Bidding And Estimating For A Better Business
By Becky Mollenkamp
Stay in business for long and inevitably, you will have to deal with a bad bidding situation. Whether the facility provided poor specs or a competitor gives a low-ball bid, these scenarios can be frustrating. And, if it happens often, it can start to hurt the bottom line.
There are ways to avoid troublesome bidding and, if nothing else, some important lessons to be learned when an unavoidable situation arises.
First, what is a bad bid? That depends, of course, on whom you ask. Most frustrating to buyers are when the price of service does not represent the performance of the service; the contractor is not capable of actually doing the work; or when the building service contractor has a lack of experience, poor reputation, or incompatible company culture.
“We have never cancelled a bid process or failed to award a contract in nearly 500 cases,” says Vince Elliott, president of Elliott Affiliates in Hunt Valley, Md. His firm helps facility managers during the contractor selection process. “On the other hand, that does not mean the all submitted bids were problem-free. If a bad bid is a bid that is so poorly crafted that the contractor is disqualified or judged to be technically not capable, then there are many bad bids in the marketplace.”
Contractors, on the other hand, are most frustrated by bid processes that boil down to a price tag.
“The worst bid situations I have had to deal with have been reverse auctions, because you are dealing with clients whose sole concern is low price,” says Barbara Whitstone, business development manager for CleanPower in Milwaukee. “Price-driven customers are not good, long-term customers, as they can always find a cheaper price.”
Root of the problem
Why do bids go bad? There are dozens of reasons why a bid may be doomed from the start. They can all be boiled down into three major issues: client-side errors, contractor-side errors, and pricing problems.
Contractors may be relieved to hear that buyers are often responsible for bad bids.
“While it’s a shared failure, buyers bear the majority responsibility for the success of the outsourcing event,” says Elliott. “Buyers often provide inaccurate, unclear or no useful data about the property being outsourced. I’ve seen buyers asking for prices to clean buildings that no longer exist or were sold.”
Elliott admits that he has seen many facility operators who don’t provide accurate information about cleanable square footage or those who use last year’s request for proposal (RFP) or another company’s documents to solicit bids.
“I would say the most common bad bid situation is the unprepared owner or manager who does not research the needs of the facility adequately and expects the bidding contractor to supply a list of needs,” says Ken Galo, owner of L & K Facility Services in Milwaukee. “This usually results in a wide range of bids since each contractor can or will look at the facility differently and this creates an unfair and uneven playing field for the bidders.”
But don’t think BSCs are off the hook for bids gone bad. Contractor errors can quickly cause a bid to get the boot. Elliott has seen many bids come to his clients with bad math (dollar totals that don’t add up) and others that are simply illegible because of misspellings, poor grammar, and lousy handwriting.
Bigger problems include bidders who use the same bid for several facilities (some don’t even bother to change the client name), bidders who go after work in an industry with which they have limited or no experience; and bids that don’t provide the information that was requested.
“Contractors sometimes do not read all buyer requirements before submitting a price. They ignore requests for some information and provide information they think is best—they think they know more than the buyer,” says Elliott. “Bidding is a lot like a dance — it takes two, both have steps to follow and one can make the other look bad if there is not enough cooperation.”
Low-ball vs. low price
Most frustrating for many BSCs are price-focused bids. Contractors understand how many factors go into bidding a job — the difficulty of the work, the square footage involved, the type of equipment needed, how many workers it will take, and so on. Too often, however, buyers skip all of that information and focus squarely on cost.
“Buyers are often unclear about how they will select the winning bid, aside from price,” says Elliott.
Other times the buyer is obligated to accept the lowest price. This was the case on a project bid on by Paul Roughsedge, co-owner of Complete Industrial Cleaning in Wakefield, Mass. He lost a long-term public library account to another BSC after its bid came in “shockingly low” — about 35 percent below Roughsedge’s, and less than his costs.
“There were four bids — three competitive and one low ball,” he says. “Come to find out, the winning, low-ball bid is paying cash to their porter.”
When Roughsedge brought this issue to the attention of the town, he was told that there was nothing they could do since the winning company produced a certificate of insurance. But Roughsedge claims that the porter was technically uninsured because insurance premiums are based on payroll dollars, not cash expenditures.
“So, I lost out to someone not playing by the rules,” he says. “Extremely frustrating.”
After his experience, Roughsedge quit bidding on jobs that have price as the only determining factor. Many other contractors are following in his footsteps.
“When the customer’s sole focus is price, we tend to walk away without proposing,” says Whitstone. “We are never the low number, and it is not worth our time to prepare a comprehensive proposal for a client who will only look at the price.”
Not all low bids come from unethical BSCs. There are many reasons why a contractor may choose to bid low, even to the point of losing money on the job. A contractor can use a low price to block the competition from entering a local market, to protect a current account, or to get a foothold into a new market or account.
Galo says he has only bid one job below cost. He did so because his boss wanted to take the account away from a competitor.
“He had been bidding on the school for years and could never get it, when he saw a chance to underbid and take it away he did,” says Galo. “We’ve had the campus for three years and lost 6 percent every year and he couldn’t be happier.”
Elliott says smart buyers understand the connection between process and price. They can distinguish the difference between a low-ball price and a great low price.
“Low-balling is a time honored tradition for any service provider trying to enter a new market or protect a vulnerable revenue base,” says Elliott. “A low price does not necessarily equate to a low-ball price. A really creative cleaning system can produce a very low price that is reasonable and accurate and can deliver extraordinary results. It’s only when the cleaning system and process are not connected and the contractor can not deliver the expected service at the bid price that I would call it a low-ball price.”
Stop it before it starts
The best way to avoid bad bids is to work with the facility from the start to prevent them.
“It’s clearly better to prevent a bad bid than try to deal with it,” says Elliott. His consulting firm has developed forms and other mechanisms to standardize bidder information and responses. “We have committed greater resources to answering questions, providing clearer instructions and helping bidders to understand the requirements of a successful bid.”
From the beginning of the bidding process, try to sit down with the facility operator and work on creating a set of standard definitions and expectations for the job. Define the customer’s cleanliness expectations and the results they need to create a clear set of goals for the cleaning program. Get accurate square footage and then create a good RFP that both parties understand.
“BSCs need to work with building owners and managers in creating a standard specification for that facility, something that addresses the needs and allows all contractors to bid on the same level,” says Galo. “Then it comes down to the game of margins with the contractors.” n
Becky Mollenkamp is a business writer based in Des Moines, Iowa. She is a frequent contributor to Contracting Profits.
| To Tell The Truth? |
|If you feel like you’ve been snubbed by a facility after the bid process, what should you do? It’s a more cut-and-dried when the competitor won a bid because of illegal business practices. |
“Any and every self respecting BSC should turn in any BSC that they know for sure is using illegal aliens, subcontracting to avoid payroll taxes and workers compensation taxes,” says Ken Galo, owner of L & K Facility Services in Milwaukee.
Galo suggests turning offenders in to the Internal Revenue Service, immigration authorities, and the state Worker’s Compensation Bureau. It is wise to make such reports only if you have irrefutable evidence of the illegal activities.
But what to do when the winning bidder is unethical, lying about his costs (low balling), or someone you know to be a poor performer? Or what if the bid specs you receive from the buyer are poorly conceived and you know it? This is where the slope gets more slippery.
“This is like telling someone that their sister is no longer a virgin — it may be true, but you really want someone else to say it,” says Vince Elliott, president of Elliott Affiliates in Hunt Valley, Md.
He suggests that how you approach such a situation should depend on the closeness of your relationship with the buyer. If it is strong, you may want to approach the buyer to talk about a bad bid situation.
“In a weaker relationship or to avoid stress, bring in a third party to break the news to the buyer. It’s not really that bad or uncommon,” says Elliott.
If you sense that the winning bid was spectacularly (and suspiciously) low, there is probably a reason. You may want to meet with the facility manager and break down your bid to validate the price.
“If you’ve lost a bid and you’re confident yours was legitimate, then by all means try to arrange a post-bid decision meeting and explain to the buyer the problems with the winning bid,” says Paul Roughsedge, co-owner of Complete Industrial Cleaning in Wakefield, Mass. “Stay within the facilities manager’s discretion however, and respect his final call. Your services may very well be solicited in the near future.”