Most pavement maintenance contractors are looking to cut their costs to the bone. In fact, many contractors are past just cutting the financial fat out of their expenses, they are now cutting into the muscle. That's what makes the whole process of developing bids so challenging…and troubling.
Bid time is the one formal time that they can work to ensure that they don't give up anything more than they have to. In the hustle and bustle to get bids completed, especially when every customer wants their work done, it is easy for contractors to overlook a few items that can leave a few percent profit off the table and on the floor.
Looking to keep the "scraps" at bid time is a point of interest that I'll cover in the upcoming 2011 National Pavement Exposition. Let me expand on a few important items about bid work that many contractors overlook. Certainly when work was plentiful and profits could be easily found, the bidding habits that were formed during the "good old years" can be difficult to reform. Let's look at a few items that should be easy for you to rethink.
Build Equipment Costs into Bid. Even during the good times many contractors neglected to build their equipment costs into their bids. But especially during difficult economic times it is very tempting to simply not include the expense associated with equipment, leased or owned, when building an estimate. Smart contractors build at least some costs to cover some of their equipment use. Again, I realize that it is easy to include equipment cost, especially if your equipment is paid for, but you still need to attach some estimated hourly cost for the use of your trucks, back-hoe, uni-loader, etc.
Stop Giving Services Away. A quick example for commercial pavement maintenance contractors is not charging for the removal and or replacing of parking blocks. While this type of service has been used as an incentive in the past to win a customer, such efforts should be re-evaluated in light of our current economic situation. If you can afford to pay the labor associated with removing and replacing parking blocks yourself then you're in better a financial situation than others. While it doesn't make sense to stop giving every service away for free it is a situation that every contractor needs to assess for their company and determine what they may need to charge for to better capture all of the cost associated with performing work.
Include "Qualifying" Conditions. Too many contractors have been burned in the past when they discovered the undetected water problem that suddenly appeared when tearing out a parking lot or driveway. That's why it is critical today to include qualified conditions that, if present and pose an obstacle to completing the work as bid, will be covered financially by the customer. Certainly working in known areas of your community can assist your knowledge, but even "home field" work does not guarantee problem free work. No matter whether you are performing work in well known and safe market areas or whether you are working in a new part of town, make sure that you include some qualifying language to your estimate prior to submitting your final copy to the customer.
Add Specific Statement About "Change Orders." It is an old experience for many contractors to begin work for a customer only to have that same customer suddenly determine that they want to go in a slightly different direction. My experience, both as a contractor and as a consultant to pavement maintenance contractors, is that once an original plan is altered the following actions are seldom profitable. There are a myriad of reasons for lower profits but a few worth noting include:
- Contractor bid the job slim to begin with and now all profit cushion is gone.
- Contractor fails to spend as much time planning the new direction as was completed on the original.
- Customer now has a new set of expectations for both quality and speed of completion…with no thought of a change costing more.
Including a "change order" clause is as simple as including it in your bid. Also, if you do utilize this clause be sure to inform your foremen about this so that they will not give in to that pleading wife who is sweet talking your foreman into a "small change." These "small changes" will most often cost you more money…money that you don't have built in to your estimate. Any reputable contractor has built his or her business on a strong financial commitment to integrity and accuracy. While it is certainly tempting today to throw all of this away just to land work you must resist this temptation and hold your course. Customers, good customers, respect contractors who are loyal, committed to excellence, and dedicated to doing things right the first time. Be such a contractor.