Now that you’ve read Part I of our series to learn best practices for increasing your number of invitations to bid, we happily welcome you to Part II. In the previous installment, we exposed how GCs construct their vendor databases and how you can maximize your potential to be added to those highly coveted bid lists.
But now it’s time to talk strategy.
First we’ll focus in on trends we are seeing in GC preferred methods of communication and explain why these shifts might be occurring. Then we’ll wrap it up with the best part: how you can use this knowledge to your advantage.
Let’s get started.
We all know that protecting your financial interests is an absolute necessity for everyone involved in the construction industry. Nobody is naïve to the risks involved in jobs that operate on razor thin margins. General contractors in particular, understand that their risk is significantly increased if they submit a bid using internal estimates – so failing to collect an outside bid for a particular discipline is, quite frankly, not an option.
So how can they avoid this trap?
Historically, GCs reduce exposure by contacting as many subcontractors as possible through mass emailing. The appeal of this approach is pretty clear, ping as many people as possible in hopes of widening your net enough to sufficiently increase response rates. However, this method is not without its challenges. Sending out invitations in mass quantities doesn’t necessarily result in a larger number of responses. It also increases the likelihood that invitations will be ignored altogether. In fact, the best they can realistically hope for using this approach is about 10-20% success. As a result, response rates are often insufficient. So despite a large contact list, these GCs end up paying skilled estimators to do administrative follow up calls, which obviously they would rather avoid.
On the other end of the spectrum, we are seeing more progressive GCs move to focus on a bid coverage strategy. Specifically, using a more targeted bid invitation method. The idea here is to focus on a smaller number of contractors, those already proven trustworthy, to provide a bid. This represents a shift away from a ‘find the lowest bidder’ mentality. Instead of playing a numbers game, these GCs focus on solid relationships with reliable partners. If there is a history of trust and good business between a GC and a subcontractor, the GC can count on them to provide an accurate bid with less risk of being change ordered to death once the project starts. So in this scenario, obtaining full bid coverage could potentially mean only five bid invitations are required for a particular trade.
As GCs focus more closely on bid coverage, we see them looking for new resources to help make educated decisions. While the use of construction cloud technology might not be a foregone conclusion just yet, it’s becoming more and more apparent that if you want to gain a competitive edge, it’s necessary to embrace this change.
There are now solutions available, like GradeBeam®, that allow you to sort through previous bid data and determine where it’s best to focus your attention. Criteria like trade references, qualifications, past projects and work areas are all available filters to connect you with the right subcontractor. The idea here is to get to the right group of people, with less effort, in less time. And who wouldn’t want more high quality data with minimal effort? Instead of pounding the pavement to find contractors in new regions, GCs can quickly locate a short list of the most relevant quality contractors with a few clicks of their mouse. While legacy techniques still work, they are much more expensive and not nearly as efficient. And we’ve noticed that busy GCs with limited resources are looking for a better way.
Any smart business will value efficiency and as a result, general contractors are beginning to embrace the role of technology in making their lives easier and their businesses more profitable. So if GCs are turning to technology to find subcontractors, it follows that subcontractors should do the same for mutual benefit. The use of technology here allows everyone involved to make a bigger impact with less effort, working smarter, not harder.
When it comes down to it, there are benefits to working with both mass coverage and selective coverage general contractors. However, once you have all the facts, it’s important to evaluate what method best suits your own business model.
Are you one to play the numbers or would you rather focus on a smaller group of fruitful GCs?
From our perspective, why not play both sides of the bid fence? Generally, moderation is a good start. Since we know that GCs who focus more on bid coverage have a more partner based approach, it’s likely there will be fewer bidders for their jobs and slightly less focus on always selecting the low bid. These GC relationships are sought after because, as a subcontractor, your own hit ratio and margins will be higher on their projects. The main benefit here being that your own estimating team becomes more efficient and thorough in their bidding. What's more, the fact that you gain the luxury of being more selective in where you concentrate your own team’s efforts, which allows you to win more business and ultimately to bring in more revenue.
On the other hand, it’s important to note that this network could take some time and effort to build. The contractors invited to bid, and most definitely those that win, are vetted in advance. So ideally, you could focus on building out your network of reliable work while continuing to take your chance on some open projects. You never know, maybe a job you win from a hard bid invitation could develop into a partner relationship down the line.
As we identified in our first blog entry of this series, if you identify a potential partner with a greater focus on bid coverage (which means working with existing contractor relationships) it’s important to know the information they require before adding a new sub to their bid list. In fact, the way they communicate bid invitations can actually provide important clues about how to approach them. (Click here to get a refresher on Part I). So don’t hesitate to go after those GCs, just make sure to understand how to put your best foot forward. With a little strategy and forethought, you can greatly increase the likelihood that you’ll be added to their coveted bid list and ultimately help build out your own network of reliable work.
So what should you take away from all this?
We recommend prospecting for new work with the goal of building a solid relationship to ensure a steady pipeline of future work. Why? Because it’s a win, win.
Can’t wait for Part III? Stay tuned!
We plan to dive into trends around prequalification programs. Ever wonder what type of information about the safety and financial health of your company will make you stand out to general contractors? Keep an eye out for our next installment to find out!
Copyright © 2016, Oracle and/or its affiliates. All rights reserved. Oracle and Java are registered trademarks of Oracle and/or its affiliates. Other names may be trademarks of their respective owners.
Intellectual Property Notice