Surviving In The Bid Market

The bid business carries risks that are not inherent with negotiated business. For one, competition forces everyone involved in bidding the project to double, triple and even quadruple check their numbers. After all, an error can make your bid too high, turning the potential project into someone else’s work. Or worse, a bid that is too low can cost your company money. And in this era of tightening purse strings, a loss on one project can be difficult to overcome on others.

And that is why fewer and fewer companies are getting involved in the bid market.

"We do less than 10 percent bid work," said Steven Blair, president, Landscape Creations, Memphis, Tenn. "We try to coordinate, negotiate and then provide the best service possible, which is not conceivable if we are continually the low bidder."

Blair, who gets most of his projects through referrals, said that bidding was more important to his company years ago than it is today. "We have been in business for 20 years, and we have developed a roster of clients that we have worked with on a regular basis. They know our quality and keep coming back, so we have not had the need to go out and bid on jobs," he said.

"We prefer to negotiate our projects," agreed Dave Hadden, president, Hadden Landscape, Plano, Texas. "We will use the bid process to get new clients. But after we work with them over a period of time, we try and get into a negotiation scenario.

"When you go with the low bid, you go with an unknown," he continued. "The client doesn’t know what corners will be cut in order for that contractor to make his money on that particular project."

Hadden said when his company bids on a project, it will determine the project costs and provide a figure at which the company will make money. "We never worry about what others are doing when they bid," he said. "If there are contractors that come in and bid too low, we will let them have the account. Chances are they didn’t take everything into consideration and there will be some adjustments in their work down the road.

"We do, however, like to get a handle on what everyone else is bidding just to see if we are in line with them," he added. "If we are way out of line on many projects, we will reevaluate our bidding process for mistakes.

"But it makes no sense to us to adjust our figures to get the job only to lose money on it in the long run," he said.

Hadden said his company has received calls several years after the fact from clients who rejected his initial bids. "They wanted us to come in and fix what the original contractor could not afford to do," he said.

Only in special circumstances will Hadden adjust his numbers on a project. "For instance, if we already have three or four accounts in an industrial park, I might adjust my numbers on an additional property there simply because I want to keep the competition out," he said. "And I can afford to do that because I have an advantage with travel time – I am already on site or close to it. But I never bid a project at a loss."

Hadden said some of his competitors have bid high-profile projects with numbers he couldn’t justify. "Some firms here have bid some projects just for name recognition," he said. "But for me, I would rather make money on a project nobody sees than have a lot of headaches trying to do a high-profile job and hope to break even."

For Rick Doesburg, president, Thornton Landscape, Cincinnati, Ohio, the risks of bidding a project were just not worth the rewards. "Several years ago, we started bidding our projects higher and higher until we didn't get the bids anymore and had to stop doing bid work. We felt there was no money to be made because everything was so tight and there were too many headaches."

However, even though Thornton cut its business in half, Doesburg claimed the company increased profits two-fold. "We got by on providing quality service at an appropriate price and it has worked for us," he said.

Even contractors who are conscientious of quality and price considerations must be wary of another variable: miscalculation. "Once you bid the job and are successful, you are locked in for the term of that contract," Hadden said. "If you mess up your estimates, you are in trouble."

Even with experience and research, the bid still comes down to an inexact science. "We were looking at a bid project the other day and had three of us out at the site trying to get a good estimate," Hadden said. "And sure enough we produced three different estimates from within our own company."

In a case such as that, each estimate is reviewed to see which variables caused the discrepancies, Hadden said. And the bid is adjusted accordingly.

If three people at the same company come up with different numbers, it is easy to see how different companies come up with different estimates for the exact same service. Pay rates, employee productivity, equipment efficiency, insurance rates, etc. will play into a company’s overhead, which is passed along to the client. And add to that, the innate nature of humans to miscalculate.

"If you make a mistake," said Patrick Elliott, manager, Site Planning Development, Charlevoix, Mich., "you are stuck with those numbers."

And Hadden said it is a doubly worrisome proposition when he underbids the existing contractor on a job. "The incumbent always has good, hard data on the project – or at least he should have," he said. "If we come in low enough to take that business away, I always wonder what he knows about the project that pushed his numbers upward. It can be scary. Then we always try and find out how low we were. If it is a big difference, we will go back and look at our numbers one more time."

Likewise, when one of Hadden’s existing accounts is up for bid, he relies on his statistics to give him an advantage when submitting his bid. "Any incumbent who has the information and does not use it is crazy," he said. "When we have an account, we track man hours, equipment efficiency and every variable possible to get an adequate picture of where that bid should be. The second contract is an ideal time to correct any mistakes you made on the initial bid."

"When you are successful on a bid, the first question to ask is ‘Where did we make our mistake?’" Doesburg said. "I know there are exceptions to every rule, but I firmly believe the second lowest bid is usually the best bid. That bid is less likely to have the cut corners that a very low ball bid might have.

"And, I think owners are absolutely crazy to take very low bids," he continued. "When something comes in too low there has to be something missing. And, usually, you won’t find that out until after the contract is signed and half implemented."

Doesburg said his company recently bid on a project by submitting a design plan as well. "The client had a hard time finding designers to design the job. So several contractors got together and convinced the client to do a design/build bid on the project.

"Each company designed its own project and we were being judged not only on budget but on our creativity as well," he said.

The author is a freelance writer based in Gahanna, Ohio.

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