Speaker 1 (00:01):
The lowest bid doesn’t always win. Sometimes it just loses slower. I’ve watched talented contractors let desperation lead their estimating process and lead their projects right into financial quicksand. That’s what we’re gonna talk about on today’s show. You found the K-Cup. Let’s jump in.
Speaker 2 (00:28):
Well, welcome back to the K-Cup episode 29, if you can believe it. <laugh>, we can, feels like episode 29, doesn’t it? Johnny <laugh> And welcome back to all the general contractors Baton Rouge.
Speaker 1 (00:38):
Two 90. <laugh>
Speaker 2 (00:39):
Two 90. Anyhow, we are here with K-Cup episode 29, and we’re kind of piggybacking on a, on a prior episode that we did that we called Bid Day Chaos. Some of you may remember that it, it was a, uh, probably one of our most watched videos and most listened to episodes. Uh, today we’re talking about estimating and bids again, but a little different angle. This time we’re talking about, you know, the kind of the race to the bottom scenario that, uh, can happen with bidding and, uh, how desperation, uh, when it drives the bid, uh, it can lead to some hard lessons learned. So we’re gonna dive in on that. John, you’re gonna share some, uh, some of your 17 plus years of experience with us. I know that, uh, you know, estimating is, is pretty much a weekly thing, and, uh, and I know that it’s a huge part of the general contracting, um, you know, pursuit profession. And, uh, so we’re looking for your insight on, uh, this situation and, and, uh, you know, when applicable. Uh, please do share your own personal experience with this. ’cause I know some of this stuff’s probably hitting home with you as we read through the outline, but let’s go ahead and jump in, uh, and, you know, give us some insight. Like what’s your, what’s your primary thought about this, what we’re gonna talk about today? And this is a good episode for general contractors Baton Rouge.
Speaker 1 (02:01):
Yeah. Desperation, man, that’s a terrible estimator <laugh>. Uh, you know, I know when I was doing all of the estimating, there were times certainly, uh, when I felt like I had to get a job or, or, you know, maybe, maybe we were a little slow and we needed to get some work, and I felt like I just had to do something to get us a job. And, uh, there were certainly times where I took a job way lower than I probably should have. Mm-hmm <affirmative>. And, uh, you know, it, it usually didn’t really help. So just the lesson learned was just that bid from that desperation really just didn’t profit us at all. Profit us, you know, well at all. Uh, yeah. I mean, I think that a, you know, a bad job at a low price just really makes things even worse. So, yeah. Uh, you know, desperation, not, not the, uh, not where you wanna be leaning in, uh, in on bid day for sure. Again a great point for all contractors and including general contractors Baton Rouge.
Speaker 2 (02:54):
Yeah. You know, like we talked about a low price, you know, underestimating basically is what it comes down to. You’re estimating, but you’re really underestimating and it, it really taxes your resources because they’re taken away and can’t, you know, obviously be, uh, you know, used for more profitable pursuits. Uh, it also can damage your reputation because, you know, you can get yourself in a situation where, you know, you want to do a good job, but you just can’t ’cause the, the, you know, the revenue’s just not there to even, you know, do what you want to do with manpower or materials. And then there’s the really serious reality where you could literally get yourself in a situation with a job where you’ve bid it so low that, and you’re held to that, that, uh, you know, you literally could, you know, go out of business.
Speaker 2 (03:46):
Right. It really could put you under. So we’re gonna get into, uh, three critical lessons from estimating under Pressure, and John’s gonna share his insight on these three, uh, these three points. And we have a, uh, you know, a, a corresponding article on LinkedIn that we, uh, posted this week. And, uh, you can go check that out on our LinkedIn thread, but, uh, it’s a great article and, and you, you know, you can kind of, uh, uh, see in writing what we’re talking about rather than just listen to it. But we’re gonna talk about these, these, these critical lessons that we need to learn from estimate and win under pressure. So, uh, let’s jump into that first one about, you know, we’re gonna get it all figured out. You know, tell us a little bit about how that, you know, how that mindset can happen and if you’ve ever experienced that mindset yourself, and then you know, what you can do to kind of, I guess, uh, have a contingency against that. All you contractors might want to listen up, including general contractors Baton Rouge.
Speaker 1 (04:38):
Yeah, I mean, I think that for sure, you know, we’ve been there, uh, in the open thought just talking about bidding out of desperation. Uh, you know, certainly it, it leads to that mentality like, okay, we need a job. Like, let’s, let’s go be aggressive. Let’s take it, you know, let’s take it lowest we can take it and, uh, we’ll figure it out. We’ll, we’ll, we’ll, you know, we’ll maybe leave a, a scope off that we think we can handle in house very easily. Yeah. Uh, or there’s a bunch of different ways that, that you could, you know, fall into this, uh, kind of figure it out category for sure. Uh, but definitely, definitely, you know, not a place you want to be. Uh, you know, now that we have estimators, and I, and I tell our estimators all the time is, you know, don’t bid out of desperation.
Speaker 1 (05:24):
Don’t, don’t bid because we hadn’t got a job in a long time and, and you feel like we need to get one. Like, we’re not looking at their, you know, we’re not looking at our grading, their performance, if you will, on whether we’re getting jobs or not. I mean, we wanna look at the estimate. We want to know that there was no holes in it. We want know that the scopes are covered. We wanna know that, you know, it, it is really close to meeting the numbers that we know that we need, uh, that kind of thing. Uh, and the point behind that is, is so they don’t fall into this desperation trap or this, like, we, we just gotta get a job. Yeah. Uh, but I think that probably how we fall into this now, you know, this was early on. I certainly had that tactic and tried to do that a few times. Great point, I hope all general contractors Baton Rouge are listening.
Speaker 1 (06:06):
Like, I’m gonna just get this job, figure out how to do it, get the right subs that can meet the price or whatever it is Yeah. And, and figure it out. And, and we definitely went through some rough patches, you know, on a couple of the jobs trying to, trying to do that process, if you will. Yeah. But I think how we fall into it now, if we’re not careful, is we’ll get to where we just want to be the general contractor. Like, man, this guy’s beat us on the last three jobs and whatever. Like, we going to beat him. Yeah. And, you know, we don’t really look at it that we’re trying to make it work, but at the end of the day, when you have to get low enough to beat that particular contractor or what, whoever it is Yeah. Then you’re technically back at that, we’re figuring it out because yeah, your job don’t make your numbers, you know, you’re not hitting all the checkpoints that you typically would on your bids. Uh, so, so that’s one way that, you know, our estimators and and even myself can, can fall back into this by just getting caught up on, you know, trying to beat a particular contractor.
Speaker 2 (07:09):
Yeah. And I mean, it is, it’s no, uh, secret that a lot of times that, you know, after we’ve submitted bids and we get the bid tab back, that we just sit around scratching our heads wondering how did they take this job at that, at that price? You know? I mean, it happens. Yeah. And, uh, and like you said, we don’t want to fall into that. You know, sometimes it’s competition just becomes part of it, you know, we start wanting to compete, and that’s right. Like you say, you just get fed up with, uh, being number two and you want to take one and, you know, and win one. But, uh,
Speaker 1 (07:41):
And you know, you know, that’s happened quite a few times where, uh, and I guess I can think of a project recently in the last year or two that I bid actually, that I was the estimator. We had a lot going on, and we were kinda, we were kinda, uh, I think we needed a job or two. And, uh, honestly, I probably went at that Jo way more desperate than I should have. And it was kind of a, a lesson to me all over again. But I was really able to, you know, share that experience with our estimators. Like, look, I was filling the gap for you guys today, you know, going to estimate this job. And I did everything that I tell y’all not to do. Yeah. And we got the job, and we blew out the competition on this one. It happened to be an invited bid.
Speaker 1 (08:28):
There was not, you know, as many bidders. Yeah. And, you know, I, I was taking that into consideration, but I was just bidding from such a desperate spot that I didn’t, I didn’t really take it in, you know, I really didn’t let it add up, if you will. Like, I, you know, typically in those situations, we, we know that, you know, those jobs are probably gonna go for a better margin. Yeah. Uh, you know, it’s, you’re usually against, you know, pretty quality contractors that, that are working off of their numbers and not just trying to, uh, yeah. Be dirt cheap. And so I didn’t, I didn’t take all that into account, and I did, but I didn’t weigh it as heavy as it should have been weighed. Yeah. Weighted. And, uh, anyway, so I was able to take that and, and share with ’em, like, look, this is exactly what I’m telling you guys not to do. Uh, here I am doing it, you know? Yeah. Been doing this for a long time and still falling into the trap. So definitely, uh, definitely something we need to kind of keep front of mind and, and, you know, let, let our estimators know, like, look guys, we, we not, you know, we’re not grading you on this. Like, we, we just want you to put out solid bids. If we get ’em, we get ’em. If we don’t, we don’t, you
Speaker 2 (09:34):
Know? Yeah. Yeah. It is, it is true. Like, um, we don’t wanna let optimism become one of the metrics that we use in our, uh, estimating process because yeah. We, we always want to be optimistic about, you know, being able to take on a job and do it a great job when we do, but we don’t want that to be a factor in how we estimate thinking. Well, you know, like you said this fallacy of we’re gonna figure it out. ’cause, uh, next thing you know, we find ourselves in that situation, and that is not a fun place to be if you’ve ever been there. So, uh, definitely, uh, some, that’s a great story that you shared with us real life, uh, you know, experience about how it can happen even to someone who’s seasoned as yourself and as many of these bids that you’ve been through, you can, you can let yourself fall into that trap once in a while. Another great point for general contractors Baton Rouge.
Speaker 2 (10:22):
So, uh, that’s a great cautionary tale, if you will. And like it says in our outline, it says, you really want to build contingencies that are based on actual conditions. And that’s what you gotta focus on, not being wishful and, uh, thinking that you’re gonna be able to make it work. And if the, and if the scope isn’t clear, which sometimes it’s not clear, sometimes you only have a, a limited number of days to get, you know, RFIs answered. And, uh, you know, you just, sometimes you gotta, you gotta build contingencies into your bid because it’s a what if, you know? And, and if you don’t do that and you get the job, you might find yourself in a real pickle. And, uh, and if you do do that, sometimes it’s a good chance you’re not gonna get this project because you know, you, you’re, you’re doing it right. Yeah. So you guys just gotta be willing to walk away, I guess, is what I’m saying.
Speaker 1 (11:15):
And we we’re pretty good about leaning on the, the side of worst case scenario. Yeah. I’m sure it cost us some jobs occasionally, but Yeah. Just, you just come out with a lot better comfort level leaning that way.
Speaker 2 (11:28):
Exactly. It’s easier, I think, for everyone to sleep at night knowing that maybe you didn’t get the job, but you’re also not gonna be sitting, laying there sleepless nights wondering, how am I gonna pay for this? You know? Right. So that’s a bad situation to be in, especially in business, so, all right. Great. Uh, well, so the old we’ll figure it out is a fallacy, so don’t fall into that fallacy. If, if you’re, uh, checking out the show today, hopefully, uh, John was able to drive that point home.
Speaker 3 (11:58):
Do you have a construction project, but you just don’t know where to begin? Let us show you the steps that are necessary to make your project a reality. I’m John Kelly with Kelly Construction Group, and I wanted to jump in here for just a second and let you guys know that here at Kelley Construction, we’re more than just a builder, we’re your one-stop solution. We want to help you with planning, design, permitting, and construction. If this sounds like a solution, you need, reach out to us today. We’ve left the links in the show notes, set up a call. Now let’s get back to the day’s show.
Speaker 2 (12:28):
So let’s talk about our, our second point there, the old change order mirage, you know, well, we’re just gonna take this job for, you know, bare bones and we’re gonna make it up in change orders, you know, somehow. Tell us a little bit about, you know, that whole mindset and why it’s not a great mindset to have. Yeah.
Speaker 1 (12:47):
I would say that I’ve never been a project with that mentality, ever. I’ve never went into a job banking on change orders to, uh, kind of bail us out or help us make money or whatever. Now, there, there has been a job or two I can think of that we took probably really too tight. We, we took it really, you know, it didn’t match our blueprint, it didn’t match our numbers, but we did take it out of, you know, this desperation that we’re talking about or whatever mm-hmm <affirmative>. And, and we did, we did end up getting the day saved by some change orders and, and we were able to go in there and make some good money on it. Uh, but like I said, I’ve never, I’ve never been a job like that mm-hmm <affirmative>. Uh, intentionally. Yeah. Uh, I’ve heard that there are plenty of contractors who will and do kind of, you know, take that approach, I’m sure.
Speaker 1 (13:33):
Uh, but certainly when they advise that, uh, you know, there’s a lot of projects where, where con uh, change orders can only be marked up very limited amount of money anyway. Yeah. Specifically, you know, your state jobs and government type jobs, municipality type jobs. Uh, so don’t really have a lot of comments on this portion of it, except for that I wouldn’t advise it. Yeah. I don’t think it’s a good, uh, I don’t think it’s a good idea to, to try to take a job, you know, based on having some change orders kind of get you in the green, if you will. Yeah. Uh, but I, I can say that we’ve never done it, and it’s not a practice I would advise at all.
Speaker 2 (14:10):
Yeah. So, I mean, if change order, if the job is estimated correctly, change orders really should fall into the profit category. It, you know, if, if you’ve got everything covered in the scope, and even if the margin’s not as fat as you’d like it to be, but it is covered and there is a margin there, technically the job’s been estimated correctly. So that means that any change order that would come along after that would, should be profited if it’s done, done properly. So, so basically we wanna let change orders be, you know, uh, for profit, not a survival strategy, basically is, you know, what we’re trying to talk about. It shouldn’t be your way of operating, you know?
Speaker 1 (14:51):
Yeah. No, definitely, definitely trying
Speaker 2 (14:52):
To build business on the, on the hope of doing change orders.
Speaker 1 (14:55):
Well, too, there’s so many areas that, uh, there’s many small notes and all kind of, you know, yeah. A lot of nuances, plans and specs that, uh, you know, they actually try to protect against change orders and that kind of thing. So sometimes, sometimes it can, uh, can be really difficult just, just to even claim there is a change, you know?
Speaker 2 (15:15):
Yeah, for sure. Yeah. You could get, you could, you know, go into it thinking that that’s gonna be your tech, and then find out, you know, that the architect and the engineers are just, they’re not gonna go along with that, that plan. And, and they’ve got contingencies as well to, uh, you know, guard against change orders for certain areas, certain parts of the scope. So it’s definitely risky behavior and definitely not a strategy for estimating <laugh>.
Speaker 1 (15:40):
Yeah, no, I agree completely.
Speaker 2 (15:42):
All right, cool. So let’s, let’s go ahead and get into our third point here and talking about really just the, the repercussions of, of underestimating, which is really the biggest estimating error you can commit is just underestimating. And, uh, and, you know, we’ve, we’ve basically have talked about the fact that we do see a lot of that If you’re in the industry for any amount of time, you’re gonna be an eye witness to people underestimating all the time. And it is just a, it is just a fact. And, uh, so talk about the, the effects of, of being a chronic underestimate and, uh, and what it can do to you, uh, as far as a business person is concerned.
Speaker 1 (16:24):
Yeah. The first, the first thing I think of is, uh, you know, cash flow, or the first things I think of is just cash and personnel. I mean, if you’re under bidding, uh, if you’re under bidding, specifically, if you’re, if you’re taking a project too low, lower than cost, then you’re, you’re taking some of your money to, to be able to, you know, make this job happen. Yeah. Uh, but even if you’re just taking it at a really low margin, you’re in, you’re, you’re having a cash flow and it, it puts a strain on your cash flow. I mean, yeah. There’s lots of subcontractors, there’s lots of material vendors that, that won’t payment, uh, in advance, uh, or before we’re paid. Yeah. Uh, so you’re putting that money out in the front and, you know, you don’t have a big margin, you’re already not working with a lot of money, and if you’re doing this time and time again, you also probably don’t have a huge cash reserve because you’re not making a lot of money Exactly.
Speaker 1 (17:15):
On a lot of these jobs. That’s right. So, so it really puts your, uh, your cash, it really puts your financial picture and, and stress mm-hmm <affirmative>. Uh, and when that’s stressed, everything’s stressed. Yeah. But, you know, the other part of it is, and unfortunately this has happened to us, you know, a time or two to where we had a, you know, a bad job that was, you know, maybe a complicated job or, or maybe it was just for a client that we really needed to go in and do a good job. So we end up having some of our best resources, some of our personnel that could really make us the most money tied to a job where they were not really making us any money Yeah. For long periods of time. Yeah. So, so, you know, we got this job because we felt like we needed work.
Speaker 1 (18:01):
It’s paying minimum, and it’s tying up all the other things that we need cash and people to really go make the money that we need. Yeah. So that, that’s, that’s something that I’ve seen firsthand, uh, and, and not just here. I’ve seen that in, in, in, you know, plenty of, uh, companies. Yeah. It’s something that we, we work, you know, pretty hard to, to not fall into these days. Yeah. Uh, and I, I think you can see that on most of our bid and our estimates. I mean, we we’re rarely, uh, you know, we’re very competitive, almost always. Yeah. Uh, so we’re, we’re rarely in there, you know, winning jobs by huge margins or anything like that. So Yeah. So that’s, that’s the mindset. We’re just trying to stay out of those, those type traps, you know?
Speaker 2 (18:48):
Absolutely. So what about, uh, the effect on relationships with the project owners? You know, what, what can happen there?
Speaker 1 (18:55):
No. I mean, you know, if if the, if you, if, if the money’s not there, you know, you’re having, you know, your people stacked up on a project, you’re trying to get it done, it’s very apparent to the owner that, that things aren’t going smooth. Yeah. And, uh, I mean, I think what happens, what happens first is, is they start to lose a little confidence in you. Yeah. Uh, you know, if you’re, if you’re pretty good company when you keeping things paid, even though you’re struggling, uh, you know, you’re keeping everything in, in, uh, you know, in good order as, as far as that goes, then you know, you’re not catching any real grief from the owner mm-hmm <affirmative>. Because they’re not having any kind of financial impact or any kinda, you know, nobody’s calling them saying they’re not being paid or that kind of thing.
Speaker 1 (19:42):
Yeah. But, but the first thing that begins to happen is, is they lose the confidence in you. Yeah. And, uh, that’s, that’s the, that’s what you need the most. I mean, you need ’em to know that you’re gonna be able to get the job done and Yeah. You know, do it in a, in a good manner so that they come back to you time and time again. So, yeah. I think the first thing that begins, you know, to get hurt is, is their confidence in you and long term that’s, that’s making the problem even worse because you need that relationship. You need, you need them to be calling you, you know, time and time again.
Speaker 2 (20:12):
Yeah. Yeah. You literally can buy yourself into a job that you can’t afford to do. So the, the constraints become impossible. And even for, you know, a, a company that, that you know, lives and breathes integrity, it’s still putting you up against the wall and really making it, you know, it’s, it, you could say next to Im impossible, but, you know, we never say die. We never say quit. Right. So, you know, we’re gonna get it done at whatever the cost is to us, but like you said, they, it, it is hard not to be able to observe that you’re paying that cost even by the project owner, even though they don’t really appreciate, you know, the complexity of what it takes for you to even be there to do the job and how those impossible constraints, you know, like doing it for, you know, little or nothing Right. Really affect you, you know?
Speaker 1 (21:03):
Yeah. At the end of the day, like you say, they don’t really see any of that. I mean, they just know that we said we could do a, we could do a job for this price. Yeah.
Speaker 2 (21:10):
And they don’t really care about the details.
Speaker 1 (21:12):
That’s right. It should be in their mind and rightfully so. Yeah. It should be the best, the best thing they could get, you know what I mean? Exactly.
Speaker 2 (21:19):
Exactly. Yeah. So anyways, your reputation is huge when it comes to this type of thing. And, uh, another, uh, big problem with underestimating is that you’re constantly putting your reputation at risk and really the business itself at risk, like you said, you alluded to over time, if you do this consistently, you’re never gonna have be sitting on a very good reserve of cash flow because you’re constantly on these paper thin margins, or even below margins, below cost. And so the first time a hiccup comes in a job, you’re kind of like, uh, you’re either gonna do substandard work, you’re gonna find some corner to cut, you know? Right. You’re, it is not gonna go well for you.
Speaker 1 (22:08):
So yeah. I mean, I, you know, you, you tie up your people, you’re trying to, you’re stacking ’em up on jobs that, you know, you want to make a good presence. You want to, you want the honor to see that you’re trying to get this done. Yeah. Uh, but that just, that really kills you. I mean, yeah. You know, the other job that you have coming up that, that need, need some real good attention, uh, just, just not a good move.
Speaker 2 (22:30):
Yeah. For sure. Alright, so any closing thoughts that’s gonna wrap up this, this, you know, short and sweet little episode about, you know, letting desperation drive our bidding process? Any closing thoughts on it, John?
Speaker 1 (22:44):
Yeah, I mean, I, I think that if you want a healthy, you know, a healthy bottom line, uh, just keep desperation outta the picture. Yeah. Uh, you know, figure out a way to get some work, figure out a way, you know, go, go shake some trees, go do something. Yeah. Uh, but, but don’t let desperation guide your, uh, estimating process. Yeah. Otherwise, your bottom line won’t be where you want it. For sure.
Speaker 2 (23:06):
Yeah. I kind of like the thought, you know, to double down on an accuracy, just hone your craft at estimating and keep just sharpening that pencil and getting better at that instead of trying to be more aggressive, actually be more accurate. And if you are accurate, like you said earlier, and you don’t get the project, at least you can sleep at night knowing, well, you probably shouldn’t have had it then, you know, if you couldn’t get it for that number that you submitted.
Speaker 1 (23:30):
I mean, I think you gotta know your numbers, you gotta know what you gotta make on a job. And that has, that has to be, that has to be your lowest point. If you can’t make the numbers that you need to make, it just needs to be a no.
Speaker 2 (23:43):
That’s right. Absolutely. All right. Well, thanks for sharing all that insight. We appreciate it. Hopefully, uh, those of you listening are getting some benefit out of this. Uh, this is something, a phenomenon that we see a lot in the contracting, uh, space. We see a lot of, uh, like I said, we scratch our heads sometimes when we look at the bid tab and, and just say how, you know, how is this even possible? But, uh, nonetheless, it continues. So, uh, hopefully we can improve the industry as a whole just by helping to educate other contractors and contractors that are coming up in, in the ranks to understand why it’s, it’s really a bad idea to let desperation for work and, um, you know, drive your bidding process and, and your estimating process. So anyways, thanks for sharing all that with us, John. Hope y’all come back, uh, next week for another episode.
Speaker 2 (24:35):
Uh, again, this is episode number 29. We are rolling towards our next goal, which is, uh, 50 50 episodes is our next milestone just to keep you informed as to what our goals are here. And, uh, we know that that’s going to mean a lot for the podcast if we just continue till then. So we’re gonna be here so you can count on that happening. And, uh, please, uh, take just two seconds and give us a thumbs up on this and, uh, this episode, and please subscribe. Uh, 90% of the people that listen to the podcast aren’t subscribed, and that’s pretty much across YouTube that that tends to be a, uh, a phenomenon. So please, let’s build this community around this, this industry. And, uh, we want to grow the show to help all those that are, uh, into the commercial industry. Uh, whether it’s, uh, commercial real estate, architecture, design, uh, engineering, or you’re a contractor or a subcontractor in this space. We think that there’s a lot of opportunity here for all of us to grow and learn. So, uh, but we need your subscriptions to the podcast so that they send it out to more listeners. So anyways, glad you were here. Thanks for being here. We look forward to seeing y’all and, uh, being with y’all again, uh, real soon. That’s it. That’s all. That’s all folks.