Hold The Bid

February 17, 2012 – 6:00 am

What do you do if you have to hold your bid for an extended period of time?  Let’s say that there is a $1.2 billion project that you bid on in a joint venture.

In the bidding documents it states that you have to hold your price for 120 days after the bid before the award of the contract.  You will make sure that your bid amount reflects that fact that you have to hold your bid and what you will do if the material prices fluctuate.  A lot can happen in 120 days so you want to make sure that you have very little risk.  No let’s say that during the 120 days you are told that you have to hold your bid for an additional 40 days.

What do you do now?  How do you handle these types of situations?

By Justin Short | Posted in Friday Tips | Tags: , , , , , , , , , | Leave a Comment

IT USED TO BE

February 15, 2012 – 6:00 am

I sound really old but there is a basic bidding knowledge that is missing in today’s construction industry!

IT USED TO BE:

  • Contractors relied upon estimators and their bid managers that would not blindly accept the goofy low subcontractor’s bid.  They knew there was a problem.
  • Contractors had estimators and bid managers on staff that knew how to evaluate subcontractor bids for all disciplines.
  • The estimators for contractors and subcontractors knew their obligations by reading the plans and specifications and management listened to them.
  • The contractors and subcontractors estimators and bid managers would not bid a project if there was not enough time to bid it right.
  • The estimators and bid managers would check out the subcontractors and vendors for each bid during the bid invitation portion of the work.
  • Owners and designers knew that a well prepared set of plans and specifications would result in better bids.
  • Owners knew something about the construction process or would retain a construction manager that did.
  • Construction managers knew how to develop bid packages and proper bidding methodologies to get the best bids.

Sadly, there are more USED TO BE’s that can be identified.  Worse yet is that the companies following the USED TO BE’s appear to be in an uphill struggle against the practices being followed today.

Oh, By the Way… The whole industry from owner to designer to contractor to subcontractor to vendor and anyone else left out needs to remember that the USED TO BE’s were developed and practiced for a reason. That reason was to be successful in their respective business.

By Don Short | Posted in Construction | Tags: , , , , , , , , , , , , , , | Leave a Comment

Where Did Those Profit Margins Go?

February 13, 2012 – 6:00 am

Let’s say you were lucky enough to be low bidder and get a job with some profit in it.  Okay, pretend this is not a fairy tale.  Where does all the profit go when you’re done?  You may have started out with 5% profit but you only end up with 1% in the end.

It can disappear before you even start the project.  Math errors are not uncommon, even with spreadsheets and custom software.  I have seen where a math error resulted in a low bid that was less than .1% below the second bidder.  The contractor signed the contract.  I have seen them where the mistake left the low bidder 15% below second bidder.  The contractor pulled their bid.

Some profit margins shrink before the project because of intentional reductions by the prime contractor.  They will take the subcontractor bids and reduce them by 5 to 10% hoping to shop them later at the prices they have used.  While I consider this highly unethical and inappropriate, it is still prevalent.  Sometimes it works.  Sometimes it doesn’t.  Remember it takes two to play the bid shopping game so don’t just point the finger at the prime contractors!

The profit margins can increase or decrease during the course of the project.  This is why it is called estimating, not accounting to prepare a bid.  Productivity may be higher or lower than estimated.  Materials may be under or over estimated.

Materials may be estimated correctly but used incorrectly. How many times has carpenter taken a 10’ piece of lumber and cut it down to a length required when they could have grabbed a shorter piece?  How many times has something not fit and need to be reinstalled differently to be correct?

This is why some contractors will be seeing reduced bonding capacity or going out of business.  They are not considering that the profit margins in the bid are not what the profit margins are at the end of the job.

Oh, By the Way… Bidding a job below cost or without profit is actually paying the owner to build their project.  Is that smart business?  I think not!      

 

 

 

 

 

 

By Don Short | Posted in Construction | Tags: , , , , , , , , , , , , , , , | Leave a Comment

Construction Pictures

February 10, 2012 – 6:00 am

Pictures are one of the best ways to document the progress of a project.  Taking pictures often and of all the work taking place on the job can help you if there is a delay or claim on the project.  The pictures can also be a great marketing tool to show future clients the quality of work that you provide.

By Justin Short | Posted in Friday Tips | Tags: , , , , , , , , | Leave a Comment

Optimistic Construction Companies

February 8, 2012 – 6:00 am

Construction firms are the most optimistic companies in the world.  They bid on projects and enter into construction contracts where conflict is inherent and the terms are loaded against them.

The commercial terms of the contract can consume page after page of small print.  These pages should be reviewed carefully prior to submitting the bid on the project.  If there are objectionable terms the contractor needs to ask questions to see if they can be changed prior to the bid being submitted.

If exceptions are not allowed, as is the case with many governmental and some private companies, the contractor has to judge the risk. If the risk is acceptable the contractor should adjust their pricing to cover the risk.  If it is not acceptable, they should pass on bidding the project.

But it is not just the commercial terms of the contract; the technical specifications can create problems too.  Remember, the specifications identify the least acceptable quality level the owner is looking for in the project.  The contractor looks at them as the maximum level they have to meet.  When these two don’t meet – here come the problems.

Oh, By the Way… There are more than these obstacles to success.  Yet, contractors keep on bidding.  They have to be the most optimistic companies in the world.

 

 

 

 

By Don Short | Posted in Construction | Tags: , , , , , , , , , , , , | Comments (1)

Times Have Changed

February 6, 2012 – 6:00 am

I was reading an article debating the pros and cons of allowing employees to utilize their personal devices such as smart phones at work.  This made me think back to when companies had to worry about an employee “walking off” with their rolodex or photocopies of documents when their employment was terminated.

Times have changed drastically, now an employee can “walk off” with much more without anyone noticing.  Thumb drives can be great to transfer needed information, but can also be tools for employees copying their contacts plus several gigabytes worth of confidential information.  Right now, I have an 8 gigabyte flash drive sitting in my desk which anymore is considered small.

Hopefully, a person has enough honesty and integrity not to steal the confidential information, but it will still occasionally happen.  Unfortunately, the targeted data such as historical cost is information estimators need to perform their normal job responsibilities.

Even though technology is supposed to make everyone’s jobs easier, it can also create additional headaches.

 

By markmentele | Posted in Construction | Tags: , , , , | Comments (1)

Top 10 Reasons Why Construction Sucks

February 3, 2012 – 6:00 am

 Here is a top 10 list of reasons that constructions sucks.  The reasons that are listed are items that if you are aware of them during the construction process, construction will suck less.

Guest Blogger – Todd Weidemann

10. Contractual relationships in construction are unique under law.

9. Different delivery methods drive different motives and can lead to differing outcomes.

8. Communication channels are a challenge.

7. The distance from the original funding source is directly proportional to the risk of not getting paid for materials, labor, equipment or services.

6. A written contract is preferred, but the handshake can be better.

5. When an estimate turns into a guess or vice versa.

4. Rome could have been built in a day – just ask any owner representative.

3. All design is deemed to have flaws, but all construction is guaranteed as perfect.

2. When working for the government you can pick your nose, but you can’t pick your contract terms.

1. Shrinking margins are like shrinking underwear – both cause puckering.

Todd W. Weidemann is an attorney with Woods & Aitken. He practices Construction Law and Commercial Litigation, as well as Real Estate.

By guest blogger | Posted in Construction | Tags: , , , , , , , | Leave a Comment

Expert Services in Resolving Construction Disputes

February 1, 2012 – 6:00 am

Let’s get things in perspective.  No dispute is going to get resolved amicably.  The lawyers, judges and arbitrators may know of and respect one another; however the parties in dispute are usually at each other’s throats.

Then there are the experts for each side.  They are fair game for the other side.  By this I mean they can be subject to the full treatment of getting beat up in depositions and during their testimony regarding their opinions.  Some of it can be deserved when the expert is clearly less than an expert in the area of testimony.  Some experts charge higher rates for depositions and their testimony.

It is interesting to see how some experts should not really be considered as experts when it comes down to it.  I have seen an “estimating expert” on the witness stand testify about construction estimating practices.  This expert was from an accounting and consulting firm.  His experience in estimating consisted of estimating fees on their assignments.  None of the estimating involved construction or time and motion knowledge.

Industry experts are truly beneficial to the dispute resolution process.  They can assist their client in many ways. It may involve telling them to settle the dispute.  It may be to participate in an oversight role with their client doing the bulk of the work in preparing for the trial or hearing.  It can even be assisting the attorneys with questions for the other side.

Oh, By The Way… Will an expert help make your case?  Maybe. Maybe not.  The facts are your best offense or defense.  If you rely upon an expert, make sure you have a knowledgeable industry expert who will present the facts and conclusions in the clearest manner possible to help achieve the best possible outcome.

 

 

By Don Short | Posted in Construction | Tags: , , , , , , , , , , , , , | Leave a Comment

The Competitive Advantage Nobody Needs – Round III

January 30, 2012 – 6:00 am

Perhaps the title on this one should be the Competitive Advantage Everyone Needs.  In the previous blogs on this subject the responders mentioned innovation and better ideas by the contractors.  If they have one, keeping it secret was one option.  The thing is, cheating on the specified materials and workmanship is not a competitive advantage.

The competitive advantage comes in the means and methods used to achieve the results the owner and architect or engineer have set out in the plans and specifications.  This is not to slight the other members of the project, but generally speaking the contractors (their estimators and project management personnel) are the most knowledgeable people regarding the means and methods on any given project.  Productivity gains and losses are where they make or lose money.

At bid time, when a competitive advantage develops, the smart contractor will price out the customary or conventional process and evaluate it against the “unconventional” process.  If there is a savings the pricing structure can reflect this.  They may take half the cost difference as a “risk/reward” amount to add back to their profit margin.

In my bidding, I have been “beat’ by others using this type of competitive advantage.  One that comes to mind is where the successful bidder used a work week with fewer overtime hours than the one we, and the other bidder, anticipated.  They saved on direct labor cost for each hour and gained in overall productivity.  The owner received the same project specified at a lesser cost than the other bidders would have provided.

Oh, By the Way… Innovation comes from experience and ideas developed from this experience.  With the “old timers” leaving the industry, and a dearth of training and mentoring, the construction industry may be in for some hard times in the upcoming years.

By Don Short | Posted in Construction | Tags: , , , , , , , , , , , , , , , | Leave a Comment

Trusting the Craft Labor

January 27, 2012 – 6:00 am

For some reason, some managers believe that always telling the craft labor the project is losing money is a good way to increase the productivity but I don’t see the logic behind this strategy.  I believe being honest to the workers in the field is the one and only way to go. 

Lying does nothing but demoralizes the employees and will not encourage them to increase their productivity.  In general, people want to do a good job and take pride in the work they do.  Telling them how the job is progressing is another way of saying they are doing a good job which can actually make them work harder.  A person will be more productive with a positive attitude compared to being frustrated and negative.

If trust is an issue with the craft, then there are much bigger problems to deal with especially on remodel projects.  The client’s image of the contractor is based on the crews they see all day and every day, not the project manager or anyone else that may visit the site every few days or weeks.  So how can a contractor trust the craft to represent the company but not trust the craft enough to be honest to them?

Unfortunately, not every project is a winner, but after the trust is established between the craft and management, telling the craft the project is behind will carry much more weight.  It’s really no different than the old story of the boy crying wolf.

If a person is going to milk the job, they will milk the job no matter what.  If a contractor can’t trust an employee, then maybe they need to reconsider that employee’s employment.

By markmentele | Posted in Construction | Tags: , , , , , , , , , | Leave a Comment
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