful and easy-to-use tool called the PDRI (Project Definition Rating Index) that helps you to measure the degree of scope development and quickly identify project risk factors related to desired outcomes for cost, schedule, and operating performance.
Alternatively, Independent Project Analysis offers a similar benchmarking system.
These tools will help you better determine the assumptions you have to make and the contingencies you have to factor in, while bidding for a project.
Prepare the Basis of Estimate (BOE)
You should also develop a Basis of Estimate (BOE) document based on AACE recommended practices to quantify and record all the factors, including assumptions and clarifications on which you are basing your estimate.
Getting the BOE across to the owner or engineer along with the cost estimate and bid documents ensures that you have communicated your assumptions and clarifications, making yourself safe from surprises later on.
Review Bid Documents, Ask Questions, & Seek Clarifications Before Making Assumptions
Sometimes, as a contractor, you might receive documents from the engineer or the client where a lot of the information might be scattered all over and may not be consistent. Let’s say you noticed several items in the specification document not captured in the corresponding technical drawings. In such situations, it is crucial that you, as a contractor, start asking questions and clarifying these discrepancies before making assumptions.
As a cost estimator, it is also imperative that you review and analyze all the bid documents early on. Make sure you utilize the opportunities available during the pre-bid and bidding phase to ask for clarifications rather than going into the project with assumptions that could be costly for your organization later.
If the quality of the bid documents is poor and you don’t have much of the needed information, you probably would have to make several assumptions. But before you do that, set a threshold and identify those big-ticket items crucial to estimating and planning and clarify them.
Don’t be afraid to ask questions. This also ensures that you are not taking on too many risks in the project. Even if you don’t get a proper response, at the very least, you have documented proof that you requested more information which will later support you during cost variations claims during the project.
Competitive Bidding and Under-pricing by Competitors
Now more than ever, there is an increasing trend for contractors to under-price their bids deliberately to win new projects.
Most times, contractors that engage in such practices will face problems with cash flow and profitability once they are on the job and suddenly realize that this was a mistake. This often leads to low-quality standards, disputes, and unwarranted variations. The discrepancies are sometimes so significant that organizations that follow reasonable cost estimating practices cannot match when it comes to pricing.
While you may face these challenges and lose out on new projects due to your competitors’ under-pricing, you must ensure that you don’t follow similar practices as an organization. At the same time, you must put your best price possible and research your competition.
It is also equally vital that you don’t put forward a very low bid just to beat your competition and win the project. While it may bring short-term relief, in the longer term, the contractors that win projects by under-pricing are in jeopardy of losing out on a lot of money and taking on unnecessary risks which will impact their business.
To avoid all these under-pricing issues in competitive bidding, ensure that you plan and follow cost estimating best practices to come up with the best price possible that your organization can offer while accounting for necessary contingencies and profit margins.
Competitive Bidding & Significant Barriers to Winning Large and Medium-scale Projects
There can be a lot of barriers that come in the way for contractors to undertaking medium or large-scale projects.
Based on the delivery approach, barriers to winning the project can differ. For project delivery methods like Design-Build or Construction Management at Risk, the focus is more on the quality than the price. The client may still evaluate you based on the percentage overhead or profit margins you have considered in the bid, but the weightage for the price will be lower than that of quality in most cases.
One major challenge that can prevent you from winning a large or medium-scale project is funds.
Based on the metrics and standards that investment banks or bonding companies have, you might not be eligible to receive the funds or surety you need to undertake the project.
However, above all this, you as a contractor must self-evaluate your capabilities, capacities, and expertise to undertake a project of this size.
Evaluate your available resources and assess if you have the right team to drive a project of this size forward. Also, make sure that you have the right systems and processes in place that are required to take up more significant projects.
Often, contractors bid for projects beyond their capabilities and risk-taking capacities, only to realize later when it’s already too late that they shouldn’t have taken up this project in the first place.
Evaluation of Project Bids By the Owner Organizations
Ok, now you have finally submitted the bid documents to the owner after going through many hurdles and investing a lot of time into planning, risk assessment, cost estimation, and many other activities to get all this together.
The next step is for the owner organization to evaluate all the bids submitted.
As you anticipate and wait patiently for the bid results, it helps to understand how the owners asses these bids and award a project.
Owner organizations are aware of the various challenges they face, including contractor under-pricing, among many others. Owners would give preference to collaborating with contractors with whom they already have a good working relationship and a great track record.
As we discussed before, if the project follows an alternative delivery approach, then there is a high probability that the focus is given to quality over price to maintain good work standards and avoid issues later on.
Sometimes there are bids where the contractor might look good on paper, so owners utilize opportunities in collaborative project delivery environments to interview contractors to validate and analyze contractor’s capabilities, capacities, and expertise to undertake such a project.
By law, the project award goes to the Lowest Responsive and Responsible Bidder, complying with all of the bid requirements, whose past performance, reputation, and financial capability are acceptable, and has offered the most competitive pricing.
Owners can also ask for a pre-qualification statement from the contractors to weed out ineligible contractors right at the start before moving on to the bid process. This saves time, money, and resources for both contractor and owner. Sometimes owners can also request for a statement of qualifications to be submitted along with the bid to evaluate the qualifications that deem them capable of executing this project that you are bidding on.
Another practice that owners implement is on-call contracting, where a contractor is selected and deemed qualified by the owner to help execute projects for a specified number of years and project value based on your experience, past performance, achievements, and capabilities.
Summary
The project competitive bidding process can be challenging for contractors, and it is always an uphill battle right from the moment the tender is floated till the bid is awarded.
Many unknowns, including missing information, unclear specifications, or incomplete technical drawings, sometimes force contractors to make many assumptions during cost estimation. This leads to the contractor taking on several risks during the project execution phase.
Recommended practices from AACE like the estimate classification systems, the PDRI from CII, or the Benchmarking System from IPA enable you to determine your assumptions and the contingencies you have to factor in, while bidding for a project.
The increasing negative trend of contractors under-pricing their bids to win projects is also a significant challenge. This is a bad practice. As a contractor, you should plan and follow cost estimating best practices to come up with the best price that you can offer for the project taking into account contingencies and profit margins.
If the project follows an alternative or collaborative project delivery method, the focus of the bid is on quality and not on price. As a contractor, it is also essential for you to evaluate and assess capabilities, capacities, and expertise to ensure you can undertake this project. This will prevent contractors from taking on unnecessary risks that can impact later on during the project.
Owners, while evaluating bid documents, base their selection on several factors. In most cases, the Lowest Responsive and Responsible Bidder wins the project. They also employ other techniques, including requesting for pre-qualification statement or statement of qualification to weed out ineligible contractors.
While there are several challenges for contractors in the bidding process, knowing these strategies and tips to overcome them can help you to submit a successful bid and win in the projects’ competitive bidding battlefield.
Resources
[1] Canterbury, Bill. “[Livestream] 5 Important Considerations and Steps in Bidding Projects”. Project Control Academy, 4 Aug 2022.
[2] Jacob, Joel. “5 Important Considerations for Project Bidding”, Project Control Academy, 22 Aug 2022.
[3] “Cost Estimating Recommended Practices”, AACE International
[4] “PDRI (Project Definition Rating Index)”, Construction Industry Institute (CII)
[5] Sundaram, Ramani. “Key Factors to Consider In Project Cost Estimate Reviews”, Project Control Academy, 27 Aug 2018.
About the Writer & Editor, Joel Jacob
Joel Jacob is the Business Development Manager at Project Control Academy.
Joel has worked across diverse roles in project management, including PMO, project controls, and the customer experience in Kuwait and India. He holds a postgraduate degree in Construction Management and a bachelor’s degree in Civil Engineering.
Joel is also a certified Project Management Professional (PMP) recognized by the Project Management Institute (PMI) and an accredited LEED Green Associate.
His true passion is driving people to achieve the best in their careers.
Connect with Joel via LinkedIn
About the Cost Estimating SME, Bill Canterbury
Bill Canterbury is a Construction/ Project Manager with close to three decades of experience in heavy civil construction.
As the owner of Canterbury Construction Management Services Inc., he brings extensive and proven experience in providing opinions of probable costs (OPC) based on real pricing, planning and scheduling, and quality constructability and value engineering recommendations from more than two decades of actual construction experience.
Bill holds multiple certifications through AACEi (Association for the Advancement of Cost Engineering, Intl), CMAA (Construction Management Association of America), and ICC (International Code Council).
Currently, he is serving at the AACE’s Certification Board, responsible for planning, directing, and administering the AACE CEP certification program. He is also a Trainer for CMAA’s
Construction Manager (PCM) course. Furthermore, he is a Professor at Metropolitan State University of Denver, teaching the Construction Estimating course.
Connect with Bill via LinkedIn
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