To bid or not to bid
Making submissions for larger projects can be a not-so-tender trap. Brian Seymour offers sage advice on avoiding the pitfalls.
So many contractors have been sent down the road to the poorhouse by winning tenders that are far too risky.
A considerable number of books, papers and articles have been written on the subject, and it’s an ongoing hazard for sub-trades in the construction industry.
On receipt of the tender documents, it is the estimator or contractor’s first duty to inspect them, establish viability and consider whether the closing date is realistic.
Some years ago, I was engaged in a multi-million dollar tender involving myriad documents – including more than 100 schedule of rates items, a break-up of prices for individual sub-contractors and details of proposed personnel.
This sort of detail can take an enormous amount of time, but realistically it is secondary to the final tender price. I made every effort to convince the client that this information be supplied by the successful tenderer only.
The competitive tender market always has been a harsh environment, even during the good times. Winning a contract involves so much more than creating an attractively presented submission.
The decision needs to be made well before any take-off begins as to whether you actually want to bid, and this decision should be made immediately a tender is released. Any delay wastes valuable time and gives your competition an advantage.
There are several crucial questions:
- Are you strong in this style of contract and does it fit your business strategy?
- Are you capable of completing this job within the time schedule?
- Do you have the resources, labour, tools, equipment, infrastructure and finance?
- Is the location within your scope of travel?
- Are you the incumbent contractor?
- Do you know the strengths and weaknesses of your competitors?
- Are your senior staff members committed to this tender?
- Can you securely store materials on site?
- Do you know the head contractor’s payment performance?
- Is this project in line with your needs and goals?
Too many contractors believe that the more you tender for, the more you win – but at what cost?
The decision on whether to bid should be strategic. If the opportunity does not support your strategic plan, don’t waste your time. You are far better employed putting resources and energy into prospects that are relevant to your core business.
Capacity to complete the job on time is crucial, as the threat of liquidated damages could well put you out of business. Also, consider the ability of your suppliers and sub-contractors to comply with the time frame.
Many contractors have suffered financial disaster based on the belief that it’s easy to pick up the necessary labour. This may be OK when increasing your workforce by 10-20%. However, when temporary, itinerant, or ‘loan’ workers outnumber permanent staff, efficiency and productivity suffer badly.
Similarly, if you need to hire the tools and equipment for a long-term project it may price you out of the job.
On a larger than normal project the handling of extra workers, co-ordination of materials and equipment, and management of transport can be extremely time consuming. Without trained administration staff, this can all be very costly.
I have seen several contractors winning a major project that required a huge increase in the workforce. They lost thousands of dollars through lack of experience in project management.
Many contractors say they are prepared to travel anywhere, and this is not a big issue if the costs are allowed in the estimate.
However, it may be a totally different matter to transport large items (main switchboards, generators, chillers, etc.) to the site and provide lifting equipment for unloading.
Furthermore, workers may be committed to working on a distant site in the beginning when everyone is enthusiastic. But if the project is long term, the enthusiasm can wane and maintaining the workforce becomes a nightmare.
Incumbent contractors have a decided advantage over outsiders, unless they have blotted their copybook. This is where you need to know the strengths and weaknesses of your competitors.
Your senior staff members must be committed to the tender and should have the necessary performance record, experience, qualifications and resources.
Being able to provide details of estimate inclusions and exclusions will make the installation team far more efficient. This will also help the project manager to deal with client questions and to know when a request becomes a variation.
On some projects the delivery and storage of materials and equipment is a major issue, especially in urban centres where storage space is almost non-existent and deliveries cannot be made during normal working hours. On the other hand, highly secured industrial sites require meticulous checking of all personnel, material and equipment movements, which can add hundreds of hours to a job.
Many contractors fail to read the payment clause in tender documents. When submitting a progress claim they may discover that payments are made quarterly.
This is not of great concern if the contract is for light and power maintenance involving half an hour per week. However, if it is a sizeable installation with a substantial work team on site, the estimate would need to include a realistic loan interest rate – or you will be financing the project.
It may well be a good reason not to submit a bid.
In conclusion, it is not good business to bid for a project if it will take focus and resources away from your main source of income, which needs to be preserved. You need to consider how any new work will affect the bottom line.
If you decide not to bid on an invited tender, it’s a courteous gesture to send a letter to the relevant person stating your reasons, for example:
- Capacity constraints on meeting delivery dates
- A fully committed workforce at this point
- Insufficient time to prepare a quality proposal
- The project is outside your scope of work.
The letter should include the following:
- The tender reference
- A clear statement that you are not submitting a proposal
- The reasons for declining
- A statement of interest regarding future opportunities.
It’s good business to send the letter to the tender originator, otherwise repeated ‘no bid’ decisions may exclude you when the project does suit your work schedule.
Finally, a word of warning about construction developers who want the tender price early. Are they shopping your price around? You need to have a ‘bid day’ strategy ensuring that there’s a closing time and all bids are secure.