It takes a lot of time and effort to bid on construction projects. And, there’s nothing worse than winning a bid you later wish you hadn’t. Here’s how to set up a process for deciding which projects to bid on, and which ones to stay away from.
Construction firms get into projects from hell quite easily. Maybe they didn’t do enough discovery. Maybe the estimate was too rosy. Or, maybe they planned on a certain subcontractor participating, only to find out too late that wasn’t going to happen. But, there are also times when they bid and win a contract that doesn’t fit their core competencies. The way this happens most often is when they fail to qualify projects using a project plan.
It’s Your Project Plan
Many construction firms develop a plan of projects based on their long term goals. So, a company with a goal of becoming a $150 million a year business doing projects in the industrial segment will lay out a path to that goal. The path includes specifics about the project market and segments the company will focus on. Even though a company could focus on any construction market segment, it’s their capabilities, experience and track record that decide where they will be most successful.
You can find many approaches to developing a project plan, and it’s important to select one that fits how you manage, the time you have available and that also fits your other planning activities. Here is a broad brush approach to creating your own project plan for qualifying projects.
Goals Are Very Important Here
To start, you have to consider your company’s long term goals, current experience, skills, bonding capacity, partners, equipment and finances as you decide which kinds of projects to focus on.
Once you have a clear picture of the projects that fit your goals you use a point system to rate bid opportunities as they come in.
Choose a five or seven or 10 point scale. Compare the incoming bid opportunities to your project plan by assigning numbers to each aspect based on how closely the project matches your ideal project. Each of the nine factors could have sub factors you will also assign ratings to. For example, you might want to focus on multi-family with fewer than 20 units. So, besides assigning points for multi-family, you would also assign points to a subfactor of “20 units or less.”
Once you have a clear picture of the projects that fit your goals you use a point system to rate bid opportunities as they come in. There are times when one aspect of a project opportunity will immediately make it a no go. An example is a bonding capacity you can’t meet. Keep an updated list of those items so you can quickly eliminate projects that just won’t work.
Here are nine factors to consider as you create your project plan.
1. Project Market
Consider the construction market where you have the most success. Maybe you do well in all respects of residential projects. Do you want to focus exclusively on single-family? Or do you prefer to focus on multi-family or both? If your forte is in the commercial market, is that in retail, office, another segment, or all of them?
Assign rating numbers to each project market to reflect their importance to your goals. So, if you want to work only in single-family residential, then assign a 10 to it. If you want to work on both single and multi-family, but single family fits your goals best, then you might assign a 10 to single-family and an 8 to multi-family. In this case, when a bid opportunity comes in for single-family, it gets a 10, while one for multi-family gets an eight.
You use this process for the other eight factors. In the end, you total up the score to see how closely the bid opportunity matches your business goals.
2. Project Type
Consider the type of project you excel at, and that match your goals. Are you interested only in new construction, or will you also do renovations? How about demolition? Is that an aspect of construction projects that matches your skills, experience, and abilities? Maybe you prefer projects that have aspects of demolition and new construction.
Another aspect to consider is the percentage of tasks your firm will complete compared to the percentage that you will subcontract. You can add any number of subfactors and assign points to them based on their value to you.
3. Project Size
The most common approach when considering size is to use project value. So, if projects in the $3 million to $5 million range fit your goals you’d give them more points than those in the $500,000 to $1 million range.
4. Project Owner
Owners who are a pleasure to work with would get higher ratings. You might also assign points to subfactors related to owner track record, and owner reputation. If you specifically need owners who are aligned with certain financial institutions, or that are within certain political boundaries, you’d assign points accordingly.
5. Project Delivery Method
Here’s where you assign points to projects according to delivery methods like design-bid-build, or construction manager at risk. Think about the delivery methods you have the best experience with and the kinds you’d like more of.
6. Project Location
If yours is a new business, you likely won’t want to start working projects that are a long distance from your base. It’s common here to assign points according to the radius from your office. So, those projects within a 20-mile radius get more points than those further out. Of course, if you are established and interested in opening new territory, then you might have sub factors here that include other communities, or other states.
7. Project Start
Timing is critical in construction, and taking on too many overlapping projects can stretch your resources. Consider your current roster of projects and when they are starting and ending. Then assign points to dates when you’d like new projects to start. Projects closest to your preferred start dates get more points than ones later, or sooner. You might have subfactor dates here that are definitely out of bounds so give them the lowest points.
8. Project Financing
Consider your bonding capacity, insurance capacity, and contractual obligations. Assign points according to how new projects will affect those items. For example, if you have only half a million in bonding capacity, incoming project opportunities exceeding that would likely get a lower number to reflect the difficulty you’d face in increasing your bonding capacity.
9. Special Requirements
Some projects have special requirements that will cost you. Those might include specialized equipment, specialty trades, environmental issues or compliance requirements. Assign points according to how much more difficult they will make the project for you.
You have to update your project plan to match the changing project picture and the changes in your business. That means regularly reassessing the points you’ve assigned to the various factors and subfactors to reflect current reality.