The winner’s curse

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David Cook from Management Research and Solutions Inc. attracted a significant crowd to his presentation based at the Ontario General Contractors Association symposium on the challenge that, in bidding work, the lowest bidder often “wins” by making the biggest mistake.  Cook sought to explain that the solution to the problem lies on many levels including solid business operating systems and practices far away from the bid room.  The goal, he said, should be to improve the accuracy of your bids AND have enough information to bid effectively on the jobs you will likely win by seeing the bidding/estimating process within the larger sales cycle.

At the end of his presentation, he had only one question.  “What do you do when you receive what appears to be a mistakenly low bid by a subtrade on closing day?  Do you carry the bid?”  The contractor said his solution to this issue is to phone the sub to check out the problem.  Without disclosing the actual competitive bids he asks for a reverification.  However, this type of decision is difficult just minutes before closing and of course other generals might, if the sub is important, still put the number in to reduce their overall bid.

I think the most interesting thing about Cook’s presentation — in which he validated the much higher profits you can earn if you can trim your bidding margin of error so your results are more accurate — is that most of the audience seemed more interested in getting their “Red Seal” educational certification stamp than in actually questioning or exploring Cook’s major most important observation — that the estimating and bidding process especially for RFP jobs  is only a small part of the picture, and that you should be in the position to have the relationships and know the good jobs — even to the point of helping to draft the RFPs — before you start.

Of course this is the sort of attitude that real marketers rather than estimators take.  But it requires patience, incredible efforts to measure things we don’t traditionally measure in this industry, and plenty of delayed gratification — qualities tempting to ignore when RFPs for “strange” jobs land on your desk and you think you can more profitably spend your time and energy estimating a project that is both tangible and immediate.

Which way is best?  You know my biases.  Certainly, we have enjoyed putting these longer-range visions to effect at the OGCA conference.  Relationship-building, connection-making and actual business all are originating from this event, including some immediate sales, but our thoughts are always in the longer-term and in how we can improve our processes and results.  I think yours can be too.

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