Assessing the viability of a project
On receipt of tender documents and prior to beginning a job, it is the estimator’s responsibility (or in some cases, the bid committee) to ascertain the viability of the project by evaluating the documents for potential problems and developing strategies to address them.
This is a basic risk assessment and you need to pose the questions: Where could this project go off the rails, and what can you do as the estimator to reduce the possibility this will happen?
The first step is to analyse the project and to do this, a well-organised estimator has a checklist of items to be considered when making this initial evaluation. Such as:
• Do we want this project?
• What is the project’s duration?
• 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?
• Will weather conditions have an impact on the project?
• Can we securely store our materials and equipment?
• Will this project generate future work?
• Do we know the head contractor’s/developer’s payment performance?
Most installers want all the work they can get, but the estimator needs to consider other issues such as:
• Will this project disrupt or interfere with other operations?
• Are we being used as a ‘check price’?
• Is this proposal in accordance with the company’s needs and goals?
• Is the tender period reasonable?
The duration of the project will also have an impact on operations. Many installers fall for the trap that “there is always labour available”, but many a project has had disastrous results when it has been flooded with labour to meet the program. While hire labour and itinerant labour is OK when controlling labour peaks in the program, it can become a problem when the proportion of outside staff exceeds your own team because outside personnel do not know or understand your company’s methods and philosophy in the same manner as your own team.
There is never enough time to give estimates all the attention you would like and it is time wasted if the client is only using your tender as a ‘check price’ against his preferred contractor. This is the time to decide whether to submit a price or not.
To define the company’s needs and goals is more of an art than a science, but these objectives have an impact on the viability of the estimate and need to be considered. Questions such as “What will this project accomplish?” or “What added value will it contribute to our business goals?” are well worth contemplating during this evaluation period.
Also at this time, the estimator needs to evaluate whether there is sufficient time to complete the estimate by the closing date. A tender which is prepared too quickly could have a worse result than not submitting a price at all.
Can we finance it?
I’ve heard so many installers say: “What do you mean, can we finance it? We get monthly progress claims.”
That is fine if it is a slow start job with minimal labour and materials in the early stages, but what about fast-track programs where a large team is on the job from day one. The wages are paid weekly, the progress claim goes in at the end of the month and there is usually a minimum 21 day period to the date of payment, which means you could be out of pocket up to six weeks of labour plus the associated materials which could be considerable.
Installers are prone to believing they will do work anywhere, and some do, and some make some money. However, I have seen remote jobs that have been a financial disaster due to insufficient time being allocated to get the labour to the workface or insufficient funding to allow for change-over in personnel. Getting to the workface can be arduous, especially with a large crew if they have to pass through security, have a long distance to travel from the site accommodation (such as major industrial sites or multi-storey buildings), waiting for lifts or transport, relying on others to gain access, etc.
Similarly, those remote jobs that are attractive to the workers in the early days, often become less attractive as time goes on due to the environment (heat, cold, terrain, mud, humidity, height, confined space, isolation, etc). Then to change-over personnel there is usually a lack of the same interest when hearing the feedback from the site and often the incentives required to complete the project eat into the profit margin. Does this project include shift work or limited working hours as this will also impact on the viability?
Do we have the expertise?
How many installers say: “I can do anything”? With increasing technology, there are many specialised skills, which, if you do not have them in your team, it may become a very expensive exercise to buy in or learn these skills once you have the contract. It is the same concern with tools and equipment. If the project requires scissor lifts, cherry-pickers or special purpose vehicles, do we have them within our assets or do they need to be purchased for this project? Can this project absorb these costs?
Attention must be given to the process needed to get the labour and materials to the workface. Can the labour walk unaided to the workface or will they need transport (lift, car, truck, bus, plane, boat, helicopter) and if so what is the licensed carrying capacity of this transport? Do you need a crane (at who’s expense, yours or builders), fork-lift or specialised carriers to distribute materials to the workface? Is there a security or screening process to go through for both labour and material to access the site? Is there an induction process for all personnel to be instructed?
Once on site can we securely store our materials and equipment? Does the builder or client provide secure storage facility or do we have to provide our own? If we supply our own is there a designated area to set up or will it require fabrication or demolition by ourselves?
If there is an appreciable amount of external work, the estimator will be required to ascertain the extent and whether there is enough historical data on weather conditions to make a calculated down-time estimate for the project. The project may be required to supply wet weather clothing and or special protection clothing which will also be a cost to the job.
Another area to be considered while assessing the viability is to question whether this project will generate future work. Due to location, reputation, skill base or niche market will success with this tender be likely to enable us to be listed on the preferred contractor’s register?
Knowledge of the head contractor’s/developer’s payment performance is another factor to consider and even though the Security of Payment Act protects the rights of subcontractors, it is of value to know the reputation of the head contractor with regards to payment. Poor cash flow can have a disastrous effect.
The purpose of these pre-bid checklists is to ensure the commercial and management aspects of the project are given due consideration as they are fundamental to the commercial services of the project.
One can see from the above listing why it is imperative for the estimator to explore all the facets of the tender documents and identify the risks and tasks for which your company has little or no expertise as it is likely you will under-estimate the duration and cost for these tasks and that will impact on the balance sheet.