Tired of Underbidding? Time for a New Method
If you’re the owner of a small or medium-sized construction company, you probably do your share of fixed-cost basis work.
And, while this is something you have to do to stay competitive and win the business, there is an obvious risk: it’s a bit of a guessing game. If your costs end up being higher than expected, your company usually eats the difference. You’ve probably experienced it first-hand — that dreaded feeling when you’ve maxed out the budget three-quarters of the way through a project. Ultimately, the lack of certainty when setting your bids affects your ability to remain profitable.
Try to explain this to someone outside the industry and you’ll probably hear, “Why not just renegotiate?” Renegotiating is never simple, and rarely does anyone walk away happy.
The solution, of course, is to not underbid. Unfortunately, that’s also the problem.
There are two references for what a contractor should bid on any given project. For one, you’ve got the market-based bid, which plays off what local competitors are charging for similar work. Then, you’ve got the cost-based bid, which comes from understanding what the project will actually cost. The market-based bid is easy to figure out — but the cost-based bid, not so much.
Bidding Better
Where do you get the data to inform cost-based bidding? When your company is growing, there’s no gap between projects and little time to spend collecting data, importing it to spreadsheets, and thinking like an accountant. Speaking of which, did you get into this business to build things or be an accountant?
Bidding is an art, you might say, built off your intuition of what’s doable — not explicit data. Sure, your experience is worth its weight in gold, but wouldn’t you like to have information that gives you the upper hand?
That’s why explicit data is so efficient — especially when collected and imported without any extra work from the admin side.
Call it crowdsourcing for construction. Instead of trying to track down the data after the fact, you can turn things on their head by implementing a system that compiles the data as you go.
For example, some companies use phone apps to track their employee hours on individual projects and tag them with predetermined cost codes. The benefit is that your employees capture the data for you. Employees using these apps can easily allocate their hours to a morning spent demo-ing for a remodel or running conduit on a new construction project.
As your work progresses, the hours your employees log against each task are stored in the app.
Then, by factoring in things like pay rates and overtime, these apps automatically turn those hours into actual dollar amounts sortable by client, project, and even cost code. From there, you start to have the information you need to get even better at bidding in the future.
Imagine what having historical costs for every project you've ever done will do to the accuracy of your future bids.
This is just one way that construction companies are using technology to improve their profits. If the art of bidding is enhanced by the data technology brings — then everybody in our industry wins.
