Revealed ... Three Secrets of Effective Tendering or Bidding

​

There is a home makeover project process I’ve mentioned repeatedly in previous episodes. And that’s because it’s key on many projects. Get it wrong and your project goes pear-shaped before you even start work on site. Conversely, get it right and you’ve laid the most crucial foundation for the success of your project. What is it ? Good question … you’ve probably already heard it described as either tendering or bidding.

 

I recommend you listen to Episode 11 when I introduced this topic if you haven’t yet done so. You can find it easily by hopping over to our website at thediypm.com/podcast where you’ll find a link to that episode.

 

Because it can play such an important part of any Home makeover project, today I’m going to go even deeper … as deep as time allows … into this complex but vital process. For simplicity I’m just going to refer to the process as tendering so if you are more familiar with the term bidding then every time I say “tender”, mentally replace it with “bid” … they’re one and the same.

 

And wherever your project may be, anywhere in the world, tendering or bidding is a long established and well recognised construction practice. Versions of tendering or bidding were probably followed when the Pharaohs constructed the first pyramids as much as 4,700 years ago. I suspect the reason they’ve lasted so long is the Pharaoh didn’t choose the cheaper contractor, Hakim the Unworthy, who offered to build them out of sand mixed with water. Yes, I did make that up. As you’ll already have learned if you’ve ever done a Home Makeover project before, “Cheap” isn’t always the best way to go !!

 

And the reason tendering has such a long history is because one of the most effective ways to get competitive costs for any construction project, is to run a tender process. In simplest terms, this means inviting a selection of contractors to submit their tenders or bids to carry out a defined scope of construction work – AKA your home makeover project.

 

By having more than one contractor submit their tender, you introduce an element of competition into the process. For any contractor to be successful they need to submit the lowest price that includes for all of the works to which the tender relates.

 

Let me say that again … For any contractor to be successful they need to submit the lowest price that includes for all of the works to which the tender relates.

 

In case you missed the subtlety of that crucial point, you need to be aware that it’s inevitable that not all tenders or bids submitted will include for all of the work and that means two things.

 

And I’ll explain both in just a moment …

 

Hello and Welcome to Home Makeover Project Secrets, the show that equips Homeowners with the skills and understanding to execute successful home projects, that goes behind the scenes of Home Build Projects to unlock the secrets and share insider tips and strategies to save money and time on any and every home project. What you learn will give you the confidence to embark boldly on your next project and you’ll know what to do so your story has the happy, dream home ending you deserve.

 

I’m your host, Andrew Philips …

 

When I talk about "Home Makeovers", I include renovation, remodelling, alterations, additions, going up into attics and down into basements, redevelopments and even ground-up new builds. Any and every project where you're going to be appointing professionals, designing something, buying materials, carrying out construction work, employing contractors and sub-contractors, suppliers and manufacturers and even if you're doing some or all of the work yourself. All things home build.

 

I'm delighted you've joined me today.

 

Because we're dealing with what might be quite complicated information, especially if you are unfamiliar with some of the terminology and processes, the show notes and transcript will be uploaded to our website thediypm.com so you can easily revisit any episode and refer to the key information shared each week. And of course, if you prefer to watch or read an episode, rather than listening, you'll find links on the website as well. We also include any links to resources, free gifts and other useful information mentioned during episodes.

 

So, back to the two things … you must recognise both when you accept it’s inevitable that not all tenders or bids submitted include for all of the work …

 

First, you need to recognise that the lowest price may not be the correct price. And understanding that fact leads to second … this means you need to carry out a very careful and thorough tender analysis when the tenders are submitted to check them to find any missing items, math errors and so on.

 

The tender analysis process is just as important as the actual tender process, so I’m going to dedicate the whole of the next episode to revealing the insider secrets of tender or bid analysis.

 

But, before I get distracted, today I’ll be revealing three secrets of running an effective tender.

 

Now, any tender process can either be extremely effective or, and this may shock you, completely pointless.

 

And the first secret is the reason why, so I’d better explain …

 

In order for contractors to submit reliable, competitive prices for the construction work you’re inviting them to tender for, they need comprehensive, detailed and unambiguous information for every aspect or element of the proposed works. I’ve explained this in previous episodes – I call these the details you must sweat !! And I explained this in episode 12 … again, do head over to thediypm.com/podcast to find a link to that episode.

 

This essential information is usually provided through a combination of what we’ll refer to as tender documents. Depending on the size and complexity of your project, these typically include :

• drawn information – like architect or designer’s drawings,

• technical specifications – which may be included on the drawings or in separate schedules of the work

• schedule of works or tender sum analysis – you can ask contractors to provide a detailed analysis of their tender sum but at the very least give them guidance of the core work elements you want the work broken into … it makes tender analysis much easier and I’ll explain that in more detail in the next episode.

• Other documents that describe the work, the location, any restrictions that may affect how they execute the work and much more

 

When you don’t provide comprehensive, detailed and unambiguous information then, just as I explained in Episode 17, the tendering contractors either make assumptions, qualify their prices or exclude works they don’t fully understand. It can even lead to them withdrawing from the tender process completely. Which is disastrous if you’ve taken the time to carefully select your tenderers … as you always should. In other words, you’d have wasted your time.

 

It would be just as crazy as inviting Tennis greats Nadal, Djokovic and Federer to a competition in a stadium at night but with the floodlights turned off, no tennis rackets and heck, why bother to give them tennis balls to play with. Exactly, not much or a sporting event.

 

Inadequate tender information pretty much makes the whole tender process pointless. A waste of time and energy … and wasting time also always costs you.

 

Bottom line, if you can’t or won’t provide comprehensive, detailed and unambiguous tender information then there is really no point running a competitive tender process. You’ll just end up with a bunch of mostly meaningless bids because you won’t be able to work out which bid is correct at the best cost.

 

And that’s when you might need to consider another approach – you can listen to episode 9 to find out more.

 

So, secret number 1 : To run a successful and effective tender process you will need to provide comprehensive, detailed and unambiguous information which the tenderers can rely on to prepare accurate, competitive costs with minimal qualifications, assumptions and exclusions.

 

The next secret, number 2, is that there’s a magic number of tenderers to invite. Yes, who knew ?!! Invite too few contractors and you cannot rely on the lowest correct cost actually being both correct and lowest. But, and this may seem counter-intuitive, inviting too many contractors doesn’t mean even lower tender prices. In fact, with too many contractors, prices often increase.

 

And here’s why. Preparing and submitting a tender actually costs a contractor … specifically the valuable time for the team preparing their submission, making site visits, getting tenders and costs from their sub-contractors and suppliers and much more. Although the cost is usually part of their overhead, they cannot waste time submitting loads of tenders each week or month or year.

 

They need to achieve a sensible success rate which might be 1 in 2 or 4 or whatever makes sense in their market. So, contractors always focus on tenders where they believe they have a realistic chance of success. And if they are one of say 10 tenderers, the odds will be so low that many will either not take the process seriously and will at best submit an inflated cover price or will simply withdraw.

 

A cover price is where they make a rough assessment of the likely cost of the project, with minimal effort, based on past experience, then add a substantial margin above what typical projects cost and submit that inflated number. They would then be one of the highest priced contractors who would most likely not win. And if they were to surprisingly win the appointment, they would be delighted because they would be making an above average profit margin. This way, their team wastes no time preparing a detailed tender.

 

And getting a bunch of inflated tender prices that are not much more than guesstimates is, there’s that word again, “pointless”.

 

If contractors lose interest and simply withdraw, then you might be losing from your tender process some of the best contractors in terms of capability, reputation, reliability, competence and so on. All the good reasons you added them to your list in the first place. And the last thing you want, is to be left with the desperate dross … those contractors who need the work so badly, they’ll still try to win even against unlikely odds.

 

And what is the magic number ? Well, over many years of running successful tender processes, our preference is to invite a maximum of three or four contractors, any of whom we would be happy to appoint if they were to win the tender evaluation.

 

So, secret number 2 is that the magic number of tenderers for any tender or bid process is three or four. Can you go to just two – yes; can you go to five or six – probably yes as well. There are influencing factors like market conditions, the size of the project, the profit potential if it is a complex or extra large project and many others. But my strong recommendation is to stick to three or four as a rule of thumb and you are unlikely to go too far wrong.

 

And finally, secret number three.

 

In order to be certain that the contractors who you invite to participate in your bid process are the right contractors for your project, you need to run an effective pre-tender selection process to find the best available candidates before shortlisting the top three or, at a push four.

 

Among others, there are a number of key considerations to focus on. These include:

• Location – do they operate locally to your site ? Appointing an out of town team who have to travel longer distances, even from across a larger city, will increase their costs.

• Size – is their organisation the right size for your project – you don’t need a huge organisation for your kitchen refurbishment not the significantly higher overhead and profit margins such a company would be likely to charge. But you also need more than two guys and their dog if you are adding a double-storey extension and don’t want to take forever for the work to get finished.

• Availability – selecting a brilliant local contractor but whose next available slot to execute your project is a year away is likely to waste time and cost you money. It’s likely you will be better served by a less stellar organisation who can get a team on your work site within a few weeks at most.

• Skillset – your favourite painter and decorator who’s done a ton of small jobs for you over the last while may not be the best suited to taking on an attic extension requiring expert roofing, even if they do have a friendly roofer they can bring in. Their skillset is not aligned to organisation and execution of a more complex project.

• Reputation – what do their past clients say about them ? Do they come highly recommended ? How close was the final cost to the starting contract value ? Did they get the work done on time ? Did they pay close attention to carrying out the work ? Was the client satisfied with the quality and close of the project ?

 

Time spent in careful pre-selection of potential tenderers will pay dividends when you make your final shortlist and invite them to tender.

 

And here’s a hot insider tip. It’s worth having a top five or six list to draw from for your final three or four. Even with the best intentions, good contractors win work regularly and will usually accept work on a first-come-first served basis. Yesterday they may have had the capacity to tender for your project but after two clients suddenly give them a green light for other projects, they may have to regretfully withdraw. If you have no backups you could be left with only two or three teams still competing. And that can make the process less effective.

 

And that wraps up this episode. In the next episode, I’ll be drawing back the curtains on tender or bid analysis so you make sure to pick the right contractor.

 

To make sure you never miss an episode, why not subscribe to Home Makeover Project Secrets on our website at www.thediypm.com where you'll also find our blog posts and details about our upcoming Project Masterclasses and Training Courses.

​

If you have a question about a project you're planning or already running, please reach out and email me on faq@thediypm.com.

 

If you have a challenge to overcome then I can just about guarantee others are also facing the same or similar challenges. It’s always reassuring to know you’re not the only one battling away …

​

Please subscribe so you never miss an episode in whatever podcast player you prefer.

​

I also hugely appreciate being given a thumbs up and any positive or helpful comments, reviews or questions . Together these supportive actions help us to grow our audience and reach more and more Homeowners every week.

​

It's been great to have you with me today and I look forward to having you back for the next Episode of Home Makeover Project Secrets.

 

All the best on your Home Makeover project adventures.

​

Andrew Philips, Project Management Coach