In the construction industry, your estimating department is your company’s engine for new business. It’s also one of your biggest sources of overhead. The sheer amount of time, effort, and resources that go into preparing a thorough, accurate, and competitive bid is immense. Chasing every single project that comes across your desk is a surefire way to burn out your estimators and destroy your profit margins.
The most successful and consistently profitable contractors are not the ones who bid on the most projects; they are the ones who are the most selective. The key is to develop a disciplined, strategic bidding process. While finding a promising construction bid is the first step, the truly critical decision is whether or not that project is the right fit for your company. Bidding less, but bidding smarter, is the key to a healthier bottom line.
To help you focus your precious resources on the right opportunities, here is a guide to the key questions you should be asking before you ever start a takeoff.
Does the Project Align with Your Core Competency?
The fastest way to lose money on a project is to build something you’ve never built before. Every project type—from healthcare and hospitality to industrial and multi-family residential—has its own unique set of complexities, risks, and a specialized pool of subcontractors.
If your company has spent the last decade becoming an expert in building high-end retail spaces, you have a deep and valuable well of knowledge in that niche. You know the costs, you know the process, and you have strong relationships with the right subcontractors. Chasing a hospital renovation project, which has a completely different set of rules and risks, puts you at a massive disadvantage. You’ll be paying for your on-the-job education, which can quickly eat away your entire profit margin. Play to your strengths and focus on the project types where your expertise gives you a real competitive edge.
What’s Your Relationship with the Project Team?
Construction is, and always will be, a relationship business. The name on the front of the blueprints—the architect and the owner—is often just as important as what’s in them. A project with a great set of plans can still be a nightmare if the team is disorganized, adversarial, or known for being slow to pay.
Before you decide to bid, ask the tough questions about the project team:
- The Owner: Do they have a reputation for being a fair and collaborative partner? Is their funding for the project secure?
- The Architect: Are their plans well-detailed and complete, or are they known for issuing a constant stream of changes and revisions?
- The GC (if you’re a sub): Does this general contractor run a safe and organized job site? Do they pay their subcontractors on time?
A great relationship with a project team you trust is worth far more than a few extra points of profit margin.
Do You Have the Resources to Succeed?
This is an honest, internal gut-check. A fantastic new project can quickly turn into a disaster if your company is already stretched too thin. Winning a new job is a hollow victory if it causes the quality of all your other, existing projects to suffer.
Before you bid, you must have a clear picture of your current and projected workload, or your backlog. Be realistic about your team’s capacity. Do you have an experienced project manager available to run this new job? Will this project overextend your financial resources, like your bonding capacity?
Saying no to a good project because you don’t have the right team available to build it is one of the smartest and most disciplined decisions a great contractor can make.
What is Your Real Win Probability?
Finally, you need to be a realist about your chances of actually winning the work. Who are your competitors on the bid list?
Are you up against a group of other high-quality, reputable firms like your own? This is a great sign that the owner is focused on quality, not just the lowest price.
Is the bid list full of low-ball contractors who are known for cutting corners? This is often a sign of a race to the bottom that you are better off avoiding.
The bidding process is a major investment of your company’s time and money. By being disciplined and strategic about where you choose to compete, you can stop wasting resources on the wrong projects and focus your energy on winning the right ones.
