By Diane M. Calabrese / Published August 2019
Never lose sight of the objective: Make a profit.
Eagerness to win a bid contract is fine. Reckless bid construction is not. A bidder can gather all existing data on market conditions, materials’ prices, rates of competitors, and so on; win the contract; and still suffer a loss when one or more of the variables suddenly changes. That’s what makes bidding part science and part art.
Quantitative measures used to construct a bid must be bolstered by qualitative assessment (aka, gut reaction). That’s where the art of bidding begins.
“If you have a bad feeling, just walk away,” says John Cloud, president of Gorilla Kleen in Sarasota, FL. “If you’re new to business, that might not be obvious.”
Talk with the representative(s) of the entity that requests the bid. “Look for signals,” says Cloud. They will be there.
If the representative is polite, cooperative, and willing to answer questions, that’s a positive signal. If the representative begins to regale you with a story about how he or she sued the last two contractors, that’s a bad sign.
Cloud describes a business school exercise that is perennially valuable. Assume $2000 is lost on a job, he says. “How many jobs do you have to complete to recover?”
For a contractor, it may require 10 or 20 jobs at a profit margin of $200 or $100, respectively. In other words, put the time it takes to submit a formal bid and the risk of a loss in context. That is part of the art of bidding.
Deciding whether to bid must be done on a “case by case or location by location” basis, says Cloud. “I think everybody has to make that decision individually.” There is no guarantee that things will always go right after the best due diligence, yet there’s a higher probability.
Although Cloud says the bid process can be frustrating because some entities always seem to choose the low bid, the process can be a good way to earn a roster of customers with recurring needs. In some cases, the needs of prospective clients might happen to be for information that they are using to construct an invitation for bids.
If the provider of information will be eligible to bid on the project after providing help with parameters, helping out becomes a way to gain a thorough understanding of a project before bidding. (See example in last section.)
Take advantage of the bid process to make certain the prospective client (even one inclined to take the lowest bid) understands methods. Cloud uses ample details and full paragraphs to describe what will be done and how. Marketing is part of the bidding process.
“Most companies want the lowest bid possible, which I feel is a normal response,” says Donna Hillyer, president/CFO at Petersburg Power Washing Inc. in Springfield, IL. “No one wants to throw money away.”
Never second guess yourself if not awarded a contract. “In the beginning, I had to learn not to take my bid rejections personally,” says Hillyer. “I had to be confident in my bid, know I did the best I could for my company, and move on to the next one.”
One of the most frustrating dimensions of working with residential customers is the time it takes to respond to customers who may simply be shopping for the rock-bottom lowest price, says Hillyer. Part of the art of bidding in the residential market is making certain the customers understand the importance of using a licensed and insured contractor.
On the commercial side of bidding, the time consumed by the process can be concerning. Hillyer explains there are typically bid meetings to attend coupled with instructions on how to assemble the bid packet and requirements for bidders. There are blueprints, legal jargon, and multitudinous pages.
The foregoing is the context. “They usually give you very little time to pull your bid together,” says Hillyer. “So, you will put off other already scheduled important items to construct a bid that may or may not be awarded to you.”
Processes for submission vary from entity to entity. “Many municipalities and federal agencies will put a lot of stipulations on bids, down to how to put them in a binder,” explains Hillyer. “If they find one thing incorrectly done, they can throw your bid out and award it to someone else.”
Not getting an award is not the only possible non-return on investment of time. It is possible to be awarded a bid that goes nowhere because the client never actually does the work, says Hillyer. In some cases, says Hillyer, an entity may be collecting bids in order to use lower pricing from a pool of bidders to encourage the bidder they hire to lower their prices. It can be vexing.
How did Hillyer learn the art (and the science) of bidding? “For me it was experience,” she says. “I had to jump in and learn via trial and error. A consultant can teach a lot, and bidding guides are definitely helpful. I am a hands-on learner, however, so for me just getting burned a few times taught me the most valuable lessons on bidding.”
Hillyer sees a bid as approximately 50 percent science and 50 percent art. On the quantitative side, a bidder must consider all the cost factors and price high enough to profit. Equipment wear, cost of running one machine for an hour, and labor costs are factors. So, too, are workers’ compensation and general liability insurance premiums.
“If you are getting 100 percent of your bids, you’re probably leaving money on the table,” says Hillyer. “If you are never getting any bids at all, then you are definitely too high on your pricing, and you’re not being competitive.”
On the art side, put time into the presentation. “You need to display confidence in yourself and your company that you can perform the work, while you’re giving the science of the bid,” says Hillyer. “You need to understand how to sell yourself and your company. What sets your company apart from another?”
And whether a presentation is made on paper, digitally, or in person, do it in a professional manner, says Hillyer. It’s part of the art.
Think of the art component of a bid as the point where sensibility and sense are aligned to the best advantage of the bidder (or the owner who decides against bidding). It’s pragmatism in action.
That pragmatism is exemplified by Roy Pennington, owner of Hi Pressure Cleaning Systems Inc. in Houma, LA. “With 28 years of experience in this industry, I have learned that responding to a ‘bid opportunity’ as opposed to an RFQ—request for quotation—is a waste of my time, and I will not do it.”
Pennington explains that he receives bid opportunity notices from government—state and federal agencies—located locally and several states away. “It has been proven by my countless experiences that the seller cannot support the customer and product while being the low bidder on a ‘cattle-call bid,’” he says.
It has all worked out for Pennington. “On a regular basis, we have government agencies show up with equipment needing repairs or training that was purchased from ‘I-don’t-know-who, but they were the low bidder, even though they are 800 miles away.’ We repair it at our leisure and at our price.”
As a distributor, Pennington’s vantage differs, of course, from contractors. Yet there’s a valuable lesson in the hyper-realistic approach he takes.
“We respond to every bid situation where our company was the originator of the bid request,” says Pennington. “We make it a point to assist the customer in the bid-writing specifications, suggesting that they include ‘x number of hours of on-site training at the buyer’s facility,’ or upgrade the ‘cookie-cutter’ specifications to include an oversized engine or over-capacity pump, so that any potential bidder who has access to an industry-standard catalog will be unable to provide a comparable bid.”
Pennington reminds readers that distributors are selling equipment and solutions and service. For instance, his company helped a convention center structure a bid request for hot water equipment that emphasized the need for the winning bidder to be able to train their team and for a 23 horsepower engine (instead of a 21 horsepower standard unit), so the engine did not have to run at 100 percent capacity with every use. His company eventually won both the bid and a satisfied, long-term customer.
Sales volume built on selling too low is not healthy for the business or the industry. “Our company cannot and will not sell our soul just to be the low bidder,” says Pennington. “We are a full-service CETA-Certified Distributor, and we know that everything mechanical will develop problems down the road. It is how we are capable of resolving our customer’s needs down the road that keeps us in business today.”
Pennington says a friend once taught him a valuable adage. “He who sells at the lowest price goes out of business first.”