Is it worth bidding? A process for selecting the right contracts
At any given time, there are hundreds, possibly thousands of tenders available for bidding on. It can be tempting to fire out bids to everything possible, but is that a good idea?
The process of putting a tender together properly is strenuous and involves a lot of time – you should always make sure that each section has been given thorough consideration. Bid in a rush because you’re trying to fit in a whole lot of other tenders and you will be prone to making mistakes, wasting your time or possibly putting your reputation on the line.
With limited time available to put together a tender, the fact is that not every opportunity will be the right one for you so you should be looking to streamline how you go about bidding. One of the biggest mistakes we’ve seen is when companies try to bid on everything that comes in the door, irrespective of whether that opportunity is likely to be a good fit.
For this reason, we think electrical companies should always pause to ask themselves, is this project worth bidding on? To answer that question, we suggest you develop a process or criteria for selecting the right contracts:
Identifying the “right” projects
Your bid team or sales people won’t be able to work on everything – some companies are small enough that they don’t have anyone dedicated to bidding at all. In either case, it’s helpful to come up with a few qualities or prerequisites which help you to know whether a project is “right” before a whole lot of time is invested in bidding:
One of the first things we would check before getting too excited about a new opportunity is whether or not it is in a location that you cover. If it is too far out, you’ll spend a small fortune on fuel and transportation, impacting your bottom line.
Read over the contract – what type is it? If you won, would you be happy carrying out the work under the terms of the agreement? This is a part of the process which really shouldn’t be rushed through – clauses can be buried in the many pages of the contract and companies have been burned many times when something was missed.
Some items to look out for include:
- Conditions precedent – These are events or conditions which must occur before any contractual duty exists. Common conditions in construction projects might include; having to provide warranties or other paperwork, requirements to carry out specific tasks or requirements around giving notice. Look for language in the contract such as “provided that,” “subject to” or “on the condition that.”
- Payment provisions – Look for these to be crystal clear. Any wording such as “payment terms 20 days net” will lead to confusion about when the period starts and when the due date is. To lower the chance of any payment disputes, ensure that dates for payment are spelt out with no ambiguity – this also helps if you ever find yourself having to bring a payment claim.
- Set off – This is a clause which allows the customer to deduct from money owed to the contractor where the contractor owes them money (such as for materials). These can be fine, but a caution to look out for is if the clause allows the customer to deduct sums which they estimate will be owed in the future. The problem with this is that it can lead to disputes where it isn’t applied fairly, or cash flow problems for the contractor.
The Hawkswell Kilvington law firm wrote a good article detailing what contractors should look out for in their contracts. Remember, it’s always a good option to seek legal advice if there is anything in the terms which you’re not sure about.Create a criteria that helps you to decide: to bid, or not to bid? Click To Tweet
We’ve got a few specific examples here of issues we’ve come across:
- BWIC (Builder’s Work in Connection) issues, such as not realising that the contract explicitly asked for marking out and drilling of holes up to 200mm in diameter through structural elements. This requires hiring special drilling equipment, an extra cost to be factored in when bidding.
- The contract requesting that protection be given to furniture, fixtures and fittings during out-of-hours work in an occupied building.
- A requirement to mark out all electrical services on the whole site with a spray can, which is of course, very time-consuming. You’d need to notice this and factor it into your estimation of time for the project.
- Making the final connections from electrical supplies, fused connection units, isolators, etc. to other contractor equipment once installed. The contractor assumed that these final connections would be done by someone else, when the contract actually required them to carry out this work.
- The contractor did the work to isolate, identify and make safe the redundant electrical services, and had assumed they would be removed by others. However, the contract required them to also do the work to strip out and remove the redundant supply completely, which wasn’t something they had any money in the tender for.
Type of work
There are growth opportunities, then there’s the possibility of biting off more than you can chew. Look at the type of work that is required and assess whether it is work that your company is skilled at or comfortable doing.
If the project calls for work that you’re not particularly experienced with, you’re going to need to make a call as to whether it will be a good fit and whether you might risk your reputation.
Secondly, is the type of work that the tender calls for profitable? You’ve got to have a good set of parameters around this so that you don’t end up with little to show for all of your work. When you’re looking at this, take a moment to assess other projects that are currently up for grabs – are there others which might be easier to tender and/or easier to build that will result in better profit margins?
This is another criteria which will depend upon your level of comfort – is the design incomplete or does it have significant ambiguity? Is it a design and build project which has very little design available at the tender stage?
Generally speaking, you want as little ambiguity as possible heading into a project, so you might need to send Requests for Information to firm it up. Otherwise, it comes down to good communication with the project owner, especially if there is little in the way of design available. Again, your comfort with design and build projects should be a factor as these tend to take some experience to get right.
How close is that return date? If it is unreasonably close, your estimating team may be pressed to get an accurate bid together in time. Consider also whether you have enough time to put together any quotes needed from the market, such as from suppliers or subcontractors.
How stiff is the competition who are also bidding on the project? Are there many other companies tendering? In the case of highly competitive projects, you’ll want to assess whether your company has some value on offer which can truly set you apart from the rest, for example with your experience on similar projects.
If a project has a large field of quality companies competing, you might want to consider whether it’s really worth your time. After all, you could spend that time you would have spent to put the tender together bidding on another project which isn’t as competitive.
Building up relationships is important in all parts of the construction and electrical industries. Engaging with companies, public bodies and procurement managers prior to them having project work available is a good way to get yourself bumped up their list.
For this reason, your relationships with the client should be a consideration. Can you increase your chances of winning the tender? Or, is there some reason why the project will be best suited to your business because of the connections and relationships you have?
This might include any key relationships you have with suppliers who will be needed for the job too – sometimes this can give you an advantage when bids are considered.
Consider any risks involved with the project – is there anything required which you have had issues with in the past? This doesn’t automatically mean you shouldn’t bid, but if you do choose to go ahead, you need a plan in place to mitigate that risk.
Win rate and past history
Is this a client whom you have tendered for in the past? If so, consider your previous win rate with them. If you are asked to submit tenders, have done so often, yet consistently don’t win the contract, we’d suggest that’s a good sign to stop bidding. It may be that they’re using you as a pricing service to gauge against other bids.
The resources required for the project and an assessment of what you have available has to be a consideration before any bid. Look at your current workload and the strength of your team – if you won the contract, would you be able to carry out the work on-site? Will you have the resources available when the project is due to start?
Use of subcontractors
As a continuation from that last point, another thing to consider is whether you might have to hire extra team members, bring in partners, or hire subcontractors to get the job done. Every growing company will at some point experience the “next step up” project, so it’s up to you to consider whether you are ready and if you are prepared to use those extra resources.
A frequent bidding mistake is when companies don’t give it a lot of thought and try to bid on everything that comes their way. This can be mitigated by having some criteria to apply and come up with a “yes” or “no” as to whether to go ahead with a bid.
To take it a step further, you might even develop a scorecard where you assign numerical weight to each criteria, then figure out a score that is the minimum to go ahead and bid on a project.
Electrical estimating tends to be a series of never-ending deadlines, so companies commonly fall into a trap of soldiering on, not stopping to think about how they’re working and what could be more efficient. Analyse your data and make that process more streamlined so that you can clearly answer the question, is it worth bidding?
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