Project Bidding: Better Than a Bull's Eye
Aristotle is credited with advising that we should “know the purposes we seek in life, for then, like archers aiming at a definite mark, we shall be more likely to attain what we want.” The concept aptly applies to bidding. There’s a difference between simply turning in a bid and turning in a bid aimed at a very definite mark. With more bids today competing for every available project, it may seem the most beneficial to aim for the lowest bid, but many advise a more tactical, comprehensive approach. If the right price gets you on the outside ring of the target, then having the right price and a 100 percent accurate, professionally presented bid takes you right to the center of the bull’s eye. Add clarity that shows exactly what you plan to do, and you’re splitting through a lot of your competitors’ bids.
“It is vital for security dealers to present very accurate and professional proposals,” Rich Reihl, creator of BidMagic Proposal Software, comments. “This is not the season to shoot from the hip estimating prices or attempt to win by being the low bidder. Dealers who fold under this pressure and drop their prices will not be rewarded with profits at the end of the job.”
Reihl says, “There are essentially two ways to win a bid. You can present the low bid, or you can present the best bid. If your strategy is to win with the low bid, you will put your company out of business. This is a lose/lose scenario as in the end the client who accepts a low bid may be left without support and service. The second way to win is by presenting the best bid. This is really the only strategy that can provide long term success.”
So how do you present the best bid? There are several areas to pay attention to.
First, be thorough and avoid mistakes.
“Aside from price, thoroughness is to my mind the most essential aspect of a bid because it provides a representation of the quality of work that the customer can expect if your bid is chosen,” Joseph Liguori, vice president, Access Control Technologies Inc., Clifton, N.J., says.
“We try to reflect the impression that our company is extremely interested in working with the end users and our bid is hopefully reflective of that intent. To that end we try to demonstrate that we have reviewed the bid document, understood its intent and represent our approach toward insuring that, if chosen, our approach will lead to a meaningful and successful conclusion.”
Thoroughness leads to accuracy.
Edward Newman, vice president, Universal Security Systems Inc., Hauppauge, N.Y., sums up bidding success in three parts: start early, bid accurately and ask questions.
“The three best methods for achieving an accurate and hence successful bid are: First, get started early. It takes a lot of time to read and understand the specifications. Second, bid accurate. Research and price every deliverable item as accurately as you can. Don’t guess, don’t estimate. The more accurate you are in your cost estimate, the sharper your number can be. And third, ask questions. Request for clarification (RFC) and request for information (RFI) anything and everything you see in the specification that is vague or may make a difference in cost.”
Why? Newman explains that specifications can be prepared by a low bid consultant or engineer that may be unqualified, inexperienced or under-priced, creating inaccuracies, technical problems and other issues.
“Make the issues their problem and not yours by addressing them in the pre-bid process and not after you win the job,” Newman advises.
Tracy Larson, president, WeSuite LLC, White Plains, N.Y., advises to read and thoroughly understand the bid specifications and requirements, and then customize the bid to the customer.
“You need to read and understand the specifications. Understand the job and then prepare a detailed and a thorough technical response. No cookie cutter responses here. Every customer wants to know that you know their project that you are responding to their job. Engineer the job. You have to know the job. Draw it out on a piece of paper. Understanding what is connected to what and who is providing each aspect of the job enables you to deliver your job accurately,” Larson says.
Newman also stresses paying close attention to specifications, as specifications are a frequent accuracy “troublemaker.”
“I believe the most important element of a bid is the specifications. Thoroughly reading through and understanding every requirement is critical,” Newman advises. “One digit in a part number or a line stating that you must supply 120V power to each panel could be huge differences in the price. The errors made in this section are what makes or breaks companies.
“Typically we see a large spread at the bottom end of the bid and this means people are making errors. I was at a public bid opening a while back and when the bids were read they were all around $2.3 to $2.5 million. Then a large national integrator came in at $1.7 million. The integrator’s sales representative said, ‘Oh, $#!&. What did I miss?’ In that case, I knew exactly what he had missed. There was one line in the 300 pages that stated the bidder needed to provide a three-quarter inch RGS pipe for fire alarm disconnect from the FACP in the lobby to each of the panel locations in this very large facility. This was a major part of the project and easily overlooked,” Newman recalls.
Simply put, “Often one line in the 300 pages of bid documents can be the difference between making money on a job and losing your shirt,” Newman says.
To avoid embarrassing omissions such as the one above, it is Universal Security Systems’ policy that no proposal can go out without, at minimum, two qualified persons reviewing it.
“While this does not guarantee that it is perfect, a fresh set of eyes can often see something missing or incorrect that you may miss when you are staring at it for hours,” Newman says.
Nadim Sawaya, instructor for Security Industry Association’s (SIA) Certified Security Project Manager course, also sees frequent errors in estimations for labor hours.
“Most integrators miss the labor hours estimate on projects. They should focus on improving the estimating of installation, engineering and project management hours. They should follow the bottom-up estimating method as defined by the PMBOK (PMI),” Sawaya recommends.
Sawaya also indicates integrators need to capture the project’s indirect costs and focus on the cost of the project, not the sell price and/or margin. Both immediately improve a bid.
Larson tags both parts and labor as two top areas to pay attention to.
“One area that I think is consistently problematic is quoting incorrect parts and quantities of parts and labor. Not ‘engineering’ the job during the sales process can carry an expensive price tag after the bid award,” Larson says.
There are errors that occur from not understanding insurance or tax requirements, not being able to be bonded, hiring subcontractors based on numbers only and not understanding the thoroughness of their response to you, not understanding what will be done before you are on site, union labor requirements, coordination of work with other trades and more. It all hinges on your thorough understanding of each project, your project manager, your team and the team you have contracted with, Larson says.
Ligouri suggests eliminating errors by focusing on clarity. Integrators should focus on getting all the information they need and making sure nothing is assumed.
“Most of the bid specifications have some common threads, but they often omit essential information that may significantly impact the bidder’s price,” Ligouri says. “Uncertainty tends to translate into the bidder adding a security blanket in the form of additional cost to account for items that are unknown or misunderstood. Clarity is essential. The opportunity for a site survey to acquaint the bidder with the structural or site conditions is also helpful. Information content should be the driving force with the understanding that the more the bidder knows, the less risk is present, and risk can be associated to increased cost.”
In addition to improving clarity and accuracy, Larson points out that asking questions and reviewing everything helps produce a bid aimed at exactly what the customer is looking for.
“Ask at the start of the bid process what the customer is really looking for. Be thoughtful and prepare your questions respectfully, in other words, know the job. Talk to the consultant, talk to the general contractor and project managers. They can provide insight into job requirements, goals and concerns the customer may have that you can tackle as part of your bid response. Being able to answer a bid in a very targeted fashion for a customer shows them that you really care about their project.”
In addition to caring about what the customers wants, it is just as important to care about the project’s effect on your company. In the stress of competing against more companies and needing to win bids to stay in business, everyone SDM spoke with advised using extreme caution when setting margins. The consensus? Stay reasonable.
Liguori points out, “A significant differentiator in this current market is price, so the challenge presented is how to lower the price of the bid without effecting profit margin beyond a reasonable level.”
In the current market, that number has gone lower and lower, but successful companies stay away from bidding on projects that stretch them too far.
Newman says, “During the past year, we have seen a continued erosion of margins. Gross margins for some of the smaller, simpler projects have dropped into the single digits. This is simply not enough to pay the overhead costs at a security integrator that provides top level service. Sadly, it seems some of the security integrators out there are bidding this low in a last desperate attempt to stay in business. With the large number of bidders on many projects and the reduced margins, we have taken to carefully examining each bid prior to beginning the estimating process. If we feel the bid is poorly written or will not support the necessary margins, we will pass on it. This allows us to focus our resources on bids that are more likely to go to contract and can allow us the margins we need to provide the end user with an end result that will meet their expectations.
“The difference between a successful bid and non-successful one is looking back and being able to say that you bid the right price and you made money on the job,” Newman says. “Winning a bid to lose money is not a success story.”
Sawaya also advises walking away from projects that don’t let you meet your margins.
“Integrators should know their breakeven margin (zero profit) with good confidence and work their numbers from there. In lean times, you might want to win projects with minimal or no profit to keep your key people (employees) and cover your overhead. But, you should never, ever go below your breakeven margin. Second, as an integrator, you have to look at your edge in winning a bid such as better pricing, value engineering, and if you don’t have one walk away,” Sawaya suggests.
Newman recommends the same approach: emphasize your strengths in the bid.
“Integrators should first look at their own company and develop a list of strengths. This may be limited distribution products, experience in a particular niche market, geographic locations, or anything else that separates you from others. Once you have determined these strengths, focus your attention on projects that play to those strengths.”
In addition to ensuring that the bid lets you protect your margins and play to your strengths, Larson advises taking a long look at your odds of winning and use data to back up your decision.
“Honestly pre-qualify the bid and only bid if it is right for your organization and you know you have at least a 50 percent and more likely a 70 percent chance of winning,” Larson says. “Bidding requires a lot of time from high level resources and you may not get the job.
“You need to know your organization, know where you are successful and what makes you successful in that sales arena. You need statistics at your fingertips to show you where your sales have come from over the last five years, what has changed over the last two years, what has been happening in the last six months, how things are going now and how sales are projecting for the next 30, 60, 90 days and beyond.
“You need data by sales region, office, manager and sales person. Once you have data at your fingertips, you and your team can make more efficient and much smarter decisions in terms of the sales to go after. The smartest and best sales people out there have many qualities; one of them is knowing what to go after and what to pass on. Time is extremely valuable, and wasting time, effort and company resources on bidding projects you do not have a decent shot at winning is simply not effective.”
So you’ve considered your margins, decided the project plays to your strengths and you have a strong chance of winning, and you decide to bid. One final area to target in your bids? The final presentation of the bids, it counts. No, I’m not just talking about pretty graphs and the right ink color palette. How you put the information on the paper, is it easy to read, what information are you including, how are you organizing the information (charts, graphs, spreadsheets?), makes it possible for those reviewing your bid to understand, and more importantly, respect your bid.
Larson advises, “The presentation of the project, accurate and complete equipment lists; accurate and complete layout of labor types, hours and rates; a breakout of numbers for each system type; a breakout of warranty and maintenance numbers; a breakout of taxes and additional items such as payment and performance bonds, additional insurance, etc. will be required,” Larson says. “The way you present your company is crucial.
“Each breakout and presentation is critical as they will be used to level each bidder and to negotiate the final winner. Strategy in presentation while illustrating that you know the job best and will bring the right team to the project as well as providing ongoing support is critical.”
As Rehil describes it, presentation elevates your bid from mere paper.
“When you break it down, all you are handing your prospect is just a piece of paper. That is your deliverable,” Rehil says. “If you want to win, your proposal should stand out from the other proposals in the client’s pile. The content and presentation of your proposal should clearly announce that you are the best bid and the best company. It should invoke confidence and demonstrate why the client should pay more for your company.”
When you do that, you’ve hit the center of the bull’s eye.
Seeing Dollar Signs
While agreeing that price isn’t everything, most admitted that it plays an unavoidable role in project bidding. So, does the lowest bid always win? Is this a myth or is it true? Here’s what our sources had to say:
“Unfortunately, more times than not, it is true. The exception is related to two things: 1) a purchasing authority that has been burned and now has limited the bidder to a few instead of the masses and 2) a contractor who has been able to add value to the deal so that they are working in a negotiated deal instead of a bidding war.” â€” Tony Nasca, Dove Net Technologies LLC
“Sadly, in many cases the contract is still awarded to the lowest bidder, regardless of qualifications, capabilities or accuracy. During the past year, we have seen a trend that this is changing. I believe this is being driven by the high rate at which contractors are failing to complete contracts. We are now starting to see a vigorous process of vetting the low bidder. In more cases than not, this has been leading to the low bidder rescinding their bid, presumably due to the discovery of significant inaccuracies in their bid.” â€” Edward Newman, vice president, Universal Security Systems Inc.
“It is clear that the current economic conditions have put most businesses under financial stress. This pressure is driving prospective buyers to scrutinize their spending more than ever. This drives prices and profits down. Security dealers know this and need to make sure their bids are very competitive in this environment.” â€” Rich Reihl, creator of BidMagic Proposal Software
“Low price is not the only criteria. Integrators’ delivery capabilities are becoming a key factor in selecting bid winners.” â€” Nadim Sawaya, instructor for Security Industry Association’s (SIA) Certified Security Project Manager course
“This is the 64 million dollar question. I have heard varying interpretations that state that price is the last consideration. Price is today an even more essential component; however, many bids are leveled or compared to insure that each bidder is providing the appropriate solutions without shortcuts that would compromise the long-term integrity of the solution. Ideally, price is a consideration that allows you the opportunity to meet with the respective client for the purpose of verbally reviewing the bid response. This is the interpersonal opportunity to demonstrate that your company has a thorough grasp of the bid requirements and has developed an effective and comprehensive approach to satisfying the expectations of the specification.” â€” Joseph Liguori, vice president, Access Control Technologies Inc, Clifton, N.J.
“No! I say this emphatically and with experience. There are indeed contracts that have to be awarded to the lowest bidder but, this is not the rule, not typically the majority of what is out there and usually there are other qualifications bidders must meet that are in play in addition to that low price. The greater number of qualifications that an integrator can cover, the better chance they have of being a finalist and eventually winning the bid.” â€” Tracy Larson, president, WeSuite
Bid versus Negotiated Projects
Respondents to SDM’s 2010 Industry Forecast were asked, “What percentage of your projects completed in 2009 were bid versus negotiated?
Sizing up Software
Bidding software can be utilized for accuracy and efficiency. There are a lot to choose from, but keep in mind that not all bidding software is the same. Be specific about what you want to do with it, and also look for software that is industry specific.
“Different industries have different estimating processes so electrical bidding software does not particularly work well for the security industry. In fact, the software in some cases is specifically written for certain industries,” Tony Nasca, Dove Net Technologies LLC (www.dovenet.com), says.
Tracy Larson, president of WeSuite (www.wesuite.com), also emphasizes knowing what industry the software is targeting.
“Bidding software in general has typically been developed for a particular type of end user in a particular market, for instance, the construction market or the audio/visual market. Some are more general in nature. Others started with a particular focus for instance, accounting, and then branched out to cover specific needs customers may have suggested. Some do this very well and others do not. With any software package it is important to understand the core strength of the package. Why was it first developed, and what does the manufacturer consider its core market and target end user?” Larson says.
“At WeSuite we focused on the market we know best, the security market. We are constantly working with our customers on new features and functionality to improve what the software is doing to improve their business process, their team performance and their profitability.”
Profitability is improved by efficiency.
“Creating bids manually wastes lots of time, is not accurate or repeatable and does not include automatic labor calculations, management oversight or control,” Rich Reihl, creator of Bid Magic, proposal and project management software (www.bidmagic.com), says. “Bids created in Word or Excel have little or no connection to the workflow that happens after the sale. Good proposal software is easy to use, automates proposal creation, delivers a very professional finished package designed to win the bid and provides a system to manage your products, prices and labor. To bid accurately, you can assign detailed labor requirements for every piece of gear. Then after the sales, the software provides the essential workflow for ordering, installation and tracking.
“Good bidding software must empower your sales team to save time, deliver better proposals and ramp up their sales. The right software must be easy to learn and implement to help salespeople stay focused on selling and be more productive. Choosing the wrong bidding software will have the opposite result. Complicated, hard to learn software can bog down your sales team. Some software requires expensive training and has a very difficult learning and startup curve. Avoid choices that claim to do it all, but wind up burdening your sales team with ‘back office’ requirements.
“[When using bidding software] for the client, the proposal is more professional, very clear and understandable and builds confidence to win the sale; while for management, the software creates a solid business platform to manage your products, prices and labor,” Reihl explains.
Bidding software can go a long way to improving accuracy and creating uniform proposals across your company. Dove Net, an estimating and project management software offered by Dove Net Technologies LLC is developed specific to the industry and includes several major features targeting accuracy, including manufacturer price lists, which help the contractor not waste time keeping their price up to date, and price lists that are proprietary or unique to the reseller, which can be imported into the system.
“Once the system has good price lists, all the estimating team can take advantage of those price lists so a few people are making many people more efficient in their estimating process,” Nasca says.
The bidding software also helps with uniformity through auto estimating, a feature of Dove Net that allows users to tie labor to hardware so that they can automatically develop the labor costs of a project.
“A big benefit to this module is the consistency of bids,” Nasca says. “By using auto estimating, everyone is bidding/quoting the same way instead of one person quoting one way and another person quoting another way.”
Bidding software also heightens efficiency. “Being able to respond very quickly and getting bid responses out quickly to customers. We have heard from our customers that they have won bids due to their efficiency in getting responses to customers,” Larson says.
Whether purchased or in-house, a bidding software that complements your company, combined with training, in-house documents and methodologies, produces the best, most accurate bid possible. It’s an accurate approach to achieve accurate bids.