"They don’t know their costs"  ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

Losing a Bid at 0% Profit

Your essential guide to dominating the construction bidding and building world with the latest tech, market trends, and wisdom.

I get a bit uneasy when hearing that a highway contractor submitted a bid at 0% profit (or lower) and still lost to a competitor. It's a common scenario that raises eyebrows and I've grappled with the same bewilderment at times.

Here's what often goes through our minds:

"Those sons of guns are crazy."

"They don’t know their costs."

"They're fine making no money."

"They bid no equipment costs since it's all paid off anyway."

We've all heard these conjectures, and while they might hold a sliver of truth, often, they stem from our tendency to make a fundamental attribution error.

Consider this analogy:

You witness someone in a coffee shop with coffee all over their white pressed shirt and think, "How clumsy!" Yet, when your coffee lid betrays you the following day, you blame the lid, not your coordination.

Photo Credit: Angelino’s Coffee

It's easy to attribute others' missteps to character flaws while excusing our own as circumstantial.

This happens in relationships with friends, family, and business. And bidding.

In construction bidding, where a handful of items dictate the majority of costs, there are more analytical ways to understand the bid dynamics:

1. Examine takeoffs critically: Did we get outfoxed on takeoffs? Takeoffs are the lifeblood of unit price work. Every item counts. Shrewd and informed competitors know how to capitalize on their deep knowledge of the plans, specs, and owner when selecting their unit prices to get the upper hand. It’s not all about spreadsheets. Sometimes knowing how tough or understanding the owner’s rep will be dictates how much risk you should take. When you need the work, all the pieces matter. 99% of the time, estimators are not incentivized by their employer to take risk due to fear of post-bid repercussions. That’s why you need operations management buy-in during bidding.
2. Follow the 80/20 rule: On most highway bids, 20% of the items make up 80% of the cost. We have the bid tabs. Where do we see the biggest spreads in our extended prices on major items and the competition? How might the competition have seen things differently than us? What risks did we take or not take? How can we apply these learnings moving forward?
3. Consider market dynamics: Could external factors such as mergers or industry slowdowns be influencing bids?
4. Evaluate subcontractor & supplier quotes: Have we leveraged the most competitive bids from all qualified and eligible subs? It’s easy to tell if they used the same sub quotes as us or not. If competitors asking for and getting better pricing than you, they have an edge and you may not know it. Are you okay with getting the same pricing as everyone else? How sure are you that you’re getting the best prices?

An experienced construction executive once reminded me that fortunes fluctuate; we can't always be the winner, nor should we aim to be. What he meant was that sometimes the bid you lose is a blessing in disguise. And there’s no changing the past.

The key to consistent success lies not in emotion but in a rigorous, data-centric approach.

So next time we lose a bid we really wanted to a competitor, before jumping to conclusions about their sanity or business acumen, let’s take a step back and analyze the facts. Who knows what we might uncover?

We appreciate you reading this week. Keep bidding, building and growing.

See you next week.

Tristan