In the sixth part of the Bidding Insights series brought to you by Construction Data Company (www.cdcnews.com) in cooperation with the Stevens Construction Institute, (www.stevensci.com), we address estimating cost and proposing price.
As we saw in the first five parts of this series, winning more bids is not simply a function of bidding more. Winning more bids requires an investment in time and resources. Part of this investment includes conducting a proper market analysis which will lead companies to determine the right kind of work they should be bidding on and negotiating for.
Once the right type of work is determined, a firm must market and sell themselves to prospective clients – owners, developers, architects, engineers, and GCs.
However, successfully marketing and selling the firm to prospective clients is not the end of the fight to win more work. To borrow a phrase from former British Prime Minister Winston Churchill, it is not the beginning of the end, but rather the end of the beginning. Firms who have reached this stage of the process must now submit a winning bid, which starts with effective estimating. This is the focus of this executive brief.
Once a prospect is interested in the firm’s services, the firm must estimate cost and propose a price. Although “estimating” may mean different things to different people, for the purposes of this brief we will define estimating as all activities necessary to arrive at cost of construction, part of which is quantity count, and part of which is cost per unit. This is no small undertaking. There are costs associated with developing an estimate, both in terms of time and material. This is why it is essential that firms stick to the target market they identified earlier.
There are four principles of estimating:
1. Estimating is the prediction of final cost in the future after a short term study of the plans.
2. Estimating is essential to all construction companies’ continued existence.
3. Estimating is mostly science which includes:
a. A thorough and written review of project plans and specifications.
b. Accurate take-off of work quantities.
c. Costing of installation of work.
d. General conditions of staffing the project.
e. Sound overhead allocation methods.
f. Bidding strategy.
g. History of margins.
4. You will know if you estimated the right cost only after the project is over.
Estimating is a complicated process. Utilizing a Bid Summary Sheet and a Cut/Add Sheet, along with the historical data kept in spreadsheets, can simplify and speed up the process. The speed of the work acquisition-installing work-being paid process is the keystone to a profitable construction firm.