Jeff Sawyer and Kenneth Sullivan from Arizona State University were the presenters at the "successful bidding practices" session at the Open Shop Leaders Forum on May 8 in Whistler, B.C.
Sullivan began by saying "just because something is written in a contract does not make it so." He said they've noticed the primary source of inefficiency and lost profit on a project originates with the client. But on the client side, most are not happy with the level of service they receive. Something else correlates to project success, and that something is the expertise and capabilities of those doing the work.
So from a client's perspective, Sullivan said, the question becomes "who is the best person to work with us?" and the challenge is to find those who not only claim but actually are the best fit for the project. From the construction side, the challenge is to communicate your strengths.
Marketing and even proposals don't help at all, he said. But there is a tool that can be used on any project to determine success.
Sullivan said he has tried to model and map personality factors of high performance people in the industry, and found that when experts lose work at a price that they know is unrealistic, they become frustrated.
"The client doesn't know it, but they're about to have a bad experience," Sullivan said, and if the expert lost on the bid, they can't say anything. They don't mind losing to other experts, but when they lose to those they know won't execute, it is detrimental.
In their research, Sullivan said, only 2.5 per cent of projects they studied were defined as successful. Only 30 per cent were completed within 10 per cent of the planned cost and schedule and there was 24 per cent growth in owner's indirect costs since 1995.
Canada's delivery methods, whether design build, design bid build, or otherwise showed no difference in performance. Integrated project delivery took off in the US a number of years ago, but is starting to stall, Sullivan said. Choke points in IPD include BIM integration and profit sharing.
The key difference makers are qualifications based selection of the project team, and involvement of key people earlier in the project.
The biggest problem with low bids is that "sometimes the projects work." It isn't that low bid is bad, he said, but it isn't consistent.
It's more important for the vender to know what to do than for the client to know what the client should do, and yet clients are the ones making these decisions, he said.
The client should only have an expectation of scope of a project, he added.
There's only one risk every vendor has on every project, and that's not getting the work, Sullivan said.
Sometimes expectations do not match between owners and vendors, Sullivan said. "The client thought they bought this and vendor thought they brought that, and it becomes a gap in expectations," he said.
How can contractors differentiate themselves? Some groups are good at getting work for a vendor, but they sometimes make promises that can't be fulfilled by the vendor. When clients and vendors at a high level do come together to hammer out an agreement, there is often a "dominance" negotiation between the two sides.
Vendors told Sullivan that the biggest risk they face is how to accomplish all the things their sales team promised they could do.
Sawyer said project selection that recovering from project losses means one has to work harder to make money. Assuming a net profit of 6 per cent, for example, if one loses $15,000 on a project it takes $250,000 of additional work to break even.
The biggest cause of project failure is inexperience with project size, location and type, Sawyer said.
There are no bad projects, he said, just bad matches of contractors to projects.
"Project failures don't just happen," Sawyer said.
When one gets a contract, "everyone celebrates," he added, but that could just be "the beginning of the end."
If experience is critical to success, Sawyer asked, "how do I get the initial experience?"
You buy experience, he said. Knowledge and experience are purchased, but they are never free and there are associated risks, so "expect the unexpected."
The solution is to manage risk by starting small and finishing the first project completely before attempting another, he said.
"Attempt only what you can afford to lose," Sawyer said.
To measure pre-project risk, there is no more important factor than experience.
Unlike manufacturing, where improvements result from repetition. Lean is based on manufacturing, and in Sawyer's opinion some of these methods don't work in construction. Construction projects have limited repetition and duplication, unlike manufacturing.
This is where the value of direct experience comes in, Sawyer said. New project similarity to past successes helps, in terms of size, location, type and design.
Experience is accumulated institutionally, he said,
Pre-project risks are directly associated with an organization's experience with similar work, and project risk is different for each contractor. But risk can be measured, he stressed.
Sullivan said the way to leverage project teams to win more work is to compete with high-performance teams, leverage the expertise in those teams, and develop those teams in the first place.
What differentiates high performers, is that "it's the people, not the company" Sullivan said. Think risk and think value from the client perspective, he added. The reality for most clients, he said, is that they aren't nearly as experienced at various project types as an owner.
Think like the client, Sullivan said. No one likes reading proposals, or even reads all of them, and most fo what they see is marketing. Most evaluators are also not experts on the project, he said.
"The first few pages are all they're going to read," he said. Provide performance information about the specific, critical people on the team and project a specific approach in terms of risk and value.
"Identify the hard items and treat the client as you would want to be treated in terms of scope, budget, schedule and expectation," he said.
Also focus on what shows differences, he added, and it isn't the job of the owner's evaluation team to look for differences between vendors. It is the vendors responsibility to make those differences so clear that they have to go with them.