Construction Information Technology Blog

What does it cost an Owner to receive a bid?

The cost of the bidding process for owners of construction projects is significant when you consider all the aspects of managing it. Once the project documents (Drawings and specifications) are complete there are a number of steps required before prices can actually be received and analyzed. Errors or omissions in these activities can have serious consequences including non-compliant bids, claims for delays or extras or litigation relating to the bidding process itself. Some of the key activities include:

• Preparing the bidding instructions
• Preparing the bid form
• Selecting a list of potential bidders
• Advertising the opportunity
• Issuing Invitations to Bid
• Issuing bid documents to interested bidders
  • Making adequate numbers of copies
  • Checking for completeness of the bid sets
  • Packaging bid sets
  • Staff time to organize and log sets that are picked up by bidders
  • Preparing waybills and calling couriers
  • Receiving bid set deposits if required
• Responding to questions and clarifications requested by bidders
• Issuing addenda and tracking who got them and when
• Checking time clocks for accuracy prior to closing time
• Logging bids as they are received and recording the time
• Receiving amendments that arrive via fax or other means
• Matching amendments with the correct bids
• Opening the bids
• Evaluating the bids for completeness and compliance
• Reviewing that the required bid security is compliant
• Tabulating the bid results to prepare them for analysis
• Receiving and organizing returned bid sets if required

While this list is not exhaustive it is indicative of the amount of detail that must be dealt with in order to properly manage the bidding process. The actual cost will of course vary with the size and scope of each project ... but big or small the steps to manage the process are very similar. Hard costs include items like paper copies, long distance calls/faxes, packaging and couriers. The cost of the staff time required to undertake these activities is substantial and is certainly not the highest and best use of valuable human resources. The biggest indirect cost arises after the fact from potential process based litigation or claims for delays and extras resulting from missing information.

In a previous post I discussed the digital site of record approach to managing all of these activities that offers tremendous potential to reduce or eliminate most of the costs of managing the bid process along with reducing most of the risk for problems after the fact.

What is Online Bidding?

I was doing some research related to some marketing we are planning for our online bid submission software for the construction industry and discovered that my assumptions about what bidding means is quite different from what many others are searching for in Google. It is an interesting challenge for marketers today to try to figure out what terms people search for that are relevant to your offerings.

The page one Google results:
“Online Bidding” – Predominantly online auction sites
“Online Bidding Sites” – More online auction sites
“Online Bidding Software” – Online auctions and one construction planroom application
“Online Bidding Software Construction” – Now we are closer but virtually all are estimating and planroom software

I had a novel idea. How about searching for exactly what we are introducing:
“Online Bid Submission Software” – all results relate to search engine optimization
“Construction Online Bid Submission Software” – more estimating and planroom applications

How about the more Canadian term of Tendering:
“Tendering” – mostly Canadian and UK government bid opportunity sites
"Construction Tendering” – more estimating software and a UK provider of bidding services for general procurement but not constructions services

The conclusion to the story is – a great deal of searching reveals the fact that there is almost nobody in the English speaking world who has the type of technology we have that spans the entire bidding process from invitation to bid through to bid reception. It speaks to our claim that we are innovators in the industry because the same thing was true for our planroom software when we started the company 10 years ago. Today there are numerous players in the planroom space. It appears we were right about our vision for managing construction bidding (tendering) documents online. Given the initial positive reaction to our online bid submission software it seems the only challenge we have left is to figure out how to connect with all the ‘Googlers’ in the construction universe.

Is 18 Bidders enough?

In a recent meeting with contractors the conversation turned to the current state of the market in their region. Several of them stated they were making the business decision to no longer bid on projects with “more than 10 bidders”. To reinforce how challenging the current market is they noted that many recent projects have had as many as 18 or more bidders. It would seem to be a hyper competitive market for contractors but an ideal time for owners to be buying construction. Or is it? No doubt it is better to be the buyer of construction rather one of the bidders in what is essentially an auction. The risk management antennae need to be way up for both parties in times like this.

For Owners their bidding process needs to be squeaky clean or the risk of legal action from disgruntled bidders is increased. There is no shortage of case law in the construction industry flowing from the bidding process and I would venture to say that much of it arises from times when the market is very competitive and bidders are unhappy with what they expected to be fair bidding processes. While there have been many attempts over the years to develop front end language to the contrary, it is generally held that the Owner has an obligation to treat all bidders fairly and equitably.

That being the case there are several fundamental steps an Owner needs to take to protect themselves from claims of unfair treatment or other problems arising from the bidding process:

• All bidders need to be provided with the same set of bid instructions, drawings, specifications and addenda.
• Keep accurate records of what documents were distributed, who received them and when they were distributed. This also helps avoid problems and claims arising after the contract is awarded.
• Make sure addenda are distributed to all bidders in a timely fashion. Addenda issued close to closing time can result in someone receiving it late and not incorporating it into their bid. 
• Use complete transmittals and obtain delivery receipts for all information distributions. This avoids situations where a bidder claims they didn’t receive a document.
• Make sure the closing time and method of determining that time are explicitly clear. ‘Up to 2:00’, ‘Before 2:00’, ‘At 2:00’ all seem to be the same but there is case law on when is 2:00? Is there a time clock in the closing location, someone’s watch or some other more or less precise way of determining the actual time? 
• Make sure the process for bid amendments is clear and practical. There are many examples of problems that have arisen from faxed amendments that didn’t arrive in time. 
• Non-compliant bids that for example do not include a mandatory requirement, no matter how small it is, are fraught with potential for trouble. Despite any language in the documents giving the Owner discretion, the interpretation of that discretion is generally very narrow if not nonexistent.
• Transposing and incorporating information from bid amendments into the bids results requires great care as errors or omissions can lead to an incorrect evaluation of the bids. 

These are just a few examples of the potential problems that can and are likely to be challenged in a more competitive environment when every project is hard won. The good news for those who are looking for ways to avoid these types of issues is that technology can go a long way to avoiding or even eliminating many of the issues identified above. Online bidding systems that completely integrate document distribution and bid submission are far more efficient than the traditional paper process. They go a long way to protecting the Owners and Contractors interests by making sure that no matter how many are bidding on a project, none of them will be let down by errors in the process.

A four step estimating tune up

Construction estimating is a complex and time consuming process. A good estimator truly understands how a project is managed from start to finish and is able to translate every step into a dollar amount. Estimators today have some very powerful tools available to help them put together the best and most accurate numbers upon which to base their final price. If you are not already doing them here are four ideas that might help you fine tune your process:

1. Help your Trade contractors and suppliers be more efficient
   On a recent and very large project the General Contractor decided to distribute the drawings and specifications on Dvd’s. There were hundreds of pages of drawings and the cost of distributing paper would have been significant. The information on the Dvd’s was poorly organized and very difficult for anyone to work with and find what they needed. Many opted to simply get it all printed out at significant expense just to figure it out. This was simply a short sighted exercise in transferring the cost and effort on to the Trades and Suppliers. It is hard to imagine how that kind of approach which essentially says ‘I don’t care about your time and expenses to give me a bid’ can ultimately result in that Contractor getting the best price from that Trade. If your attitude up front is that you don’t care, why would it be any different when you get on the site? Given that a significant portion of any bid is usually made up of bids from many Trades and Suppliers it would only make sense to demonstrate that you are good to work with and that you are interested in doing what you can to help them make money as well. A better alternative to the Dvd’s (and subsequent addenda) which still took time and cost money to produce and distribute would have been to make them available in an online planroom like PlanSource for fast and easy access by everyone who needed them. It would have cost less than the Dvd’s, taken less time and would have been far better for everyone involved.
   
   
2. Make sure the right people know when you are looking for pricing
   Sending out Invitations to Bid is essential. There is no doubt that for critical Trades and Suppliers you will still need to have a conversation with them but why not give notice that you are working on the project and let them view the documents in advance of your call to make the exercise more efficient. There are countless stories of how one price from one particular Trade or Supplier made the difference in getting the project. Even for a Construction Management or negotiated contract it is still essential to let people know as soon as possible that you are looking for them to spend some of their time and resources to work with you to put pricing together. Adequate notice simply helps them plan better. PlanSource has excellent Invitation to Bid and messaging functionality that can make the process fast and easy.
   
   
3. Get your database of Trades and Suppliers in order
   We are in a position to see lots of company databases of their Trade and Supplier contacts. Obviously, a key resource for any estimator is the list of contacts they have available to gather pricing from. It appears to be a big challenge for many Contractors to maintain and keep accurate as people and companies come and go. The task of “cleaning it up” is often a once a year exercise for one of the administrators that can take a lot of time and effort to get done. There is a better way. Once again there is software available today that virtually eliminates the need to maintain the list. It can be automatically managed and updated using the management tools available in PlanSource . Add in the available prequalification tools and you have an easy way to screen prospective new contacts to improve and expand your available bidders.
   
   
4. Use On Screen Takeoff software
   Accurate quantity takeoffs are of course a critical element of a good bid. While there is certainly nothing wrong with a scale rule and estimating pad there is no question that good onscreen takeoff software can help you get the work done faster, more accurately and with more options for analyzing and refining your numbers. In addition to the takeoff tools available in PlanSource, there are many options in the market but one well worth looking at can be found at www.oncenter.com .

In a market like the current one where every tender is highly competitive it is more important than ever to make sure you are doing all you can to be efficient with your own time and expenses and to reduce the time and expenses it takes Trades and Suppliers to work with you. Better systems yield better results and ultimately improve your odds of being the successful bidder.

Paying for opportunities to bid

One of the major challenges of being in the construction business is the need to constantly find new opportunities to bid on work. Market conditions are a major factor of course but the time and expense of locating information about new projects can be high. You would think that with the growth and power of the internet that someone would have found a way to aggregate all this information to make it easily accessible to those who want it.

Not so. In fact it seems that it may even be getting harder to find it. Owners, Architects, Engineering firms and Contractors are constantly probed by various parties who want to collect and disseminate this data. These information collectors are then able to sell this information to contractors and suppliers who are looking for their next opportunity to bid. Depending upon the scope of the information provided this can cost hundreds or even thousands of dollars per year just to view the list, which is of course no guarantee that you will be able to submit a bid on the project.

For a variety of reasons around controlling who gets access to the information it is getting harder for ‘information collectors’ to assemble this project data in any sort of reliable way. It appears that the trend is moving towards electronic invitation to bid processes. As these electronic systems begin to proliferate in the market it would be wise to learn which ones provide you with the easiest and most efficient access to the opportunity, the documents related to that opportunity and the tools and features you need to work with that information. If you find one that works for you don’t be afraid to tell your General Contractors clients which one(s) you prefer. If you don’t, odds are you will be faced with having to live with and learn about less than ideal systems that are expensive, time consuming and inefficient.

The ‘Site of Record’ approach to tendering

The process to obtain a price and enter a contract for construction work is complex in part because virtually every project is unique. Over the course of years construction tendering standards have evolved and been shaped by best practices and changes in the law. The advent of new internet technologies offers a new way of integrating the entire process to eliminate some of the more common issues and problems that typically arise through the tender period of a project.

The following are just a few examples of typical issues that arise during the process:

• Missing documents or information
• Trade contractors having different information than the Prime Contractor
• Late issuance of Addenda
• Incorrect document versions
• Unclear closing times
• Incomplete tender submissions
• Missing schedules or attachments
• Missing tender security (bonds)
• Late submission of tenders
• Busy fax lines precluding bid amendments from arriving on time

These and many other related issues can be managed effectively using a Site of Record approach to tendering. All tender activities, information and documents are made available to all bidders in a single secure online site. The Site of Record is the only official set of information made available to bidders leaving no chance for errors in the production, distribution or tracking of hard copy documents. Every bidder who accesses the information is automatically included in the distribution list for any addenda. The tender form is made available to Bidders electronically with all requirements clearly defined for the bidders. It cannot be submitted with missing information which ensures a complete tender submission. At the instant the reverse countdown clock reaches the closing time bids are no longer able to be submitted or edited. At that same instant the results of all properly submitted tenders along with any required bid bonds or other attachments are all immediately available for review either individually or in a spreadsheet format. All of the activities in the process are logged ensuring that all the key elements of the process are verifiable should the need arise after the fact.

Using a Site of Record approach to construction tendering saves time, reduces costs for all parties and most importantly it significantly reduces the risk of problems or claims arising from errors or omissions in the tendering process.

Electronic Bidding for Construction Projects

The adoption of internet technologies to create efficiencies for the construction industry continues to grow. The latest innovation being made available to the industry is the ability to create tenders and submit bids online. The idea of online transactions is not a new concept with everything from online banking to purchases of major items such as vehicles all being transacted safely and securely. The challenge that makes the management of bidding for construction work online so difficult is the many complicated pricing options such as separate, alternate, unit, combined and other pricing options. Add to that the need to handle items such as cash allowances, bid bonds, required time to perform the work and schedules such as lists of Subcontractors and other details. Over the years these challenges have been handled by creating what are often complex and detailed tender packages that need to be completed and submitted in hard copy by a specified closing time. 

Infinite Source has recently introduced a comprehensive electronic tendering system for construction projects that is already being used successfully to streamline the bidding process for our clients. When combined with our ability to manage all the tendering documents and related communication, a powerful system is created that ensures a seamless process from the initial Invitation to Bid through to the reception and analysis of those bids. We recently completed work on a project with the BC Construction Association that employs our PlanSource bidding technology to deliver their new Electronic Bidding System and are very pleased that the first projects are scheduled to close within the next month or so. You can read more about the BCCA Electronic Bidding System here.

Bidding patterns of successful bidders

We recently updated a study we first did in 2004 that analyzed the bidding patterns of successful bidders. The new report is available here (Bidding Pattern Report).

In the course of reviewing the data, a practice I first learned from an old time estimator came to mind. Of the 2135 bids that are part of this study, 10 of them had two bids with exactly the same number. When I first started estimating the ‘rule' I learned from an old time estimator was to never submit a bid with the exact final number your calculations total up to. When we finally came to a total our practice was to deduct a few dollars to make sure we were submitting a slightly lower number if someone else had by chance come to the same number. Given the results of this study, it only happens once in every 200 or so cases that bids are identical but when it does it might be worth the $2 or $3 to gain that very slight advantage. The results of the new study will be released soon and will take a much more detailed look at what is happening in the competitive tendering market.