Are You Bidding Too Much?
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Low-bid procurement methods have been a problem in construction for decades. It’s not a secret.
In fact, you’ve probably seen frustrated people on LinkedIn talking about it—and how they wish the construction industry would change but never will. Which usually means those people are downright exhausted from the grind of bidding work and rarely getting the award unless they are low.
I totally understand their frustration—I really do—but I’ve got to admit that I see the situation from a significantly more positive perspective. As a sub or GC, there is absolutely opportunity to escape low-bid procurement!
Just look at the top Contractors in the country. Do you think ENR Top 100 Contractors like Turner, Bechtel, Kiewit, DPR, Hensel Phelps and more are winning all their work because they are low? Further, do you believe that they are only awarding low-bid subcontractors?
Good news: it's not the case.
Sure, there are times when buyers must award the low bidder, and frankly it can make a lot of sense to do so, but it’s not the only way it gets done. There are ways to escape the low-bid trap.
Why most contractors can’t escape
Getting stuck in the low-bid trap can happen for a number of reasons:
First, many Contractors are stuck because they simply don’t believe it is possible to escape. As I mentioned with the frustrated Contractors on LinkedIn, some companies believe there is not a better way to win work, and so they give up trying. They keep bidding everything and hoping for the best, but don’t take action towards escaping. This is the most common cause and also the easiest to overcome. You must believe that your company can change the status quo and start negotiating work, otherwise you never will.
Second, Contractors get stuck in the low-bid trap because they are not actually better than their competition. For example, I hear all the time that, “We are better than our competition because we have experience people and we build with high-quality.” Experience and quality matter! But they are not enough to negotiate work. Why? Because every Contractor says they have experienced staff who build with high-quality! So, while it may seem like a differentiator to you, your competition is saying the exact same thing. And if the buyer views you as the same as your competition, then do you know how they make their selection? That’s right: based on price. So, you’ve got to do more to differentiate than simply say you are better. You have to actually be better and get good at selling it.
Third, some Contractors get stuck because they must keep their manpower busy. Think about it: if you have a bunch of superintendents on staff with no job to send them to in a month, then what are you going to do? If you’re smart, you’re going to bid projects cheap so that you can cover the overhead associated with their salaries. While this can be a sensical business decision, it can also act like quick sand for your business.
Why? Because if you are always busy trying to keep jobs running so you have a place to put your team, then it’s hard to find time to develop relationships, do great work, and win work based on value instead of price. This is one of the hardest traps to escape, but again it is possible. Primarily, you do it by continuing to scrape by and win low-bid projects, while simultaneously holding high quality sales meetings with potential negotiated clients. In other words, you continue to chase the low-bid work while positioning yourself to win higher-margin negotiated work. Eventually, you build up enough negotiated clients to say “no” to the low-bid opportunities in your pipeline.
Fourth, and lastly, I see some unbelievably talented Contractors who really are better and different than their competition get stuck because they bid way too much. They chase every job that comes through the door, whether they are a good fit or not. If you’re always bidding, you’re probably burning out your team, and get so focused on bidding that you don’t spend enough time selling and winning. At the end of the day, your goal should never be to bid; it should be to win! Don’t lose sight of that.
Escaping the low-bid trap
If you want to escape the low-bid trap, then there are a few questions you should ask yourself to get started:
Are we bidding too much?
What do we do that is better and different than our competition?
Do we have a solid go/no-go that makes it clear what projects are in our sweet spot?
What relationship development efforts do we have going on? Do we have anyone (or multiple people) whose responsibility is to develop relationships?
Do we have a sales system? Or just a bidding system?
As with most things, the first step is awareness. Until you admit that you’re working too hard for the number of awards you’re getting, or that you’re not doing nearly enough relationship development, you can’t fix it.
What to do next
If I was starting a subcontracting or general contracting business today, and I knew I wanted to avoid being stuck in the low-bid trap, there are a few key actions I would take.
Clarify our Ideal Client Profile: Who do we love to work for? And why? How do they act? How do they treat our team? Conversely, what kinds of clients do we want to avoid? Without absolute clarity on who you want to chase and why, it is hard to find ideal clients who will believe you can add value on their projects. Don’t just bid to anyone.
Clarify our Ideal Project Profile: What’s our bread and butter? I.e. What is the venn diagram of projects we are great at building and the ones where we typically make the most money? Stop chasing everything under the sun and start getting clear on what you team is great at. Bad projects are a distraction from the great work that is out there for you.
Develop a go/no-go: If you get you ideal client and ideal project right, then you should use that information to develop a go/no-go criteria. You will be shocked by how clarifying it is to start saying “yes” to the right projects and “no” to the wrong ones. Again, if you want to escape the low-bid world, you can’t spend all your time bidding. Focus on winning.
Create a culture of business development: Relationships matter for negotiating work. And most contractors don’t do nearly enough business development. In my experience, this is often because individuals on the team think “BD is not my job!”. The most successful contractors create a culture where BD is everyone’s job. You’d be amazed by the benefit of having everyone on your team consciously build relationships with your customers and prospective customers. Even your Supers and PMs can contribute. Get everyone involved.
Train our estimating staff basic selling principles: “Sales” seems to be a bad word in construction—and I just don’t get that. But because some companies die on that hill, it means for any open-minded contractors, it is a huge opportunity. I’m not saying you need to turn your estimating staff into slimy salespeople, but you should teach them how to use leverage, negotiate, run high quality sales meetings, and use the power of influence to get more projects awarded at your target number. You’d be shocked by how your hit rate changes just because the team starts to see the big picture—and focus on winning, not bidding.
That’s what I’d do, but there’s lots of Contractors doing other great work as well. I’d love to hear what you are doing to win work at your target margin.
And as always, we are experts in developing these kinds of selling and BD systems. If your company needs it, then I highly recommend you send me an email at mverderamo@wellbuiltconsulting.com
Good luck out there.
Spark Notes:
Low-bid procurement isn’t the only way to win work—top contractors prove it every day.
If buyers can’t tell how you're better than the competition, they’ll default to price—so it’s time to actually be better and learn how to sell it.
Bidding everything just to keep people busy or “stay in the game” is a fast path to burnout and low margins—focus on fit, not volume.
Escaping the low-bid trap starts with clarity, relationships, and a team-wide commitment to business development—not just estimating.
