IF YOU ARE A LARGE contractor and bidding brings in a major part of your business, profitability is sometimes elusive. If you bid to win every job, you and your team may be the reason your marketplace seems to be snake bit. Two or three cutthroat competitors, all with a mindset that they must win every job, can send any stable market into a pricing tailspin.
Some businessmen, in a desperate effort to “straighten things out,” come to the conclusion that a little bit of quiet talk in some out-of-the-way roadhouse can remedy a low bidding situation. If a nasty, expensive trial and jail time are your idea of straightening things out, you can try this kind of collusive bidding, but it is illegal and you are making a bad bet by dealing with someone you know to be a crook. Since this may be an experienced criminal, you may find that his technique for reducing competition is to turn your sorry butt over to the law.
One of the less understood parts of the law says that you can’t attempt to control pricing by snuggling up to a competitor and that the attempt itself is illegal, even if the effort fails. The whistleblower may still be in business while you are waiting to get a new dress in the mail to please your cellmate. I would hope that you a smart enough to check whatever I say here with the laws in your state.
When faced with a competitive market you must consider the following short list of possibilities.
- Your competitor is paying his people less. He is nonunion and you have not demanded that your union workforce keep you competitive by being more efficient than his crew.
- He is operating more efficiently than you. If so, you must define how he does this and tighten up your team. It should be your resolve to be the most efficient contractor in your market and thus able to win everything on an even playing field.
- His estimating team has a firm grip on costs and knows how low they can go and still make a fair and reasonable profit. If you are allowing too much margin for error and too many high-side guesses instead of hard numbers, you will seldom be in the winner’s circle. Good bidding means you will both win and lose some jobs by a narrow margin.
Most of you who read this do not ever go to the estimator or the bidding team and congratulate them for losing a tight bid. You are sending the message that you are not interested in good bidding practice, only that you are interested in winning every job. If this is so, you are a major player in the market tailspin you are experiencing.
- A competitor is in such dire financial shape that he must get the next bid to create the cash flow to pay off old debts. This kind of desperation bidding is frequently self-correcting. Eventually this constant low bidder will run out of wholesalers willing to give him credit to finance his suicide bidding. There is an important rule to remember here. You can only help this poor soul to lose his shirt by letting him get the low-bid jobs.
Sometimes the general contractor will sense that his favorite contractor, Mr. Fool, is reaching the end of the trail. The GC might suggest that if you want to get the next job, he will give you last peek on the job! Why would you want to be a bigger fool than Mr. Fool? Resist the temptation.
- Your people are bidding without knowing whether they are bidding to get the job or to intentionally be high and lose it. No estimating team is perfect, but unless they know when they need to really go after a job and when they should walk away, they will be lost in the wilderness. If there is a good volume of bid work flowing through your office, you must establish a win/lose philosophy. I am most comfortable with the idea that good bidding means intending to lose more often than win.
Good bidding is never swinging at the piñata blindfolded. When a bid is submitted, the bid is marked as to the intent. Did we want to win it or lose it? If you win the bid, the intent is to win by the smallest possible margin. When the intent is to lose, the intent should be to leave an almost embarrassing amount of daylight between your bid and the next low bid.
When you get control of the bidding process and when your bidding is predictable, you find a serenity that adds years to your life, replacing the constant worry to see what you may have left out.
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HIGH PERFORMANCE CONTRACTING/FLAT RATE PRICING VIDEO SEMINAR
An excitingly different training program for you and your key employees. Contractors exactly like you have increased their profits quickly using the information provided by these tapes and accompanying manual.
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