Without careful Tender or Bid Analysis, the whole Tender or Bid process is pointless. I share the Five Key Steps of effective tender or bid analysis.
Homeowners 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.
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.
So what happens when the tenders returned vary wildly from way below your budget to way over ?
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 ?
Let me warn you, this scenario plays out on most Home Makeover projects. This is not unusual.
So, if this happened to you, what would 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.
You’re aiming for reasonably close tender or bid amounts.
But, 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.
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. 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.
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.
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.
Next, 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.
In the worst case, the Contractor excludes the item completely.
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.
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 an alternative item isn’t adequate for your requirements.
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.
Do this in a two-step process.
First, ask them to respond to your queries in writing. Then go through and revise their totals to take account of any changes that arise through the answers they provide.
This brings you 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 mark-ups. 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.
Arrange to meet the contractor. Tell them 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.
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.
By following the rules for preparing and issuing great tender documents you can reduce the likelihood of receiving wildly different tender sums.
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.
To make sure you never miss a Blog Post, follow the link below to become a Blog Subscriber. And visit our website at www.thediypm.com where you'll also find links to our weekly Podcast Episodes, 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 others are also facing the same or similar challenges. I'll be answering Subscriber questions in FAQ editions every few weeks. It’s always reassuring to know you’re not alone in your Project challenges.
Become a Blog Subscriber today ...
Comments