TL;DR: How productivity misconceptions lead to contractors missing the mark
Fresh off a large successful construction job, I was eager to dive into the core part of our business: asphalt. When a county bid for 25K tons of asphalt and some reconstruction came up, I volunteered as Project Manager/Estimator. An intern and I rode every street multiple times, convinced we had an edge. I believed the patching would under-run by 50%, and we could lay 550 tons a day on the short Bayou roads. At the time, our prep and paving crews desperately needed work.
My boss and I spent a couple of hours reviewing the bid the day before it was due. We then added a 5% margin and submitted it electronically. Bid openings were still conducted in person. Ten minutes after the opening, our Field Engineer called me: “Well, man, we got the job…”
Oh no… How bad?
As he read the numbers, my heart sank. We bid $2.1 million, while the second-place bidder came in at $2.8 million, and the third at $3.1 million. We left $700K or 33%, on the table. Industry average is ~8% and best in class is ~3 to 5% . The bid results were then emailed to the entire company 😬.
I later realized my mistake. Our paving productions were 350 tons per day, not the 550 I had figured, and the Engineer decided to do every inch of patching. We ended up writing down the job by $500K. Managing this project was a humbling experience. Our main competitor, reacting emotionally to our low bid, secured three nearby jobs cheaply on the next letting. We continued to compete fiercely, and it took a year for the market to stabilize.
1. Promoting Procrastination: Proper estimation reviews must be conducted days before the pricing strategy discussion.
2. Miscalculating Costs: I overestimated our production capabilities.
3. Ignoring Historical Bid Spreads: We rely too heavily on recency bias.
4. Mixing Cost and Margin: Assigning the margin during the bid review was a critical mistake as it let our lack of backlog influence our cost calculation.
Modern productivity advice often emphasizes batching meetings to save time. We rush through cost reviews, internal backlog discussions, competitor analysis, and profit percentage decisions based on gut feelings. This approach is flawed.
To avoid these pitfalls, you need to separate the cost estimation and pricing strategy discussions. Here’s what each meeting should cover:
1. Estimating Meeting:
2. Bidding Meeting:
By separating these discussions, you ensure a thorough and deliberate approach to both estimating costs and setting pricing strategies.
How do you manage your estimating and bidding process today? We'd love to hear your insights!
