Getting the Job: Maximize Bidding Success
By: Gary B. Xavier
In HVACR work, as in many trades, jobs often must be quoted before the customer commits to doing the work. Quoting new work may be simple for residential projects, but in commercial work, the quoting procedure may be long and complicated and may include a competitive bidding process.
In both residential and commercial markets, maximizing the success of winning the work requires a strategy of careful planning and execution which is often honed by trial and error.
Finding Prospective Jobs
Existing customers are often a source of potential new work, and if so, should be the easiest to successfully quote.
In this situation, it is common to overestimate the customer's loyalty to the service company, thus overpricing the job to gain extra profit. Doing so carries the risk of alienating the customer, even jeopardizing existing service work.
Estimating and quoting new work to existing customers should be done carefully and handled the same as if it were for a potential new customer.
Finding opportunities to quote and bid on HVACR work can be accomplished in different ways depending on the scope of the project and the ability of the HVACR company to handle jobs of various magnitudes.
With residential customers, new opportunities often occur through word-of-mouth or because of advertising.
Commercial jobs may be advertised as published legal notices, which are typically required for government or public work. Commercial contractors can also gain insight into upcoming projects by subscribing to a service such as Dodge Reports (now called Dodge Construction Central) or other lead-generating services. Subscribing to one of these services is crucial for commercial HVAVR contractors who hope to secure a maximum number of bid opportunities.
Project Selection
Deciding which projects to bid on can be difficult. Not every project is suitable for every HVACR company.
Consideration must be given to the project scope, location, and time it will take to complete the estimation and bid documents, as well as the competitors who may also be interested in securing the work.
Staying within the ‘comfort range' of job scope and geographical area will lessen the chances for making costly mistakes in the bidding process but may also limit the possibility of expanding the HVACR business entity. The decision on whether to quote on a particular project often rests with company management rather than the estimator.
Reviewing the Scope of Work
With commercial projects, the HVACR contractor may be bidding as a sub-contractor to a larger firm such as a General Contractor (GC), or directly to the building owner.
A thorough review of the project scope, that is, the description of the work required, is the first step in the quotation process. If the project appears to be one of interest, the bidding documents, specifications, and plans must be carefully looked over to make sure that no items necessary to complete the work have been overlooked by those who prepared the bid specifications.
Estimating the Job
In large companies, the job of ‘estimator’ is often a dedicated position, but in small firms it may be handled by the owner or manager. Regardless, estimating new work must be handled efficiently, consistently, and accurately.
Review of the scope will include doing ‘take-offs,’ developing a list of required materials to complete the work. This may be a time-consuming process if the job includes multiple pieces of new equipment and the related piping and wiring. Computerized programs are available to streamline this portion of the estimation process.
When figuring out the costs of the materials, current pricing from suppliers should be verified, as well as any projected increases in cost between the bid date and the actual purchase of the materials. Costs of shipping and delivery of the materials to the jobsite must also be included, as these may be substantial.
Labor costs can be more difficult to price than materials, so care must be taken not to overlook the costs involved with hours on the job site, travel time, lodging and meals if necessary, and overtime.
Public works projects are subject to ‘prevailing rate’ wages for mechanics and laborers. Often referred to as Davis-Bacon jobs, the Davis-Bacon Act of 1931 established the framework for labor rates on Federally funded projects. Later regulations were enacted too, requiring the contractor to ensure employees are paid accordingly. The wage rates are set based on the trade and the location of the work performed. HVACR contractors must comply with these regulations and include any additional labor costs in the estimate.
Don’t Forget the Overhead!
It is easy to overlook an additional cost of work on all jobs: overhead. The costs involved in operating a business – the facility, management and office staff, utilities, vehicles, insurance, employee benefits – all add up to a significant amount of cost: OVERHEAD.
Many companies determine a set amount of overhead to add to each estimate. Usually added as a percentage of the labor and material estimate, overhead is often based on a review of the operating income and expense statement, thus determining the cost associated with running the business. This percentage is then included as a cost in each project bid.
And the Profit!
There is an old adage that goes like this –
“Count each day as lost,
Who’s setting sun,
Finds goods sold at cost,
And business done for fun.”
True yet today, without profit there is no reason to secure new work. But the amount of profit to be added to each proposed bid is often difficult to determine.
Too little profit added may be a drain on the company’s resources, especially if unexpected (and unpaid for) expenses occur once the job is in progress.
Too much profit added will usually result in being underbid by others looking for the same work and willing to do it for less.
The profit margin for each job may differ, but a good mix of high-profit and low-profit jobs is necessary to maintain the overall profitability of the company.
Diligently selecting, estimating, and preparing for each and every quotation should help to ensure that the HVACR business is competitive and viable.