The Business of Bidding: Pricing Contracts

Lawn & Landscape’s first foray into the often dicey world of maintenance contract pricing yielded some interesting results. We asked three successful landscape contractors from across the country to bid on a typical maintenance contract for a commercial property.

The property consisted of (see contract on opposite page for specific requirements): 19,000 square feet of irrigated turf with level elevation, a 20-car parking lot, a 100-foot-long entranceway, a modest flower bed and a handful of trees typical to the bidder’s region. After “bidding,” the contractors walked us through their pricing process, providing insights into their respective bidding philosophies.

ATTENTION TO DETAIL. When D. Foley Landscape, Walpole, Mass., makes a bid, there is no such thing as too much information. “Never forgo the details,” advised John Dinsmore, account manager, D. Foley Landscape. “I want customers to know precisely what they’re buying and what they’re not buying. Otherwise, customers might over- or under-assume.”

Heeding his own wisdom, Dinsmore provided us with a detailed list of tasks to be performed under each required service, in addition to a list of clarifications regarding the property. With any contract, there is always a need to establish exactly what the customer is looking for, according to Dinsmore. “Customers all have a picture in their mind’s eye, but typically, they haven’t conveyed that picture to potential bidders,” he said.

The first step in the bidding process is to meet with the customer and look at the property. D. Foley never bids on a job without seeing it first, Dinsmore said. (In our case, he made a kind exception). Our generic contract struck him as a “stupid bid-out process.” These are a routine and, ultimately, meaningless formality for many commercial properties, since they already know to whom they’re awarding the bid ahead of time, he pointed out. With these kinds of jobs, Dinsmore said he usually doesn’t waste his time. He thought the lack of specificity in our maintenance contract was in keeping with those typically written by property or facility managers. “Generally, they can’t write bids,” he pointed out.

A good contractor should always estimate on-site, according to Dinsmore. “Our process of going out there and measuring the property is far better than someone just sitting in the cab of his truck, winging it. That’s not good estimating,” he said. When Dinsmore goes out to a site, he measures thoroughly, “qualifying and quantifying everything,” he said.

Dinsmore then takes all his measurements and field notes, fires up the computer and inputs the information into D. Foley’s customized estimating program. The program, which is based on a pricing information database the company has built over time, accurately prices the job according to labor, materials, equipment and subcontracting costs. More often then not, “the computer spits out exactly what I was looking for,” Dinsmore related. He then takes that estimate back to the customer. “Once we agree that our estimate matches the spec, we save it, print it and convert it into a proposal,” he said.

In the case of our job, which Dinsmore estimated based on one of D. Foley’s similar accounts, the company would use a mobile maintenance crew, usually comprised of two people to take care of spring cleanup, mowing, bed and floral maintenance, leaf removal and pavement vegetation control. These services are performed on set days every week. The company’s lawn care manager then handles turf fertilization, weed and crabgrass control. The manager will do core aeration once in the fall and spring. For fertilization, a granular product is used since it’s easy to apply, while liquid fertilizer is used to spot spray, according to Dinsmore.

With some services, such as tree and shrub spraying, mulch installation or street sweeping, D. Foley will use local, qualified subcontractors. In many cases, Dinsmore said, subcontracting is simply more economically feasible for the company.

For example, a street sweeping machine costs around $100,000, which doesn’t make much sense to purchase, given the relatively small volume of sweeping work the company handles, Dinsmore pointed out. With plant health care, D. Foley also finds it easier and cheaper to hire an professional to do the work. “Because of the additional education, licensing requirements and cost involved, it’s a smarter choice for us to subcontract in some cases,” Dinsmore said.

ACCURACY IS EVERYTHING. Tom Fochtman, owner of CoCal Landscape, Denver, Colo., also prefers to scope out a property before making a bid (although he also made an exception in our case). Otherwise, bidding off of plans tends to produce a higher price, Fochtman said.

“You have to make assumptions to account for unknown factors,” he explained. “You have to speculate since things appear that aren’t on plans. For example, the parking lot might be different. The irrigation system might be harder to manage than what you think. There might be unknown site furnishings, like picnic tables.”

CoCal based its estimate on hours, which is the company’s typical bidding strategy. Since his costs are generally split between 92 percent labor and 8 percent materials, Fochtman is more comfortable bidding based on hours, he said. “We always err on the side of hours vs. what the square footage tells us,” he pointed out. “If we run a number off of plans, we’re more confident on how many hours it will take us. Square footage is too black and white and doesn’t take into account specifics. We can look at a slope, for example, and envision how long it will take on a riding mower.”

In terms of our fictional maintenance needs, CoCal would use a preemergence herbicide or nonselective postemergence herbicide every week to keep beds and tree wells free of weeds. For insect control on trees and shrubs, the company generally sprays twice to address whatever pest issues the property may have. The second round is just a spot spray “to get whatever comes back,” Fochtman said. With fertilization, a granular product is used since it’s more effective, in Fochtman’s opinion. “Granular goes right into the soil and provides better benefits to the turf root zone,” he said. “There’s more residual value and the turf gets better color.”

CoCal uses a separate, licensed crew for chemical applications. For spring cleanup, the company does a little of everything – snow, sand, pine needle, late leaf and salt debris removal; bed cleaning; and lawn edging. If the grass is dirty, a crew will mow to pick up debris. They’ll also treat the beds, turn the soil and start up the irrigation system, Fochtman said. In terms of bed maintenance, crew members will spot spray for broadleaf weeds and pinch back and deadhead flowers.

The size of the mowing crew used depends on the job’s location. “If we’re working on a larger project nearby, we’ll send a five-person crew. Otherwise, we’ll just send a three-man crew,” Fochtman said. “We’re not going to pay five workers just to ride five miles away.”

KNOW THE CUSTOMER. Like the other contractors, Chapel Valley Landscape Co., Woodbine, Md., would want to see the property and talk with the customer before making a bid. “So much is accomplished through meeting with customers,” said a manager at Chapel Valley. “A lot of questions would be answered by being on site.”

Meeting with customers on site is a good way to learn particulars, like pruning preferences, he said. Some prefer closely, hand-pruned shrubs, while others want them left a little looser. “You have to get to know customers and know what their expectations are,” he said.

For Chapel Valley, pleasing the customer is a top priority and a good way to retain business. “It costs you a lot more money to find a new customer than to do something extra for an existing customer,” the manager pointed out.

Like D. Foley, Chapel Valley uses a bid as just a starting point in the pricing process. “We measure everything and then stand back and look at it. The estimating system is just a guide,” the manager explained. The company has a lot of faith in its initial pricing ability, however. “Our material estimates are very accurate – usually they’re right on,” he said.

Overall, Chapel Valley said it wouldn’t have been interested in our property. As a higher end service provider, the people it typically deals with are not just interested in price, which is the impression our generic bid gave, according to the manager. “We’re more interested in a customer who’s educated about landscape and expects a higher level of service,” he said. “We’re not the cheapest guy in town, anyway.”

POINTS TO PONDER. While it didn’t impress anyone, our faux maintenance contract raised a lot of key bidding issues and concerns for contractors. The first of which is how does a contractor decide how to bill a job? Chapel Valley prefers using a 12-month contract. “It helps the customer by spreading the cost out throughout the year,” the manager said. “This way, it’s easier for them to budget and manage their cash. This payment schedule hurts you during the busy times, putting a lot of cash out, but in the winter, you have revenue.”

While it prefers a 12-month contract, D. Foley will cater to the customer, offering just about any kind of contract, within reason. “We’re here to serve the customer,” Dinsmore said. “The contract doesn’t matter as much as being able to control our cash flow.”

While CoCal offers three levels of service: 7-, 8- or 12-month contracts, Fochtman prefers using a 12-month agreement. Otherwise, doing important tasks such as fall cleanup and true dormant pruning is more difficult, he said. Another advantage, according to Fochtman, is that 12-month jobs are greener “sooner and longer” and extend the growing season. With a 12-month contract, most employees have jobs year-round, which, in turn, reduces training costs and turnover expenses, Fochtman pointed out.

PURSUING PROFIT. Another big question our bidding process raised was when do contractors take more or less profit and when do they make price increases? Chapel Valley prices a job according to its annual budget, according to the manager. “In some cases, I may lower a price on a job if it fits in an area and location where I need more work,” he said. “In other cases, I may raise the price because I don’t need the job as much. You take it job by job.” On commercial jobs, Chapel Valley tends to raise its prices 2 to 3 percent annually, according to the manager.

CoCal is more inclined to give a price break to a long-term, multiproperty customer. “We’re more likely to negotiate and work with them,” Fochtman said. The company will also take less of a profit if it wants to land an attractive account that has long-term potential, he added. “If we want to get in with somebody, we tell them ‘Just give us one job. We’ll prove to you that we’re better,’” he said. “We look at this as an investment – a selling expense. If we want a job for long-term reasons, we’ll go into it with the understanding that we’ll prove ourselves to the customers. We’re willing to be flexible if the relationship has value.”

In terms of price increases, CoCal generally raises its prices 3 to 5 percent every other year. “We do not increase a job two years in a row. If you do this, by the fourth year, the price is inflated and you’ll lose the job,” Fochtman warned. When making increases, the company tends to keep its base maintenance costs lower while raising the prices of extra services, he said.

D. Foley will take less net profit if the company needs to fill out its sales for the year, Dinsmore said. For instance, to pass up a job with a small profit percentage for another, bigger opportunity that may never occur would be foolish, Dinsmore said. “Even though I only made a minor profit, the smaller job employed people, recovered overhead and took care of direct and indirect costs.”

When pricing a job, contractors need to keep an eye on their bottom lines. Misunderstanding the definition of profit is a common mistake with contractors, according to Dinsmore. “They’re often landscapers first and businesspeople second,” he cautioned. “They don’t understand that there’s a break even point.”

D. Foley tends to raise its prices on commercial jobs a maximum of 2 percent annually. Customers are usually understanding about this, Dinsmore said. “Chances are, they’re incurring the same (financial pressures) on their end.” In his experience, Dinsmore said that good estimating can rule out substantial price increases later on. “If we can nail an estimate, then, we go up only a few percentage points. Otherwise, something’s going on that was in your control and you didn’t control it.”

The author is Associate Editor of Lawn & Landscape magazine.