Daniel Pink, author of A Whole New Mind, identified the primary cause of the construction industry's low-profit margins. He wrote, "For business, it's no longer enough to create a product that's reasonably priced and adequately functional."
by TED GARRISON
Unfortunately, that's what the construction industry attempts to do when it bids work based on price. The problem with the low bid approach is that it hurts both the vendor and buyer because despite conventional wisdom it actually encourages low performance and low value. The good news is there is a better solution even if for those forced to compete for low bids.
The solution is competing on value. Value is the most sustainable way to separate your company from the competition. Is this approach easy? No, it is not easy! But attempting to compete on razor thin margins and expecting to make any money is virtually impossible. For example, a mechanical contractor that typically bid work declared chapter 11 bankruptcy. When the company came out of bankruptcy, they vowed not to bid work anymore. That contractor is now doing fine. They did not go bankrupt because they did not understand the mechanical business; they went bankrupt because they could not figure out how to bid work too cheaply and make a profit. When they learned to compete on value, they began to prosper.
If you think this concept doesn't apply to you because you are forced to bid work, think again. One of Garrison's clients happens to be a road builder, and most of their work is competitively bid. This contractor makes a higher profit margin than most of his competitors. They achieve higher profit margins by competing for projects where they can deliver superior value as a result of their knowledge and skills. This advantage allows them to win a competitive bid because they can construct the project at a lower cost while still earning a higher fee.
Contractors need to understand the opportunity to deliver the greatest value on a project is before construction starts, not during the construction process. This is true even in the competitive bid market as the road builder example demonstrates. The superior value is achieved by carefully selecting the right projects on which to compete. However, when contractors are allowed to use their knowledge and experience to impact the design from the beginning of the design process, they can substantially increase the value they deliver.
The question is how do you compete on value?
Competing on value requires both an overall business strategy and bid strategy. The business strategy is what Garrison refers to as Blue Ocean Contracting. This is a business approach where contractors differentiate themselves as much as possible from their competitors by providing superior value that clients appreciate. This value is achieved as a result of their knowledge and experience and applying it through an integrated delivery approach. In essence, the approach is about creating a business strategy that employs the company's specific knowledge and experience that produces the greatest value for its clients, but equally important value that clients appreciate.
Too many contractors believe that competing on value means providing more for more. While this can certainly be the case, it is not the only scenario. Of course, sometimes it is better value to spend a little more upfront during construction in order have a greater saving in expenses later in the life of the project. In other cases, greater value is achieved by delivering the same results at a lower cost by using the contractor's knowledge and experience to find a better way of designing and constructing the project. This is what true value engineering is all about – delivering the same results at a lower cost. It also means understanding the client's budget. Often the project's value could be increased, but if the client can't afford it then it is not true value. For example, a very expensive car may offer the greatest overall value, but if that car is outside the buyer's budget, the purchase could cause financial problems regardless of the value. Therefore, what we mean is delivering the maximum value for the client's budget. When your company delivers superior value that your clients appreciate, you will have both happy and loyal clients.
The second part of the process is making the bid presentation to the client so that you win virtually every bid. Sound unrealistic, but Southwell has a track record of doing just that when you employ the process described below. Southwell is often shocked at the amount of money, time and effort that people waste bidding for work without even thinking about it. In construction, you will often hear that if you win 1 out of every 4 then you’re about right! But, when you think about it that means you’re losing 75% of every bid you go for.
Too often people accept their ‘sector norm’ without questioning whether it makes good business sense. You wouldn’t do this in any other part of your business, so you’ve got to ask yourself “…are you bidding to win or bidding to lose?”
If you’re bidding to win and not quite there, then there are some simple things you can do now and by continuing to follow these Top Ten Tips you will be able to write a winning bid, time and time again and stand out from your rivals:
- Answer the bid questions clearly – say what you will do to achieve the stated objectives of the contract…and say how you will do it, how you will know you’ve done it and what the outcome will be for your client.
- Provide all relevant information you’re asked for and incorporate additional information when and wherever possible…avoid answering ‘yes’ or ‘no’ and expand your answers to raise your profile above that of your rivals, so you get noticed.
- Manage your bid as you would a project- develop a Bid Management Plan with agreed timescales and responsibilities…and be sure to stick to it!
- Appoint a single Bid Manager and feed information and research data to him/her to enable a Bid Roadmap to be produced that guides your team and saves you wasted time and effort- your Bid Team will thank you for this.
- Really, really understand how you are going to be assessed before you start work on the bid so you can score the highest…you’d look at the risks before starting a project and this is just the same.
- Make sure your answers are relevant to the problems, issues and objectives your customer wants to fix and what they want to achieve. This is what Southwell calls the ‘3Ps ProcessTM’, which can mean the difference between winning and losing.
- Check the word limits on each of the responses and stick to them- use bullets and diagrams to increase the amount of information you can provide without going over. Check out the financial section and use space there to add further explanation…whilst it might not be scored it’s a bit like being in court when the judge says some evidence you’ve just heard is inadmissible- tough, you already heard it and it’s in your subconscious!
- Include your best examples of previous, relevant and successful work and state the benefit you achieved for your client- this goes to the very heart of the only question your customer wants answering…’what’s in it for me?’ Tell them and you’ll score highest.
- Provide references if asked but be sure to brief them first before they are contacted.
- Use plain English and avoid jargon or overly technical explanations so you are easily and clearly understood and make the whole process of assessing your bid as painless as possible for the judges.
Of course, in this short report it is impossible to cover everything you need to know. Bidding is like a journey and it has taken Southwell a long time to develop my winning formula. There will be many forks in the road to distract you but if you stay on course in the long run you will get more confident in writing great bids, propositions or sales documents that win you more work…and that is a great measure of your success.
If you want to read more about the 3Ps ProcessTM and other tools and techniques you can use to change your bid culture for the better then get a copy of your free guide “are you bidding to win or bidding to lose?’ at www.visiontdm.co.uk and share your experiences through Southwell's articles.
Ted Garrison; president of Garrison Associates, is a catalyst for change. As a consultant, author and speaker; delivers his Construction 3.0 Strategies that offer breakthrough solutions for the construction industry by focusing on critical issues in leadership, project management, strategic thinking, strategic alliances and marketing. Contact Ted at 800-861-0874 or [email protected]. Further information can be found at www.TedGarrison.com.