Masonry Magazine February 2004 Page. 35
Estimating vs. Bidding: Sticks and Stones
"SO WHAT'S the difference between estimating and bidding? I mean aren't they essentially the same thing?" Well, the answer is "no." Estimating the cost of a construction project-whether it be the smallest of garden shed or the most massive of skyscraper-is still at any level only a game of Tinker Toys". It's the gathering, organizing and presenting of many pieces to make a whole and to ultimately arrive at a cost for that particular project. Period. The estimator has gathered up (what is commonly) the direct costs (the cost of the actual "hands-on" construction), general requirements/conditions (the cost that is not directly attributable to the physical construction itself; think of it as "hands-off" construction, i.e., field, trailer, phone, transportation costs), and indirect costs (the cost of performing the business of construction-costs such as bonding, insurances, office overhead, labor burdens, and so on).
Let's call all these numbers the "body" of the estimate. Once the number is determined and every effort has been made within the individual line items to be as complete and competitive as possible, the number rendered is, for all intents and purposes, finite and dormant. The estimating exercise is finished. With the body finished and already as competitively priced as the estimator's talents allow, all that awaits is the addition of a percentage, most often referred to as profit margin (i.e., that which is enough to potentially obtain growth for the company's future and to allow for specified personal and professional goals). And it was in our conversation where we felt that this was the point where things really started to get interesting, because here's where the human factor took over. Here's where the sweat really started. It's here where the estimate becomes a bid.
Risk and Reward
UNLIKE THE TERM estimating, "bidding" carries with it the implication that you (the contractor) are indeed going after the job. You WANT the work. You may even need the job to keep your people working and crews loyal to insure they don't wander off seeking steady work with competitors. But herein lies the dilemma in determining that final percentage: you're now faced with the challenge of having to be comfortable that your proposed margin is safe enough to be profitable and helpful to your company (should you win), yet still aggressive enough to win the work without accepting an irresponsible level of risk against your business should something run afoul during the construction process. And believe me (I know!), this is not an easy determination. But the bid deadline rapidly approaches and that very decision is in your lap and now you're faced with the (paradoxical?) task of not being overly aggressive while at the same time not being too passive.
The Human Touch
SO IT'S TIME to start feeling. It's time to add a little human element and employ some of those human "intangibles" that can't be taught. These are those indefinable elements, such as how you feel toward the market all around you or how you feel about the passiveness/agressiveness of your competition, or even how you feel about the potential players with whom you'll be involved should you win. There's much to consider and digest. But time is growing short and your base, lifeless estimate number at the bottom of the paper awaits your decision. It's time to adjust the margin accordingly and it's time for strategy, experience, instinct and (sometimes) just plain ol' "guts" to take over.
There's clearly far more that goes into winning in the construction estimating game than good estimating alone.
Breakdown: "Human" Considerations
I KNOW THIS ALL may seem a bit nebulous in concept, so let's see if we can identify some of the items to which I refer. Let's examine further some human "intangibles" that I've encountered over the years - those additional considerations that "fall outside the spreadsheet" and that turn an estimate into a bid:
The Players If you win the project, how well do you work with the potential people and firms who will make up the construction team? Often you've had previous experience, good or bad, and you know, for example, that working with one architect can be a cakewalk while working with another can be a trip to hell. The same goes for the owner, inspectors and jurisdictional regulators. What about that city's engineering department? Are they going to run you through hoops and not return your calls? What about the subcontractors and/or suppliers with whom you'll be working? Have you had a bad experience with a proprietary supplier in the past? Has a particular subcontractor (the one you listed on your bid form) been petty with change orders and demands in the past? The point is: there really is a difference between building teams and those differences do (sometimes vastly) translate into money. They DO affect your potential margin during construction and it's only now, during the bidding process, that you can adjust your margin to accommodate costs associated with working with just such a brood.
Ugliness (The Project Itself) Sometimes, you just get a project that looks plain "ugly." I use this term a lot and people laugh, but I think most estimators know what I'm talking about. These are the projects where, for instance, accessibility to the work is difficult or many of the details on the plan have (what could be) hidden consequences that linger ominously in your mind even though they're not delineated in the documents. These often include jobs with a lot of "selected demolition" (saw-cutting, knocking out for new doors/windows/vents, etc.), or "scary" subterranean details where if you've been in the business awhile you know ANYTHING can pop up. I refer to these types of jobs as "ugly" as opposed to a nice, clean-cut brand new, block building on a nice rectangular new slab, straight-forward and clean. Assuming there's no clear-cut contingency to cover such costs (and take it from me, contin-