Subtle indicators that something is amiss...

[rockstar.esq]

Today marks the second time in four days that I've received bid results where the low bidder was 33% lower than consensus.  By way of providing context, over the last twelve years, my bids have won or lost by an average of 4%.  In the case of projects worth 25% of my average annual revenue or more, that percentage shrinks to 0.5%.  My personal best was winning a $1 Million bid by $2,000 which is 0.2%.   Speaking in broad generalities, the market tightens in proportion to the requisite skill necessary to compete.  Firms that lack the resources to perform/ undertake larger projects don't get as much practice bidding in tighter markets.

With all that said, the first project I heard about was from a small general contractor (GC) that has always treated us fairly.  The call was ridiculous.  For starters, they tell me that my bid was 33% higher than their low  bidder.  They told me that the low bidder's proposal was "more detailed".  I know the person calling me is intelligent and hard working.  This leads me to conclude that they probably tried to match the items listed in my concise proposal against the low bidders verbose proposal.  Since this person didn't have any questions or concerns about what was in my proposal, I concluded that they read, and understood what I wrote.  This implies that the GC doesn't understand the "more detailed" proposal enough to match my project scope items in theirs.

After a bit of hemming and hawing, the GC outright asks me what I think my competitor may have missed?  "From what you've told me, it sounds like they're missing one third of the project" I replied.  We exchanged pleasantries and that was the end of the conversation.  Five hours later, this GC called me back to inform me that they'd followed up with the low bidder.  Turns out the did have a mistake, which after corrections is now only slightly cheaper than my bid. 

Summing up, this GC told me that they would be using that number for their bid to the client.  I'm sure this person felt they were doing the honorable thing by letting me know; a)that my bid wasn't crazy expensive, and b) that they would be hiring the lowest bidder.  While I do appreciate the honesty, I think integrity without intelligence is a dubious virtue.  My efforts defined the market value in concise terms that allowed them to be certain of what they were getting.  My competitors bid was verbose enough that the GC could not tell that they had omitted one third of the project.  The GC didn't mention anything about demanding  unambiguous wording of my competitors proposal.  So I suspect that their revised proposal is just as undecipherable to the GC as the first.  If the cost difference is now slight, the difference in risk to the GC is certainly not.  If you could pay a small premium to employ a firm that clearly has everything you care about, would you really take a chance on hiring a firm that presented a proposal so unintelligible that you couldn't tell that they missed one third of the job? 

The second project is actually even more ridiculous.  There were twelve bidders, in two clusters, with one outlier.  I was among the low cluster of five bidders with a range of 2% to our set.  The outlier was 33% low.  The GC figures that this bidder is just really hard up for work, so they're giving stuff away.  As we talked, I mentioned that amount is perfectly equal to one notable, and absolutely necessary scope item.  That item is so costly and necessary that I specifically provide a separate price for it on my proposal.  

Dead silence.

When the conversation resumes, the GC tells me that it doesn't much matter since they lost their bid anyway.  In fact, they're losing quite a bit.  I commiserate with them and gently inform them that some of their GC competitors are notorious for exploiting bidder mistakes.  As I hang up the phone, it strikes me that they're just adding everything up on my proposal without using the information I provided to inform their decisions.  

Perhaps even more significant is their lack of a grounding perspective.  To many of these people, the risk of one versus the other is the monetary difference of their proposals.  It's like they believe that they could hire the lower one, and pay no more than the bid day difference to cover mistakes.

Precious little consideration is given to how that monetary difference factors in terms of the contractors survival.  In both cases, the monetary difference is roughly equal to the low bidders best-case annual profit.  This sets up a situation where it won't take much for a firm to enter a failure spiral.  Replacing a contractor once the job is underway is catastrophically expensive.  Pursuing the failed contractor for damages in the courts will inevitably reveal the bid-day difference. 

I suspect that someone in court will point to that 33% difference as a subtle indicator that something is amiss with the prosecutions judgement.

 

 

 

 

 

 

[George N. M.]

Dear Rockstar: 

My perspective is from an Owner's viewpoint where you are looking at the various bids after the bid opening and trying to decide how to get the project done on time, on budget, and with as little as possible brain damage.  Bids that are more than 10% out of the average cost indicate to me that there is something is wrong and even if it was possible to get the job done 33% cheaper it is unlikely that it would not turn out to be that cheap in the end.  I don't think it is a good idea to think that you can rely on the very low bidder's performance bond.  Trying to collect on a performance bond is not a joy to the heart forever.  

Also, going to court to enforce a low bid is often not a good strategy and isn't likely to be successful.  Unless you are dealing with a large firm which made a mistake and has the resources to afford a loss all you may do is drive the bidder into bankruptcy.  And that doesn't get the project finished on time and on budget.

Finally, I have some ethical issues with calling up one bidder to discuss another bidder's offer.  That is letting one player see another player's cards.  In the pubic sector you can usually see a competitor's bid after the bid has been awarded because of open records laws but in the private sector I'd think that information would be kept confidential. 

I think the usual punishment for making a significant mistake on a bid is not getting the job and getting a reputation as a slip shod operator rather than being contractually forced into a major loss situation.  If you make that kind of mistake repeatedly you don't get many jobs and are in another sort of death spiral.

All this, of course, having little to do with backsmithing unless you are doing major architechtural projects or something similar.

"By hammer and hand all arts do stand."  

[Frosty]

Dad had a bell curve sort of policy regarding bids. He generally discarded the highest and lowest bids and considered the middle of the pack. Oh he read and checked them all but the first to go were usually the top and bottom of the curve. 

We didn't talk about these things like I was in school but he did talk about them. Accepting bids was a different ball game than tendering bids so his first filter step was different. both ends of the curve were first out. However, one of his sayings I just got sick of hearing was as true as it gets. "Butch, nothing always works. Look at them all once in a while somebody comes up with a breakthrough that makes a really low bid realistic." . . . "Usually not though, sometimes it's better to miss out on the NEW thing than get burned."

Dad was also unlikely to tender a bid to companies who relied too heavily on bean counters to award or deny.

Frosty The Lucky.

[arkie]

I always went with the bidder who bought the best steak dinners......

[Frosty]

You settle for steak? 

Frosty The Lucky.

[JNewman]

Blacksmithing like many other manufacturing trades is different than the trade you are used to quoting in Rockstar.   The tools and experience that different smiths have make a huge difference in what shops have to quote.  I would often expect to see 20 30 even 100% differences in quotes based on differing overheads differing equipment and what the smith has experience in.  I have a lot of overhead here and cannot compete on a lot of high labour jobs.  I am very slow at drawing and not very good at selling people on architectural work so I stay away from that type of work.  I often refer work to other smiths who I think would be a better fit for what the customer is looking for.  This work is usually work I could do but the other smith is better set up or better at it or has a lower overhead and can make money at it where I wouldn't.

But having the big hammer a couple of presses and being ok at designing tooling for making things relatively quickly allows me to be pretty competitive on some work that I make really good money at .  I showed another professional smith a job I make periodically and asked what he would have to charge to make them.  He said about $80 each.  another figured more.  I make about 50 of these parts in a couple of hours and make close to $200/ hour on them.  I couldn't get near his $80/part but make way more per hour than he could at the $80/hr.   

I  used to buy and re sell some pry bars from a manufacturer for 1/3 the price I could buy the steel for.  It was an odd alloy and he bought it by the thousands of tons.  His forging of the prybars had very expensive tooling and as long as I could use his standard taper his price was incredibly low.  Things out of the ordinary however he needed tens of thousands of dollars of tooling to make even one simple part.   

I recently had to get a quote for some machining and had a shockingly low price from the one shop.  To the point I actually suggested to the other shop that he not  waste his time quoting.  The first shop was going to make good money I am sure as he has a very high speed machining center and these parts were a good fit for his machine.   

[arkie]

On 10/24/2020 at 4:20 PM, Frosty said:

You settle for steak? 

Frosty The Lucky.

Depends on where I am...Gulf Coast, shrimp; East Coast lobster; West Coast, clam chowder in a sourdough bowl at Mo's.  Never will make it to Alaska, darn it!!!  But I DO watch Alaska, the Last Frontier and Life Below Zero, though. 

[Frosty]

26 minutes ago, arkie said:

But I DO watch Alaska, the Last Frontier and Life Below Zero, though. 

You didn't have to tell me you're not an Alaskan. I think I've watched parts of Life Below Zero a couple times when I didn't have control of the remote. The Last Frontier contacted me about a part in the show but I know too many people who actually talked to them about it. 

Oh I know, you're just yanking my chain, I'm sure you have a little taste in entertainment. . . Don't You?

Shrimp is good, well, was good I developed an allergy rather suddenly. Lobster's good, as is clam chowder. Anything in a sourdough bread bowl is better than not.  Mo's? Too bad he retired or I'd take you for pizza at Larry's.

I've only reviewed bids a couple times, both for drill rigs to replace old worn out ones. We did get taken to dinner on CME's ticket and darned if it WASN'T steak. We got sent to Washington for a driller's workshop and reviewed a bunch of drills, watched demos, etc. and we recommended THE one when we got home. They fed us too.

Frosty The Lucky.

 

[JHCC]

On 10/23/2020 at 6:41 PM, Frosty said:

We didn't talk about these things like I was in school

We didn't study it in school either, but my son had a unit in math a few years ago (9th grade?) that talked about disregarding outliers to increase the statistical power of a data set. The things you learn helping out your kids!

11 hours ago, Frosty said:

12 hours ago, arkie said:

But I DO watch Alaska, the Last Frontier and Life Below Zero, though. 

You didn't have to tell me you're not an Alaskan.

At least he didn't say Alaskan Bush People!

Visiting Alaska in '87 what what taught me to like salmon.

[arkie]

13 hours ago, Frosty said:

Oh I know, you're just yanking my chain, I'm sure you have a little taste in entertainment. . . Don't You?

You may not believe me, but I mainly watch ALF and LBZ for the beautiful scenery when I can't see it on National Geographic.  I envy you for the vistas you have at your disposal (but not the winters!).  The story lines and dramas are of little interest to me, particularly the Klavik stuff.

[ThomasPowers]

Perhaps like that Japanese sword making video which someone who *knows* said "It's quite good as long as you watch it with the sound turned off!"

The things I've missed not having a TV!

[arkie]

3 hours ago, JHCC said:

At least he didn't say Alaskan Bush People!

UGHHHHHHH!!!!!!!!!!!!!! NO WAY!!

[Frosty]

You CAN'T see 3 different mountain ranges from your living room?  Oh my you poor boy. With the trees bare I can see: Mt. McKinley and the Alaska Range, to the north, over the S.W foothills of the Talkeetna range. If I look out a window to the East I can see the Chugach range though it's pretty obscured by the forest. You'd LOVE the drive between Anchorage and Wasilla on a clear day or moonlit night. Flight seeing is stunning.

Did you know, for all the life and death drama on Ak, Last Frontier, the Kilcher's property is about a 20, paved, minute drive from Homer's super markets, hospital and airport. They DO have a sort of long 1/4 mile or so gravel driveway though so maybe they do live at death's door on a daily basis. 

AK State Troopers was pretty real, even drove past our driveway a number of times. I caught a series I hadn't noticed last night, "Emergency Rescue" or something like that. Two incidents were handled by MatCom centered in Wasilla. One a domestic violence that kept ramping up until the drugged daughter attacked a Wasilla PD officer and was taken into custody. The other was a kayak party that had capsized on the Little Susitna, river and were stranded on a sand bar. There were five hypothermic people and 4 drifting kayaks. EMS Swift Water Rescue was dispatched, 2 jet skis and a river boat. The 911 dispatcher called it Bay Watch in parkas. By time the jet skis located them the victims had built a fire and were huddled next to it.

It was something like 18 minutes from the call to the victims transfer from the boat to ambulances. One gas was pretty beaten up, bruises, scrapes and a broken leg or arm, I don't recall, bad for capsizing a kayak but it IS the Little Su and it has some rough and rocky spots.

Frosty The Lucky.

[rockstar.esq]

23 hours ago, JNewman said:

I would often expect to see 20 30 even 100% differences in quotes based on differing overheads differing equipment and what the smith has experience in.

Twelve years ago I was and estimator for a General Contractor.  We pursued a hard-bid project one time that attracted an incredible number of bidders in every trade.  Placed in order from highest to lowest, there was a lot of obvious stratification.  Companies with similar efficiency group together in a strata.  Sometimes the efficiency is due to relative experience, other times the efficiency is due to relative ability.  The difference between bidders in a strata was quite small, however the difference between strata could be pretty profound. 

Prior to that bid, my firm didn't know that any of the bidders in the two lowest bidding strata even existed.  That was a huge eye-opener for me.  Prior to that I simply assumed that my familiar contacts were market leaders for any opportunity I might choose to pursue.  

It takes a very significant investment to become a consistently profitable market leader against meaningful competition.  Knowing what you're not good at is critical to avoiding squandering that investment.

 

 

[George N. M.]

Frosty: Yes, I can see 4 mountain ranges from my place, the Mummy Range in Rocky Mountain National Park (13k+feet) to the south, the Rawahs (12k feet) to the SW, and the Medicine Bows (12k feet) to the west, and the Laramie Range (9k feet) to the east.

"By hammer and hand all arts do stand."

[Frosty]

Maybe we'll get together one of these days George. We an lift a toast in commiseration for flat landers. 

Of course since writing the above post fog has rolled over us, I have maybe 150' of visibility. Talk about a featureless view. <sigh>

Frosty The Lucky.

[JHCC]

I live in northern Ohio. The tallest hill in town used to be the big pile of dirt left over from flattening the athletic fields fifty years or so ago; it's now the big landfill east of town. I miss living in the mountains in Vermont.

[ThomasPowers]

Well I can see the Magdalena Ridge, home of the MR Observatory from my front door, as well as M mountain; unfortunately our living room windows look down the valley to the south as they are our primary heat source.  The valley is Paralleled  by various small ranges as it's sort of a graben with igneous intrusives and extrusives coming up the faults around the sides.  (Most likely place for the next volcanic eruption is 13 miles north of our house---close enough to watch, but far enough not to evacuate...)

It's a good hour and a half to get to the continental divide from here.

[arkie]

21 hours ago, Frosty said:

Did you know, for all the life and death drama on Ak, Last Frontier, the Kilcher's property is about a 20, paved, minute drive from Homer's super markets, hospital and airport. They DO have a sort of long 1/4 mile or so gravel driveway though so maybe they do live at death's door on a daily basis. 

Yeah, I've seen that on Google satellite....they aren't as "remote" as they would have you believe....They are closer to shopping and civilization than we are at our place! (not that Arkansas has that much civilization, ya know).

[ThomasPowers]

Hey I resemble that remark!....Wanna go on a float trip?  I went to UofAR for my first degree, (actually I was born while my Father was getting his first degree at UofAR) and my roommate's mother came from a small hill town; her family were moonshiners back in the day...I had kinfolk I never asked...

The older I've grown; the better "being on a paved road near a town" has sounded.  Nice if the EMTs can find your place in a *timely* manner!

[Frosty]

One "family" of AK Bush People was shot entirely in the town of Talkeetna. From the stories I heard the production crews were so obnoxious the town stopped selling to them at all. They couldn't: rent a room, buy gas, food, electricity, anything and finally left town. 

Frosty The Lucky.

 

[arkie]

And, the patriarch of the bunch plead guilty to fraud on the PDF.  AK Bush People and Forged in Fire are two shows that I watched about the first 10 minutes and never looked at them again.