Key Factors to Consider in Bid/No-Bid Decision Making
“To bid, or not to bid, that is the question.” It ain’t exactly Shakespeare, but the decision to bid on a project shouldn’t be taken lightly. You invest a great deal of time and resources into putting together a bid, so it’s important to make sure you are carefully identifying the right projects to go after. One way to do this is by conducting a thorough bid/no-bid analysis that meets your company’s goals and is in line with your long-term strategy.
In order to make the bid/no-bid decision, there are a number of factors to consider to make an objective, rather than subjective, decision.
Profitability – The bottom line is if you can’t make a profit on a project, you have no business bidding on it in the first place. Make sure you have an accurate and comprehensive account of your annual labor and equipment costs so you can correctly estimate your job costs. When calculating labor costs, be sure to include taxes, insurance, workers’ comp, vacation pay, tools and equipment and any and all additional benefits you provide to your employees.
Once you determine what it will cost you to complete the project, you need to consider other variables like location, contract requirement, planned method of construction, etc. and determine if the job will be profitable should you submit the winning bid.
Capability – Okay, now that you’ve determined that you can make some money on the project, you need to determine if your company is capable of doing the work. Review your current backlog of upcoming projects to make sure you can provide the manpower, equipment, staff and other resources to commit to the project when construction is expected to commence and complete it within the required timeline.
You also need to ensure your company is financially capable of completing the project, meaning you have the bonding capacity and adequate cash flow to perform the work without jeopardizing any of your other obligations. There is such a thing as having too much work. Know your limits so you don’t extend beyond what you are capable of performing.
Historical Analysis – In order to submit better bids and win more work, you should keep records on all your bids, both the successful ones and the ones you didn’t win. It’s important to have a clear understanding of what caused you to lose out on a bid whether it was a lack of experience or if you simply weren’t low enough on price. Don’t be afraid to ask the client for feedback after the bidding process is complete.
You should also take a look at your performance on the projects you did win and complete. Did you underperform or were you able to successfully manage the project or identify areas to improve productivity to complete the project under budget? By analyzing historical data, you can better identify which bids you should be going after.
Long-term Strategy – Consider whether or not the project you are looking to bid on fits in with the long-term strategy and goals of your company. Are you looking to maintain your current level or are you trying to grow your business? Are you looking to expand into new geographic locations or new markets? Maybe you want to start tackling more private work or you want to start taking on larger projects like hotels or hospitals.
Regardless of what your company’s long-term strategy is, make sure you are identifying and going after projects that align with those goals.
Risk Assessment – Before deciding to bid a project you should carefully identify all the potential risks that could arise on the project. Review the bidding documents, plans, and specifications for the project and rely on historical data from similar projects you’ve completed to identify risks. Common risks include incomplete construction documents, unknown site conditions, accelerated timelines, safety concerns, etc.
Prioritize the risks, taking into account how much time, money and work each risk will require to manage effectively. If you’ve identified a large number of high impact, high probability risks it might be time to walk away and move on to your next opportunity.
Other factors to consider when making your bid/no-bid decision include project location, duration, size and scope, competition, client and designer. Once you’ve determined which factors and criteria are most important to your company you need to create a grading matrix and a threshold score for making the decision to bid or not. By taking a data-driven approach, you will be able to make smart, informed decisions on what projects to pursue in the future.
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