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Bidding Edge? It's Cheating, But There's a Right Way to Compete

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I recently overheard a contractor bragging about how he could gain a cost advantage over his competition. It caught my attention, so I listened.

It seems that in his bidding practices, the contractor priced materials and equipment that were not approved in the specifications. To avoid giving away the bidding advantage to his competitors, the contractor decided not to request these items to be approved in the bidding period. After he was designated the low bidder, the contractor planned to press for the materials to be substituted for the specified items.

A few things come to mind. First, this contractor was not bidding on the project scope the owner wanted. If you assume the owner is knowledgeable, the materials and equipment were selected for a specific reason. Therefore, the bid without approved substitutions is subverting the owner's intent and the designers' specifications.

Second, there is customarily a provision in the bid documents stating that substitution requests must be submitted prior to the bid so that the materials can be evaluated. If a substitute is determined to be an equivalent, then all bidders are notified. This tactic allows the competition to bid based on the same knowledge and enables the owner to decide on the best pricing or most suitable contractor based on the same scope of work.

Companies that use the bid approach about which the contractor boasted will cost the owner more money in the long run. Bidders that short-circuit the specifications are taking something of value from the owner. If the owner wants to use Product X to meet Specification Y, that is the owner's decision.

If contractors want a substitute product to be considered, there is a mechanism to get that done; however, shrinking bid periods, pride of authorship and other factors cause project members to ignore the mechanism. In fact, many owners don't realize the bid period is the most cost-effective time to allow for substitutions. When the mechanism is used, the contractor can re-approach, after the bid, the designer and owner about the substitution.

Cheating on the specified materials and quality of work is not a competitive advantage. It's cheating.

Competitive advantage resides in the means and methods used to achieve the results the owner and architect or engineer have set out in the plans and specifications. Generally speaking, the contractors—and their estimators and project management personnel—are the most knowledgeable people regarding the means and methods on any given project.

During the bid period, if a competitive advantage develops, the smart contractor will price out the customary or conventional process and evaluate it against a so-called unconventional process. If there is a savings to be had, the pricing structure and the contractor's bid can reflect this. The contractor may take half the cost difference as a "risk-reward" amount to add back to its profit margin.

 

SHORT
In my bidding, I have been "beat'" by others using this type of competitive advantage. In one case, the successful bidder used a work week with fewer overtime hours than the number we had anticipated. The successful bidder saved on direct labor cost for each hour and gained in overall productivity. The owner received the same project, specified at a lower cost, than the other bidders would have provided. This competitive advantage comes from innovation, and innovation comes from experience and creative, critical thinking.

Unfortunately, the bid-period mechanism relies on all parties knowing their responsibilities. Not that long ago, contractors had staff estimators and bid managers who knew how to evaluate all subcontractor bids for all disciplines. Estimators knew their obligations by reading the plans and specifications, and management listened. Designers knew how to draw the details of the project, not just refer to a code. Owners knew about the construction process or had a construction manager who did, and construction managers knew how to develop bid packages and proper bidding methods to get the best bids.

From owner to designer to contractor to subcontractor to vendor to everyone else, the whole industry needs to remember that innovation is just a by-product of experience and knowledge. Perhaps innovations are just rediscovered good business practices.

Don L. Short II is president of The Tempest Company, which provides estimating, scheduling, project controls, consulting and expert services, including arbitration services. He can be reached at donshort@tempestcompany.com.

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