With construction margins in single figures and competition fierce, bid software can make all the difference.
Working as an estimator in the construction industry has never been easy – whatever other trades might think – but bidding on construction projects has never been so hard as today.
Companies which have been doing little more than tick over for several years, are now trying to gear up quickly to win bids, as the economy finally starts to grow.
However, as the government’s Help to Buy initiative continues to drive house-building forward, shortages of both materials and skills are being seen across all sectors.
Help to Buy’s success brings new challenges
Inevitably, that has placed an even-greater premium on the ability of estimators to assess bids with absolute precision, regardless of the size of the potential contract.
It would be a false – and dangerous – economy to spend days poring over a £1m-plus bid, only to rush through one for £50,000 of work.
It’s never about winning work at all costs, but about devising ways to win the right work when bidding on construction projects. There have always been many ways for an estimator’s thinking to go awry. Of course, in buoyant times and when margins are healthy, it’s sometimes possible to ‘recover’ mistakes made in an estimate, after the work has been won.
Today though, margins in construction remain under intense pressure and are typically in low single figures.
Margins under greater pressure
In March 2014, Dr Noble Francis, the Construction Products’ Association’s economic director, warned that a triple whammy of rising prices for labour, materials and sub-contractors was impacting on the industry.
Consistency when bidding on construction projects is also critical. Your bid preparation process has to be logical, objective, considered and above all, transparent. If it relies solely on the knowledge and instinct of one person, you’ll be in trouble.
It is possible that they’ll leave and their successor won’t understand the process by which previous bids were created, or they could make arbitrary decisions during that process and subsequent bids are unlikely to be consistent.
The RICS may be predicting that tender prices will boom, rising by around 30% over the next five years, but it also expects input costs to rise by 17% during the same period, so there remains no scope for error.
Equally, the same compelling demand for precision applies whether you are a specialist looking to win work from a main contractor, or a major player in the construction sector.
For larger companies, the biggest concern is consistency. For smaller companies, it’s about making sure you add up all your costs correctly, but for both it’s also about having a proper audit trail, so that your costs and revenue are always in sync.
Accurate audit trail is a must
Being able to re-examine the bid process is especially important when clients ask for variations, so you know precisely what was in the original estimate and what the financial impact of the changes will be.
Just as clients need to have confidence in your firm’s ability to deliver as promised, you must have absolute confidence in the bid you are submitting and the process which created it.
You might win a bid, but if your estimator’s calculations are a long way adrift from the competition or if they only win work by failing to include all the projected costs you’ll still be in the firing line.
Companies seek out software solutions
It’s also critical that each of your estimators works to an agreed and defined system, so you can remove the potential for uncertainty which can be created when bidding on construction projects. For example, if one is instinctively pessimistic and another is a natural optimist, you could end up with a very different result.
For larger bids you may also want multiple estimators to work on a tender at the same time and here a consistent approach, system and methodology.
The favoured solution to such issues, which have bedevilled the industry for decades, is to use specialist construction software, which not only provides precision, but also helps estimators by ‘nudging’ them to include costs they may otherwise have overlooked.
And it must be said, no-one has yet produced an argument against its use.
However, despite the upturn in the general economy, companies are also still putting in suicide bids, which they know are under cost, just to win work.
Research by the Scottish Building Federation (SBF), shows its members typically spending almost £3,700 per £1m of public contract value, on pre-qualification questionnaires and final procurement processes.
As the SBF’s managing director, Vaughan Hart says: “Tendering costs at more than 4% of contract value mean most contractors will fulfil these contracts at best, at break-even, and at worst, at a financial loss.”