The Bouncing Ball
That is estimating !
The “Tender Process” is a small but obviously important component of the greater “Design and Building Process”. Tendering is normally the transition between the design and construction phase.
Tender or a bid, generally means you are trying to figure out what is the price of a building project for a contract. Now how you get to that price can vary, but in the commercial sector, a QS or Estimator will create a BOQ or a builder’s bill. The estimator will then rate up the BOQ via a combination of methods.
During a tender – the estimator is in the race to be the lowest price. Good systems & procedures, looking at the smartest way to build and keeping your indirect costs and margin pretty skinny is the ideal manner to win a tender. However, it should be said – that when an estimator is in a winning position, the first thing that comes into an estimator’s head is “Shit – What did I miss”.
Looking in outside the estimating trenches – many would see estimators as “academics” – and not really understand the human factors of construction a “Real Costs.” That may be true to many estimators in the industry however, business’ have a historic ace up their sleeve.
When an estimator tenders and receives quotes, Subcontracts and Contracts team play this little game – A subbie know he or she needs to be cheap at tender but also have enough up their sleeve to be negotiated down by the construction team in procurement.
So the estimator uses a combination of pricing methods (First Principles, Second Principles & Benchmarking) to place the best science against a trade package price. Now where “The Dark Arts ” come in – the tender and building market is a live thing and is affected by many variables – so what pricing principles/science use may vary from tender to tender, region to region, subbie availability and building cycles.
So to win projects – estimators first use “First Principles” to apply the best guess at a price based on years of training and historic records. Then they de-risk most trade package by getting a number of trade quotes (ideally in a cluster). Then check the current number over past projects actually priced and built against the market today. All these variables are taken into play and even the current building cycle upward and downward cycles against the possibility of possible procurement at the construction phase.
Within the tender submission to the client – a program of high lighting the complexities of the project, duration, and critical milestones. In large companies, often these programming and scheduling are done by the contracts teams however in smaller organizations the estimator can also be required to perform this task as well. From this document, the programmer can make a call on staffing to run the project, duration, site fencing, etc to run the project. All these numbers get passed onto the estimator and the preliminaries cost of running the project are produced.
So an estimators job is focused on trade packages, risk and market trends. Going back the game with subbies pricing at tender and subbie pricing at procurement – normally there is some padding in their estimate first-round tender price. Even if there are some minor misses at estimating stage by the estimator – if the estimator applies the best science at the tender time even though you may miss a few prices there is also the situation where you overestimate a trade. So this is where benchmarking comes into play as risk appraisal.
First Principles
Which is rating up the materials, plant, machinery and labour using a summation method. These factor rates are based on Years of experience and very accurate historic records.
Second Principles
Is packaging the documents into trade packages and contacting a number of subcontractors and request a quotation. The idea result would be to get three or more prices that are relatively close together (A "Cluster" of prices).
Bench marking
The price that has been formulated form actual historic record from construction. You use these rates to price "like" buildings.
If you wish to read more about Estimating Principles and Terminology – Click Here
And those variables never seem to get fired at you in the same way. ”
The “Contract Type” and the stage of design development and quality of the tender documents have a subtle impact on how you approach each tender. Then you have internal and external driver plus other tenders that may be impacting your time. It is always better to be proactive however at some time during the tender process life becomes more reactive and you can become overwhelmed.
When you are under the pump – you are under pressure to get a tender submitted and you have a number of queries from subbies from other projects that you have to respond to whilst doing five other things… a seasoned estimator normally has an internal recipe of how to produce a tender and maintain your head over the water when that massive wave hits. This systematic approach to everything he or she does is the key to every good estimator. A little bit of OCD, tunnel vision and a sense of humor goes a long way.
Tender Overview
The process of estimating has a basic path broken into quarters : tender request, Billing, Pricing and Close out. The tender process is live thing that can be affected by a number of valuables. Then just when you think you have a winning recipe, a ripple affect from external forces can change your approach and strategy. Estimators use the best science they can lay their hands on to manage risk in trades. The industry generally has become a buyer and seller of risk, and the person who managers that risk the best will not necessarily win a tender. The eight step process below will cover the tender process at a high level, but the true work load required to tender can be a scary thing.
The processes can be broken into a number of layers depending on the complexity of the tender and duration you have to tender and of course the resources you have available. All looks pretty straight forward – Right. The reality is far from it. Beneath these basic steps, there are many variables and systems, procedures and even some “The Dark Arts stuff.”
Tender CRITICAL PATH
The processes can be broken into a number of layers depending on the complexity of the tender and duration you have to tender and of course the resources you have available. The list below expands to reveals the processes within:
01
Request For Tender (RFT)
Request for Tender – normally come in the form of an email with an electronic download of the documents. From a customer service standpoint, a phone call normally takes place and some key information is normally reiterated by the client or client representative. The documents and normally filed in a temporary folder prior to a formal review.
The steps from here are pretty simple :
- The documents are reviewed for GFA and at a high-level estimate on the project.
- Schedules are reviewed for non priced and priced criteria.
- The type of contract is quickly reviewed.
- Key documents are reviewed and the estimator now has the high-level information to arrange a “Bid / No Bid Meeting”.
02
Senior Management Review
Senior Management meeting is normally called a Bid / No-Bid meeting. It is a meeting where the head team members try to figure out if the business wishes to actually accept the request to tender.
Tendering costs thousands of dollars and if you are not selective, building companies can often be used and abused as an estimating service.
The financial lending organization will often need three quotes before funds can be released.
Dealing with ethical companies that you have a relationship is the only way you can be reasonably sure of not being used and abused.
- Bid / No Bid form is filled in to ratify the benefit of tendering the project. The form spits out a number of questions and at the end of the process rates, the chance of the tender be successful or not.
- From this meeting, the senior management decides if we decline or confirm you will tender.
- Resources are assigned to the tender.
- Key milestone dates are scheduled and team responsibilities drafted.
- The estimating begins.
If you wish to read more about Bid / No Bid Form – Click Here
03
Document Control
Once the green light on the tender is given the tender file is then transferred to a tender folder ready to for the first sprint, Yes I did say sprint. The aim is is to get the documents reviewed, packages into subcontractor tender packages and sent out as quick as humanly possible.
A subcontractor needs to all of the drawings applicable to His or her trade. Now if you make the mistake of sending every drawings with no thought. It is likely you will get no trade covering in the busier times.
What documents you send, who you send it too and how you send the document for tender is pivotal to a successful tender.
- Once the green light on the tender is given the tender file is then transferred to a tender folder
- Second pass document review ready for subcontractors.
- The tender documents are then uploaded a document control system and RFQ are sent out addenda and messages are controlled from these systems. The dispatch of the packages is normally a click of a button.
- The final process to receive and file the quotes in a standardized format.
If you wish to read more about Document Control – Click Here
"Estimators either live or die from their document control - pay it the respect it deserves".
04
Trade Packages
Trade packages are the group of documents that you illustrate and spell out the scope to the selected subcontractors.
Ideally, the client has a fully coordinated set of documents which are named in the industry standard and documents are separated and named in such a way that it is easy to divide into trade packages.
Here are the problems – what if you have a client who has tried to save money and have done just the bare bones to get a concept through the council?
Now during the tender, the builders who are pricing the project start asking a lot of questions.
One thing leads to another and an addendum gets issued by the client and document control now needs to be completed checked and any changed document gets to send out the relevant affected subcontractor & supplier.
Now that is one addendum – What if there is 20? Does anyone want to become an estimator? If you are ever going to see an estimator document control officer lose their shit – I mean their stuff – lots of addenda will do it.
I would strongly advise talking to the client and try to feel out how switched on the client is with consultants and client own document control. Yes – the worst the documents are put together the harder the tender is going to be.
Instead of pro-active tender – the estimator will now need to sprint right up to tender close in a reactive manner.
Now bad tender documents issued by a client – doesn’t necessarily mean all bad news – it can also mean opportunity. The strategies on the state of the document, who the consultants are can be a license to write variation money.
Now there is a heap of ethical issues about what type of builder but it does happen. This is another problem that you need to manage as well. The documents that you receive from the clients representative has got a direct impact on what documents you send out to the market. Ok – now you have the relationship with your subbies.
What do you think a subcontractor thinks of a lazy estimator that just send the crap document out to the market? One day you will be chasing this same folk for last-minute price. I wonder if you will get it?
Tender documents - "To separate or not to separate - that is the question"
05
Subcontractror & Supplier Lists
As an estimator you want to find a cluster of subcontractor pricing. A cluster is a group of prices that are preferably within 10% of each other.
Then you also want to contact your competitors subcontractors so you can understand the market.
You obviously want to keep you gun subbies away from your competitors.
You also need to engage your own contracts team to provide any smarts and about the project .
Face to face with key subbies that you believe will give you an advantage .
Your first driver is to get a least one quote in every trade.
Second driver – is to get (3) Quotes in a cluster.
Third driver- is trying to keep your contract team happy with the subbie you get to tender. Often your contracts team will have very definite ideas about subcontractors but you still need to strive for primary two . It is often hard to keep your contracts teams opinions heard and do your job. But when it does – make a big deal about it whilst you can as more than often you cant. You must find a number that is the market. Again apologies later when you have won the project and the site team have a job.
If you wish to read more about Subbie & Supplier Lists – Click Here
Second Principles Pricing in a "cluster" pattern - is the best way to gauge the market.
Generally speaking - If you are competitive over most trades and can get an advantage in three trade. That recipe will win you tenders.
06
Phone Calls
The best scenario for any estimator is to call the subbies you need a quote from at least three times however that is the ideal world and the reality is obviously harder.
The basic concept is to be in the face of the subbie you are requesting a quote from but not to sound too needy. At the very least to get a feel where your possible issues of contractors coverage may exist.
You are always trying to get a cluster of prices in each trade. And phone calls are the quickest way to instill a connection to the Subbie.
If you wish to read more about the benefits and a few tricks to help get those connection working for you – Phone Calls – Click Here
When You are making phone calls to subbies
"Work the word "THANKYOU" into the first and last sentence of any conversation".
07
The RFQ to Subcontractors & Suppliers
As I have mentioned in “Document Control” – The dispatch of the packages is normally a click of a button using specialist software. But there is other software that can transfer large amounts of documents however you need to select a system that has a degree of security.
But the one constant at the first RFQ should be phone calls prior to the subcontract list is dispatched is always the best as it engages the subcontractors into your tender.
Based on previous tenders – often you will need to strategize where your time is best spent.
If you wish to read more about
08
Strategy & Bid Management Meeting
OK, the tender packages have been sent, phone calls made. Moving forward and estimator needs to focus down on the trades. So that tunnel vision kick in, it is always good to take a breather and conduct a strategy meeting.
The meeting starts with the estimator giving a quick update on the tender process so far and any resourcing required to meet deadlines.
Then the bid manager would normally take over and drive the meeting the other departments. The aim of the meeting is to get everyone looking at the pending deadlines. these key elements include:
- Discuss site inspection / who needs to go?
- Highlight key subbies that we need to meet to get an advantage.
- On D&C projects – discuss consultant meetings and deadlines.
- Who is responsible to complete the non priced criteria and deadlines.
- When the program will need to be able to price the preliminaries cost of the project.
- Normally the estimator handles three major areas including pricing schedules, clarifications, key subcontractor information.
- Sometimes the estimator is responsible for the lost and wears many hats.
09
BOQ & Estimating
The builders bill is normally put together the same way in the same format every time. We are creatures of habit for a reason. This format is an abbreviated version of the Australian Method of Measurement and often adapted to suit trade & industry pricing systems.
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10
Subcontract &
Supplier Tender Close
Senior Management meeting is normally called a Bid / No Bid meeting. It is a meeting where the head team members try to figure out if the business wishes to actually accept the request to tender.
Tendering costs thousands of dollars any if you are not selective, building companies can often be used and abused as a estimating service. .
Financial lending organisation will often need three quotes before funds can be released.
So dealing with ethical companies that you have a relationship is the only way you can be reasonable sure of not being used and abused.
If you wish to read more about
11
Vetting & Subbie Comparison
Before you can compare trades packages, you firstly need to ensure that the trade package is complete. Then once you are happy with the first step, then the subcontractor comparison can follow. Vetting is the term where you use your estimate or SOW as a base and then you review a quote against your base estimate. Once complete, the estimator will then compare one quote to another and refer to his or her BOQ and price to will either add or subtract scope to hopefully come to “apples for apples” or a “like for like” comparison from one trade quote to another.
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12
Supporting Documentation & Preliminaries Costs
Within the tender schedules – most medium to complex projects will ask the builder proof they are up to the task manager the built process safely and on schedule. So a part of the non-priced criteria the following documents may be needed:
- Construction Program
- Construction management plan
- Staging Plan
- Methodology
- Staffing CVs
- Company Experience
- Management Systems
- Insurance Policies
- Training policies, Etc.
None of these items have dollars against them and are a part of the non-priced criteria that builders are rated on.
However, the estimator extracts information from the programming, methodology and staging plans to measure preliminaries costs for the project. Preliminary costs are basically all the indirect costs you need to pay for during construction that you don’t see when the project is completed.
13
Pricing Review
Generally, this meeting could be over one or two meetings depending on the size of the project.
The first meeting would be focused on the trade prices and the review of the input of the Second Principles pricing. This would draw down into the trades so the stakeholders can understand the risk associated with the trades.
The second meeting is more of a high-level summary of the trades pricing and then draws down into the preliminary costs in detail.
Once that process has completed the clarifications are reviewed and and additional notes inserted or sometimes items can be removed. The clarification is normally a live document until the very last minute of the tender review.
Finally a review of the risks against the potential profit maximization (the buy) within the trades.
14
Non Priced / Priced Criteria
Pricing schedules are the information that allows a transparent comparison between competing builders. The pricing schedules are a format that comes in the form of non-price criteria (NPC) & priced criteria (PC).
NPC can easily be explained by all the documentary evidence that can prove you can actually do what they advertise and suited to the project. PC is anything associated with pricing schedules including clarifications and assumptions.
If you wish to read more –
The tender review is the line in the sand - stakeholders review the following:
Trades, Preliminaries, Clarifications, Risk, Procurement gains & Margin
15
Tender submission
The non-priced & priced criteria is normally fronted by a cover page, letter and possibly a contents page as the final tender could be anywhere from 20 to 300 pages long.
There is normally a final check from the estimating depart to check from typos and the numbers etc.
The document is then sent by either a document via email or “Dropbox link” if the document gets more than 10MB.
Then you may follow up and check that the client has received the document and thank them for the opportunity to place a tender.
At this stage, an estimator’s brain is basically fried and the only thing I work suggest is to do a bit of Housekeeping and filing and then go home for the day. You are pretty much useless once the stress of the tender submission is done.
Acknowledge the stress and defrag. Tomorrow you do it all again.
16
Post tender Clarification
After the tender has been submitted there is normally at least a week for the tender client or client superintendent to review the tender documents.
You will normally get some feedback over the phone and then you will normally have to answer some clarifications and even do some adjustments.
Then you – wait for the next contact from the client.
So you get cracking into another tender and just get busy.
But in the back of your mind – is waiting, waiting, etc….
Phone calls start coming in from subbies and colleagues…
This holding pattern can take days or years.
17
Pricing Review
Ok – you have been finally contacted by the client/superintendent. The first contact will normally via a phone conversation. Now if the client likes you-you will normally get a lot of feedback. However, this is a double-edged sword. If you are in a good position in the mix – you will not get any information – just areas where you can sharpen your number.
If you are getting a lot of information – the client has already walked over your bid and you are out of the running.
The final step is a meeting with the client and/or superintendent. This where you will get feedback on how your tender submission was received. But you may or may not know where you sit. But if you are talking to the client – this is a good thing.
An estimator job is to get your employer to the table with the client. Now it is up to the salesperson in the business to do their thing.
A good closer can win a tender from second place and even third place in the bids.
18
Post Tender work
So this point is pretty simple – It is a waiting game again full of speculations, checking and cross-checking any nervous thought.
in the meantime, the client completes their final evaluation between the builder’s tenders and after that has taken place all builders tendering to get a list of queries to ratify any client concerns or possibly and missing information.
After that, the builder will either get a “letter of Intent” (LOI) which is a precursor to a contract signing.
Alternatively, you get a negative decision and you have lost the job.
Even then the client may come back and request more queries if the negotiations with the first builder break down.
Win, lose, or draw a good estimator will then jump into action. Basically, when you win a tender the client doesn’t give you any information however if you lose the client will normally tell you where you lost the bid. Warts and all.
Keep records, talk to subbies, consultants and get every piece of intel on the winning bid. “Don’t get mad – get even by winning the next tender”.
If you wish to read more about
the client will normally tell you where you lost the bid. (Warts and all). Keep records, talk to subbies, consultants and get every piece of Intel on the winning bid.
"Don't get mad - get even by winning the next tender".
19
Contract Handover
Bells have been rung, slaps on the back, etc, etc. The estimating team has won the project, now passes the reins onto the building team (contracts team). This process is called “handover”.
The estimating handover would normally include a summary of the tender history, headlines the bid, the contract, contact details of the clients. Then the major document is a budget drop. This can also be called a budget target, but it is the number the contract team has the procure each trade.
Normally the estimating department steps away from the project however there are the odd times they still get called back into the process for clarification when needed.
If you wish to read more about
Contracts Handover – Click Here
20
House Keeping
After the handover, to the contracts team, you will liaise for many subbies for a short time to keep relations positive and help out where you can with queries from the contract managers. Normally justifying your budget. Some companies build a wall between estimating and contracts, others operate more as a team and the estimators become other contract administrators (CA) and help the lead CA. The chance for estimators to work with the CAs and visa versa should be embraced as simply but is CAs and estimators understand each other’s skill set they both become sharper. That can only be best for the company they work for.
By the time the tender handover takes place – estimators are already swung into the trenches of another tender, the tender won is great but there is the next one to get over the line.
The bouncing Ball that is estimating.