The tender process, part 1
As an estimating trainer of many years standing, I have continuously argued against the use of the ‘price-per-point’ system that some contractors still use to the detriment of our industry.
I am currently writing a book on the history of the National Electrical and Communication Association (Victorian division) to coincide with the centenary in 2016. In my research I found some fascinating reading and was surprised to find that with all the sophistication of the technology and labour saving devices available today some things have not changed.
In particular, I found a copy of the Australasian Electrical Times, published in October 1922, in which Norman Rydge wrote:
“Price per point – A custom has originated among electrical contractors of quoting for installation work at so much per point, the present price being in the vicinity of 35/-. I cannot find language strong and adequate enough to depreciate this pernicious custom which operates to the detriment of the trade. A little consideration will prove its failings.
“On checking a recent tender, I found a discrepancy between the lowest figure and the rest of the field (£35 Vs £55) and on meeting with the lowest priced contractor found he had arrived at his figure using a per point price of 35/- per point, 20 points = £35. On questioning this person, I found he had kept no costing system whatsoever and his invariable practice was to charge 35/- per point, irrespective of the nature of the work.
“Electrical contractors must realise that this method of doing business is the safest and surest road to the bankruptcy court and the sooner they forget about this antique idea of quoting, the sooner they will begin to place themselves on a firm footing financially.”
Wise words indeed from 1922.
For those of you who never had to handle pounds, shillings and pence, £35 is equivalent to $70, £55 is $110 and 35/- is $3.50. As a result, the lowest price was around 63% of the average price and the contractor obviously made a loss on the job.
The problem still exists today, 91 years later, and we still have electrical contractors either through ignorance or laziness using a standard price-per-point system to quote their installations.
For accurate estimating, nothing can take the place of count and measure of materials and labour.
The first step towards a successful outcome is selecting appropriate jobs to tender. If you know your business and your customer base, it is a waste of time to tender for jobs that you have no chance of winning. I read a quote in an industry magazine once that has stayed with me regarding customer service – “The power of relationship is significant”.
Those contractors who have kept up their relationship with their customers are the ones who always have work during the times of construction downturn.
It’s not rocket science to establish a worthwhile customer relationship program and if you make it a priority it can be done with the minimum of fuss. For some years I had a representative from a lighting fitting manufacturer call on us when we had company rules that reps had to make an appointment and be interviewed at the reception. This guy would turn up unannounced mid-morning, armed with a packet of Chocolate Royals and everyone from the receptionist, admin personnel and the estimators would entertain him in their office and he walked away with many lighting orders.
Customer relations is more a case of putting in time, you may not need to go to those lengths to ensure you are considered as a prospective tenderer. But keeping your company name in front of your customers is of prime importance – just because your company has been doing work for a particular organisation for years does not guarantee that it will continue forever. Your customer’s staff may change, mergers and take-overs are common and if you do not keep up with the new regime you may be deleted from the ‘Approved Contractors’ list.
Whether you call, drop off your business card and ask if you can help with any service, regularly email with details on the latest information on product, technology or systems that may be of interest, or join local service organisations such as Rotary, Lions, Chamber of Commerce or local school or football clubs, these are all good opportunities for expanding your customer base.
Now is the time to focus on tender documents to ascertain if you can do the job if you do win it and before you even attempt to start reading, ensure that all pages of the specification are included and all drawings are at hand (there have been jobs that made a significant loss because the estimator did not pick up a missing page which included something expensive).
Most important is the projected completion date, and many contactors in these days of litigation are being charged with liquidation damages if they fail to complete on time. Some of these penalties are enormous because they are not considered in proportion to the value of your contract, but applied in relation to the customer’s costs for late occupancy and, in the case of a major industrial plant, it could be hundreds of thousands of dollars per day in lost production.
A pre-tender checklist is needed to ensure the commercial and management aspects of the project are given due consideration as they are fundamental to the financial outcome of the project. Issues that need to be assessed before starting the estimate include:
• What type of contract?
• Is there adequate time to prepare the tender?
• Have we evaluated known or potential competitors?
• Are we being used as a ‘check price’?
• Can we finance the project?
• Is the location within our scope of travel?
• Do we have the expertise among our staff?
• Do we have the tools/equipment to handle the project?
• Do we have the workforce capacity?
• What processes are needed to get labour and materials to the work face?
• Can we securely store our materials and equipment?
• Will this project generate future work?
• Do we know the customer/builder’s payment performance?
• Is a request for a tenderer’s conference appropriate?
• Do our worker’s have to go through a site induction?
• Can we deal with the nominated suppliers?
• Is there a site allowance?
• What are the current industry conditions?
If you are unsure if you can meet any of these requirements, then this is the time to decide whether it is in your best interest to proceed any further.
The ‘General Section’ of the specification sets out the project information and the general conditions of contract, the sub-contract agreement, payment clauses and the defect liability period.
The ‘Special Conditions’ includes scope of works, conditions of tender, acceptance of tender, liquidated damages, contract period, work by others and any provisional or PC sums.
The ‘Technical Section’ contains details of supply, earthing, distribution system, accessories, outlets and appliances, lighting fittings, telephone and data, fire alarms, security systems, etc.
If the project is a greenfield site then there is little to be gained (unless the incoming main supply is to be assessed) by visiting the site. However, if there is an existing installation or existing buildings on the site, it is well worth a walk through to gain valuable details about the jobsite, such as:
• Access for men, materials and vehicles.
• Storage of materials and equipment.
• Security of materials and equipment.
• Access to source of supply.
• Site conditions including facilities.
• Times of access.
Other clauses that need to be taken into account are those where the builder has discretionary authority to demand out-of-hours work from time to time, such as attendance on the electrical conduits when concrete slabs are to be poured out-of-hours.
Frequently, as a result of tenderers inquiring about omissions and conflicts, the originator of the tender documents will issue an addendum. The addendum is usually issued prior to the closing of a tender and either clarifies the intent of the tender or, more often, requests that the tender for a project include a price that has either been added, deleted or modified.
The specification will also contain many of the obligations of the contractor and the services that they will have to provide in order to carry out the works including, for example, supervision, security, the provision of temporary site accommodation, safety resources and transport. A specification may also provide a tabulation of the general conditions of the contract, clause by clause – these items are often referred to as preliminaries.
Too many inexperienced estimators tend to dive into the documents before ensuring they have read the total specification (just scanning through the technical section) with the result of expensive omissions made. Although the rule of thumb is that the specification takes precedent over the drawings there may be an instance in the technical section of the spec which states that “all wiring shall be run in TPS cable” and then a note on the drawing stating “wiring in the plant room shall be installed in galvanised screwed conduit”. There will probably be a clause in the specification general conditions giving exemptions to specific notes on drawings.
Should you need to deviate from the specification for any reason (materials/equipment unavailable or no longer made) then you will need to qualify your tender, that is insert a clause explaining a valid reason for varying the specification.
In the next edition we will discuss the process of take-off techniques.