I had posted something awhile back on bids, but the thread went into something else.
Thought I would try again with a slightly different tack.
Bids are a business tool. Like all tools it needs to be understood and used properly.
Since bids are for a fixed price effort, the work that is to be done needs to be suffiently defined (this is not a simple task, even for a seemingly simple job).
Also, who provides the bids needs to be understood. that is, you have to understand the company you are asking to bid so that you can understand the bid.
If you know the companies all do good work with good materials, then the low bid will get you the job done properly.
If you don’t know the companies you are in a crap shoot and even the high bid or middle bid (assuming you’re doing the 3 bid routine) can get you a bad job.
I do understand the importance of business relationships (when you find someone who does the quality you want at a fair price you stick with them)
So what’s my question?
Do you as either a biddie or a bidder put thought into to how to use this business tool or do you take it for granted?
bobl
Volo Non Voleo
10
Joe’s cheat sheet
Replies
You mean I've been giving my tools away for free all these years?
I have never considered bids in the way you have described them.
But, I have charged for some that were purely speculative. Can you write that in such a way that customer's would love to buy my bids?
Tom
Tommy,
the title is bids are a tool for the buyer
There has been a lot written in this forum about selling proposals, particularly by Sonny Lykos.As a buyer that is something that can be a useful tool after a relationship has been establsihed, because now the seller doesn't have to include the cost in their overhead. So the buyer isn't paying for a piece of everyone else's bids.
What I was hoping to discuss was how to use the bids in a truely useful manner. So the biddee and the bidder aren't wasting time and effort and so the results have meaning.
Too many lost bids can sure drive up overhead, and as a buyer, I'd be paying for that when I do buy.
boblVolo Non Voleo 10Joe's cheat sheet
bobl - this is an interesting topic. I have been bidding/estimating for eons, and I have never once thought of it this way. I just considered it a cost of doing business. The rule of thumb was if you "won" 3 in 10 bids you were doing very well, at least in my industry.
I do know of some companies who do charge for bids in residential situations, but how could I justify (or get away with) that in a muni/commercial situation? Interesting. Not sure I think its a good idea, but it is interesting!Woe to the cook whose sauce has no sting- Chaucer
Wolvie,
My post wasn't about paying for bids, that's what it seems to have turned into.
My post was about bids being considered a silver bullet (hope that doesn't bring the gun issue here). Maybe I didn't state it correctly.
Bids are not a silver bullet, They are an imprecise tool that takes care in its use to get the result you want.
In another recent thread someone got bids on sealing a log house. $900; $1500: $10,000. That's quite a spread! My interpretation, this person found 3 companies that said they did sealing, assumed they were all basically the same (size-experience-etc) and when the bids came in found they were not. why not? that's what I was hoping to talk about.
who uses bids
GC's who build spec houses
GC's who do commercial work
GC's who do remodeling
business owners
homeowners
All these people have varying degrees of knowledge and resources to determine who to go to to get a bid and what to ask for (spec) when they do.
There are a number of folks here who won't bid. One reason sometimes given, you pay low price you get shoddy work (words to that effect). I disagree with that statement on its face value. (this is not an argument for folks who don't bid, that they should). If you are not on a level playing field with the correct players, then using bids only fools you into a false sense of security.
Let me give you a (likely poor) example. I need a car and I'm going to get bids. Need it to carry 2 people with briefcases, and have it for 2 years. I send the bid requests to (please don't argue with my choice of companies) Mercedes, BMW, Ford. The results two bids much higher than the third. Would the low bid not do the job? It would do the job. Why the disparity in price? I didn't go to a level playing field.
When you are using bids you have to know what you want and that the folks who are providing them are comparable (yea my example didn't do that). You have to be able to understand why the difference in price.
Bids are not a panacea, nor are they a tool that can't be used to pick the "low" price and get a quality product.
The tool must be used with some skill.boblVolo Non Voleo 9Joe's cheat sheet
Wolvie,
Now addressing your question on paying for bids in a muni/commercial situation. I assume muni is miniciple as in city gov't.
I think you never will with the municiple side. Matter of public policy, prevention of abuse etc. (I could make a nice living writting bids that I know will never win)
On the commercial side, that's a tough nut. Think that it is an accepted cost of doing business. that the costs for bids goes into your overhead to be paid by the folks whose contracts you do win.
Some of this may also revolve around the difference between estimates, bids and proposals. To me these are all different things, In the world represented (generally) by BT I think they are thoought of as the same.
On the commercial side if you are dealing with the same customers routinly and your compition is usually the same, you might be able to make a case for having lower overhead by the bids being payed for. That could have an overall cost impact on the customer.boblVolo Non Voleo 9Joe's cheat sheet
hmmm - I begin to see what you meant to say! (ahem, can I please argue with your choice of vehicles?? ;-) )
I agree that knowledge is the key to getting a good bid from anyone. If a homeowner is going out there blind, woe to the homeowner. Having been in the Fed/State?City market for longer than I care to remember, I basically had to educate myself real fast, and make sure I read the specs really well! Of course, when the specs fail(perish the thought you say, I'm sure), experience is what you rely on.
I don't think I'll live to see the day a muni pays for an estimate, upfront anyways. We won't discuss change orders here! ;-)
I don't envy resy builders. No sir-ee, not one little bit! Woe to the cook whose sauce has no sting- Chaucer
Having been in the Fed/State?City market
You have my sympathy boblVolo Non Voleo 9Joe's cheat sheet
actually, I feel like I got the better end of deal. At least I retired before I went entirely gray!Woe to the cook whose sauce has no sting- Chaucer
the thought of having to keep track of multiple sets of nitpicking rules/regulations make me shiver.boblVolo Non Voleo 9Joe's cheat sheet
Tommy, I'm writing a letter to a client about a price I charged for some work I did for his condo association. It's exactly about this issue. I intend to make copies and keep them in my brief case to hand out to the occasional cleint who questions my price or how I arrive at them. It will not include a P & L statement as this letter will though. This guy has no qualms about hiring me for his own work and frequently calls me for small stuff, but for the condo common elements, I guess since he's only the Tresurer, he must answer to the rest of his Board. You will then also realize why I charge for Proposals (SCAs) and also charge a site evaluation trip fee.
I'll post it here tonight.
Edited 3/25/2002 7:44:41 PM ET by Sonny
Tommy & Bobl. Here's the letter I started on a few days ago. I still have to correct it here and there and get some brevity but so far...................
My industry is in transition as far as Proposals and rate changes. Due to trade show seminars, Internet forums, trade publication web sites and local associations, many of my peers are finally realizing the true costs of doing business. Perhaps as a CPA and very familiar with businesses in general, you can understand the following. The construction industry has about an 88% plus failure rate within the first 5 years of inception of the business. Oddly, of the remaining 15% or so, another 85% or more close their businesses during the next 5 years. The number 2 causes are as follows:
1. Having no basic business financial background, most owners do not grasp the costs of doing business. They can neither create or read a basic P & L Statement nor do they do any completed job costing. They have a "trade" mentality instead of a "business" mentality.
2. The "policy" of offering free "Estimates", which the public views as "Proposals," and an "entitlement." This policy in turn, creates a scenario where if an owner is to work 40 hours per week on "production" work, he must then go on sales calls, get pricing, do material research, calculate the job costs and finally type up the Proposal during non-working hours. That means working evenings and weekends. Subsequently, "burn-out" occurs. I used to be one of those naive people until I realized I could no longer offer such extremely valuable services for free, so I became a "business" person.
I use the Proof Management system which dictates applying all overhead into labor. The other industry option is to markup all labor and material by a minimum of 50% which will yield a gross profit of 33%. Typically this is done by remodelers or singe trade contractors. The Proof system is better for my operation because the percent of materials used annually fluctuates far too much. Only the number of annual labor hours is stable.
My time and expertise has value to me and my clients. Sometimes, a client, whether an association or a private party, will give my Proposal, or another contractor’s, and the "specifications", to other contractors from which to bid. That is unethical, yet is typical of what happens. I’m continually amazed at the assumption that while these same clients act in an unethical manner, they expect the contractor to always act in a highly ethical manner. Go figure. That’s the contractor’s side of the public’s image.
A "Proposal" is very similar to what’s called a "brief" in the legal world. That is, to assemble all of the facts needed pertaining to a "case" - in our scenario, a project. Briefs, as we all know are not philanthropic processes. They take time and in any business, time is money, so they are charged to the client
Another example of free Proposals is for me to give all of my tax information to several different CPAs and ask them to prepare a free Proposal for review to determine which "Proposal" will generate the least tax liability for me. Only then do I "award’ my "project" to which ever CPA provides the cheapest "bid." What CPA do you know will do the above at no charge?
Yet another example is what happened to me about 3 years ago. My Dodge mini van developed an electrical problem. I took it to our local Dodge dealer and they performed an electrical "diagnostic" service. What is a diagnostic service? Is it not the same as a "brief" or what a contractor does in order to develop the information needed for what is contained within a "Proposal?" I was charged $146.00. That was in addition to the $253.00 charge to replace a defective computer board. Again, for charges for time and expertise that the public is all too willing to pay for - in other industries.
Furthermore, when a person feels sick and visits his/her doctor, is the ensuing "examination" done for free, prior to subsequent "work" to be done?
It’s also important to note here that in every one of the examples above, the owner has to take his/her "problem" to the professional’s place of business. The professional did not go to the owner’s home.
To continue, any construction "guru" will state that if a contractor performs a $20,000 project that takes one month to complete, he may end up with a call back for guarantee work. On the other hand, to do $20,000 in sales, since I only do small projects, I must complete about 50 projects (@ $400 each) for the same amount. In doing so, I have incurred the potential liability of a call back of any one or more of those 50 projects. Just one call back means not only lost profit from it, but depending on the nature of the call back, lost profit from others as well. In addition, the legal liabilities that I incur during and after completing those 50 projects is substantial compared to only one $20,000 remodeling project. Compare my liabilities to the average project cost of a $140,000 such as my son Tom’s company’s average project sales price.
Why does an appliance service company charge for a "trip charge" just to walk into the home saying: "Hi Mrs. Smith. I’m Joe from ABC Appliance Repair." The actual repair time is an additional charge. Why does Action Automatic Door Co. (see enclosed) charge $39.95 for a trip charge? Do you think it has something to do with the cost of doing business and the cost of sending a professional to the owner’s home, as opposed to the owner bringing his/her "problem" to the professional’s office or shop?
Also note that the enclosed two Invoice copies are from about 18 months ago, and that in both cases, the "professional" is only an expert in one profession or trade. One charged $75/hr. and the other, $80/hr. Since I must be a professional in many trades, what should I charge?
Part of the "research" I do for my clients is found is the following revelation. While at a "coatings" trade show , I found a paint product that has a lifetime double the typical oil and latex base coatings. It’s retail cost is about $40.00 per gallon, but still cheap since for the average painting project the paint cost is about 15% of the total charged price. To double a paint film’s lifetime represents, in my opinion, a terrific value to my clients. On the flip side, any labor and any "normal" material costs for a painting project is therefore a waste of the client’s monies. This "research" is just part of the value I represent, or should represent. Duration and ease or cost of maintenance should be priority #1 of any client. It isn’t, since far too many get caught up in only the "bottom line", not what is represented in that bottom line price. I can neither change my industry nor the public’s buying habits. I can only continue to seek better ways to provide more value to my own clients, but will being fair to myself.
While reading my Operating Expenses enclosed, you'll see a line item for "Guarantee Work". Do you know who really pays for guarantee work needed for a car, a washing machine or TV? Is my line item justified? Good business would dictate yes.
Finally, if I am expected to work during my "personal" evening and week end hours, is it not fair for me to be paid time and a half or double time for those hours? The fact is that the public expects me to be paid nothing. It’s not their fault thought. It’s the fault of our industry and making it too easy for naive people to enter it, and it’s those same naive people that perpetuate this ridiculous policy of "free estimates."
It’s nice to be a business person. I periodically remind myself that while I do "serve" the public, I am not their "servant."
Also please note on the enclosed P & L Statement, that my material markup on the enclosed is 25%. The markup used by car dealerships is 400%, yet most dealers still can’t keep up with the service work. And why isn't the public screamaing about getting ripped off like they do when we markup our "parts" only a fraction of that 400%? And does the public bring the dealer the new starter they bought at a discount auto parts store and ask the dealer to install it?
I also no longer offer free Proposals. I call them what they really are: a Specification & Cost Analysis, and charge a minimum of $75 or 3% of the anticipated price, an inexpensive fee at twice the price. It’s one way to recapture part of my overhead costs. Including those costs in overhead means that other clients who hire the contractor are paying for the time spent for those who did not. That’s not ethical in my opinion. We should all pay for what we buy, and consulting site visits, time, and expertise are three of those services. And be sure, the Proposal, or Specification and Cost Analysis, as I call it, does represent a very substantial value to my clients considering the nominal fee I charge for it. That’s because it is really a valuable "tool" providing all of the information, including the specifications needed for his/her project. If I am not awarded the project, that SCA still represents a document that can then be given to other "bidders" from which to base their own bid.
If any business is to flourish, much less survive, it must operate as such - a business, and yes, car dealships and applaince service companies do exemplify good, financially sound business practices. Now I do, as well. The market place will determine value, regardless of it’s source. Fortunately, my market realizes that what I offer, regardless of my rates, still represents a "value" to them.