Warning … Don't Make This Catastrophic Mistake On Your Home Makeover Projects

​

In the previous episode I drew back the curtains on tendering or bidding. I explained that this process is key on many projects … I should even say most projects. Get it wrong and your project goes pear-shaped before you even start work on site. But on the flip-side, get it right and you’ve laid one of the most crucial foundations for the success of your project.

 

If this is your first time connecting with this topic then I recommend you drop over to our website at thediypm.com/podcast and listen to episodes 11, 12, 17 and 18, all of which address tendering or bidding. And if you prefer to watch the videos, then head over to our YouTube Channel “Home Makeover Project Secrets” where you’ll find all of these episodes.

 

Just like in episode 18, for simplicity, I’m just going to refer to the process as “tendering” so if you’re more familiar with the term “bidding” then every time I say “tender”, mentally replace it with “bid” … they’re just different terms for exactly the same process.

 

So, lots of Homeowners already know that a highly effective way to get competitive costs for their home makeover project is to tender or bid to a few contractors. Which is exactly the right thing to do. And then they make a huge and potentially catastrophic mistake.

 

I wonder if you can guess what it is ?

 

Having invited a selection of contractors to submit their tenders for the project works, they standby to receive the contractor’s submissions on the due date. And it’s usually exciting and terrifying in equal measure. You know how much money you have available to spend. You have a ballpark idea of what the project should cost. But until a contractor offers to carry out the project for a specific amount, it isn’t actually real. So when the tenders are due, “stuff” is about to get real !!

 

What if the costs are higher than you expect and you can’t afford your dream home project ? What compromises could you be forced to accept ? Does the whole project unravel if your dreams end up costing more than your savings or the amount you can borrow ? And that’s why it’s terrifying.

 

But, it could go the other way … perhaps you were conservative with your budget forecast and when the costs come in lower, not only is the project a “go”, maybe there are some extras you’d left out that you can now add back in !! Well, that would be a fantastic outcome. And that’s worth getting excited about.

 

Your email pings and you grab your phone or laptop and check … is it … ? Yes, finally, the first tender comes in. So, will it be smiles and laughter or groans and frustrated disappointment ? Deep breath. Brace yourself. You scroll down. Lots of words and then a bold highlighted number.

 

“Wait, whaaaat ? These guys must be kidding. $ 120,000 ? That’s crazy. Our budget is $ 65,000. So, that’s almost double. Surely that can’t be right !!”

 

Another ping … now an even more frantic grab … yes, it’s another tender. But this time there’s a sense of dread. Scrolling down the email and … “Ok, so this one’s come in at $ 72,000. That’s much more like it. Still over budget but maybe we can make that work.”

 

And then the third and final ping … where will this one land ? More desperate scrolling and there’s the number … “Yeessssss !! That’s the one. $ 52,000. We’ve done it. And we can add in the jacuzzi. I knew we could do this.”

 

Ok, now take another deep breath. Time to pause. What just happened here ? This feels like a catastrophic scenario to be facing. One project, one project scope, three tenders. But they range from 20% under budget to nearly 85% over budget. How’s that even possible ? And which one is right ? The lowest ? Why ? Because you’re desperate that it isn’t one of the higher ones ?

 

Let me warn you, this scenario plays out on most Home Makeover projects. This is not unusual. I know, confusing, right ?

 

So, if this happened to you, what would you do ? Well, in just a moment, I’ll reveal how you can prevent this happening in the first place and what to do when your tenders are submitted so you know exactly what’s going on and which tender is the right one.

 

Hello and Welcome to Home Makeover Project Secrets, the show that equips Home Owners 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.

 

Let’s get back to our catastrophic tender return scenario where chaos seems to have taken over !!

 

So, what should you do ?

 

The first lesson is to recognise that when you get wildly differing tenders, something isn’t right. And so you need to work out what’s gone wrong.

 

The opposite scenario is much easier to understand … that’s when you get three tenders and the totals are very close to each other. In an ideal scenario, on a really good set of tender documentation, you would hope to have all three within 5% of each other and if your own budget is somewhere in the middle, then “Congratulations”, you’re ready to turn Pro.

 

That’s what I aim for with every tender process after doing this for over 35 years … and, honestly, it still doesn’t always work out that way. But you’re aiming for reasonably close tender or bid amounts.

 

But here’s a warning. Even if you do get a narrow spread of tenders that are close to each other, you still need to follow these essential steps to work out which tender is the one to take forwards. And we call this process Tender or Bid analysis.

 

I usually start with the two lowest tenders – to save a bit of time. Hopefully at least one of them is close to being correct with only a few bits to sort out. So …

 

Step 1 – Check the math. Always. You’d be surprised at how often contractors make basic errors of calculation. And don’t let a spreadsheet fool you. There’s opportunity for using the wrong formula, skipping out cells or double counting. Just because it’s been prepared using computer software, never assume the numbers have been added up accurately.

 

So, if the main totals all add up, then Step 2 ... Go granular and compare the amounts for each of the two lowest tenders against each of the work elements. I’ll come back to this in a few moments. When the totals are close together then you’re more likely to be looking at reasonably accurate costs. Just like the overall total, a big difference is a red flag. You’re looking for anomalies.

 

Let’s consider an example. Imagine if you’re replacing the roof on your property. And let’s imagine where you live, the budget is say $ 25,000. If the lowest tender cost is $ 3,000 then don’t get excited. It’s not possible to buy $ 25,000 of market standard roof replacement for only $ 3,000. If your budget is reasonably accurate, then the tenders might range from say $ 23,000 to $ 27,000 but a range wider than that suggests something is wrong. The old adage applies here … if something seems too good to be true, then it probably isn’t.

 

So that super low or super high total is likely to be an anomaly … which means you need to dig deeper. Depending on the level of detail the tendering contractors submit, go as deep as you can. Sometimes contractors skip an item, leave stuff out, miss a whole page … there are lots of basic errors.

 

Okay. So you’ve checked the math. And if you do find errors then highlight them and then correct them so you get correct totals. You’ve dug deeper into the detail and you’ve spotted any missing items, etc. Correct those as well or make a note so you can come back to it.

 

Step 3. Check for assumptions, qualifications and exclusions and make adjustments. Most contractors will submit a series of assumptions, exclusions and qualifications of their tender amount. The better your tender documentation, the fewer of these there should be. But if a contractor hasn’t been able to price an item accurately then they can make an assumption, qualify their price or just exclude it completely.

 

Again, let’s take an example of something simple. A mixer faucet or tap for the bathroom. Let’s say the one you specified costs around $ 75. You know this because you checked the manufacturer’s website. But when the contractor was preparing his tender, he discovered the product is no longer available.

 

So, he can do one of three things. He can guess a cost based on his experience for a similar product. He may even make an informed guess by finding something that’s similar. He makes an assumption. And he adds in $ 50. Hopefully he notes in his submission that faucet type X isn’t available so he allowed for a type Y at $ 50. That solution is Okay if you’re happy with the cheaper faucet. But not so much if you don’t like it. And then the cost would go up if you end up finding a better option but closer to your original budget cost.

 

Or he might include a Provisional Sum of say $ 100 which he expects to use to pay for the faucet once you have chosen an alternative. And that’s probably OK because it should cover the cost of something similar at around the $ 75 mark. And the overall cost would go down if the one you choose costs less than $ 100.

 

In the worst case, he can’t be bothered to solve the problem so he excludes the item completely … just doesn’t price it at all. And if you don’t spot this, then the cost goes up later to the full cost of the alternative faucet once you’ve chosen it.

 

In each case, if he doesn’t price what you asked for, he should draw your attention to what he has done. But contractors don’t always do that.

 

So you need to find those qualifications, assumptions and exclusions and make adjustments.

 

A warning … sharp contractors who know how to play the game may deliberately low ball items like this. So they include just $ 20 for the faucet. It makes their total lower than everyone else. They know you won’t like a $ 20 faucet when you wanted one worth $ 75. So they anticipate you’ll just increase the total to the cost of what you want. But the low ball number might win them the contract. They win the contract but you get hit with extra costs.

 

I’ve just used one item to illustrate this point but if it happens to lots of items in the tender build-up then the impact overall can be significant.

 

And here’s an expert strategy I use … if one contractor flags a qualification, an assumption or an exclusion, immediately check the other tender to see if that contractor has made any similar adjustments, etc. It’s a red flag if a diligent contractor points out a product no longer available but the other contractors don’t mention it … are they hoping to catch you out later or were they just too lazy to verify product availability.

 

Step 4. Check the specification.

 

Let me explain … Imagine your project includes a new air conditioning unit. You should have selected a specific unit from a particular manufacturer that will do what you need it to do. When you’re checking the tender sums, you may notice that two contractors have a big difference for the new a/c unit. Now it’s unlikely that the contractors can buy the units from the manufacturer for widely different amounts. So the difference could be in their cost to install or their profit and overhead markups. But you do need to check that both have priced against the same unit.

 

It could be that the lower priced contractor knows about a very similar product from a different manufacturer. He may offer you a lower price by including the cost of the alternative. And that might be a great solution. But you need to know that, because it could be that the alternative unit is cheap because it’s not well made, lacks features of the original unit you wanted and so on. And in that case, you’re not comparing apples with apples … and by-the-way, check out episode 8 to learn more about apples in construction.

 

Sometimes, good contractors will offer a great alternative product because they know that the brand you picked is expensive and there are perfectly functional and great quality alternatives that cost less and the difference is in the brand name. But you need to check this out before accepting that tender. What you don’t want to discover is that the unit offered isn’t adequate for your requirements … which might only happen when summer arrives and it struggles to cool the house down as the original , preferred specification you had wanted would have managed easily.

 

So, when there are big price differences for items where specification is important, you need to check the specification is what you included in your tender documents so you can decide if the compromise or alternative product is acceptable or not.

 

And now you’re ready to go to step 5. Interrogate the Contractors.

 

Send each tenderer your list of queries and ask them to respond with corrections, clarifications, explanations, etc. in writing. Why in writing ? Well, it gives you a record of the answers which, if needed, can be included in your contract with the successful contractor. It means fewer arguments later on.

 

You must ask them to correct any maths errors you found in step 1.

 

You must ask them to clarify their position on any anomalies identified in steps 1, 2 and 3.

 

And you must have them clearly advise any assumptions, qualifications and exclusions. In particular ask about any anomalies – weirdly low or high costs – and ask specifically that they notify you if any specifications are different from the tender documentation and why.

 

Formally advise them that if they are successful and are appointed to the project, no alternative products or specifications, etc. will be accepted or paid for unless this has been agreed – again in writing – between you before the contract is completed. That way, if, once works have started and you notice some other a/c unit arriving on site, you can challenge them and make it clear they must remove it from site and supply and install the originally specified unit.

 

I like to do this in a two-step process.

 

First, as suggested, I ask them to respond to my queries in writing. Then I go through and revise their totals to take account of any changes that arise through the answers they provide.

 

This brings me closer to having at least two tender sums that are now probably closer together, mathematically accurate, based on the same specifications and include all of the scope of works – no missing items, no excluded items.

 

At this point any remaining difference between the tender sums is likely to be down to their overhead and profit markups. Inevitably, one contractor will be more expensive or one will be hungrier for the work.

 

But don’t miss out the second step.

 

Step 2 … Dangle the carrot.

 

Wait, what ? What carrot ? First apples and now carrots !! Arrange to meet the contractor. Tell them they are in pole position on the grid … which, if you’re not familiar with motor racing, simply means they are close to winning the contract and so must attend the meeting ready to answer questions.

 

At this point they know they can get your project in the bag. They will come to the meeting motivated to close out the process. They are more likely to answer honestly or accept any corrections, etc. with minimal argument.

 

And when you meet, review their tender with them, go though the questions you asked them and the answers they provided. Be on the lookout for evasive answers, lack of clarity, confused responses … any giveaways that they are not being entirely upfront and honest with you.

 

Ask specific questions, repeat the warning that no alternative products or specifications will be accepted or paid for unless this has been agreed between you before the contract is completed. Keep notes of the meeting. Make any final adjustments to their totals. And if they are still the lowest tenderer then you should be ready to proceed to appointing them formally.

 

Yes, things CAN still slip through the cracks. There may still be mistakes and issues to resolve once they are appointed and start work. BUT … you will be 100% more likely to have appointed the right contractor, at an accurate contract sum, than if you just grab the lowest contractor and appoint them in a rush without going through a robust tender analysis process.

 

Remember that I mentioned starting with the two lowest tenders. Please note that if, at any point during your analysis and as you are making corrections and adjustments, you realise that one of your two lowest contractors is no longer lower than your third or higher tenders then you need to go through the same process with the next nearest tender. It very often happens that the lowest tenders are lowest because of the mistakes, exclusions, assumptions and qualifications they have made.  And that can mean the contractor with the best quality tender – although at face value at a higher cost – actually turns out to be offering the best price.

 

And you really want to find the best contractor at what I call the correct price.

 

If you end up with two tenders that are very close and there’s not much between them, then I recommend you take another few steps so you make the best selection. But you’ll have to wait until the next episode to find out what those are.

 

Now, I promised I would reveal how to stop this happening in the first place. And that’s by following the rules for preparing and issuing great tender documents. Comprehensive tender documents achieve three key goals.

 

First, they include all of the work that needs to be carried out.

 

Second, they require the tenderers to submit the tenders in enough granular detail to make it easier to identify anomalies, errors, missing items, etc.

 

And third, they are a clear record of the basis of the contract sum which helps hugely with administering the project once the work starts on site. Another critical part of achieving project success.

 

And all of these steps save you money and time as your project moves from planning and design into commencement on site.

 

If you haven’t listened to Episode 11, I mention some of the mistakes Homeowners make when inviting tenders or bids on their projects. It’s definitely worth dropping over to our website at thediypm.com/podcast to check it out if you haven’t heard it yet.

 

And that wraps up this episode.

 

To make sure you never miss an episode, why not subscribe to Home Makeover Project Secrets on our website at 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. We'll be answering listener questions in FAQ episodes every few weeks. 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