As service contractors, we often hear customers telling us they’re bidding “apples to apples” and on a “level playing field”. Those are noble ideas. Fundamental to purchasing, and critical for online reverse auctions.
Imagine an upcoming bid. Procurement asks for “current” specifications from Facilities.
Specs come back, but they’re not current or accurate. Procurement asks why not?
Facilities says “Who has time to bring them up to date? They’re only used for bids. Once a contractor’s in place, who needs specs?”
Specs are essential, they can’t be eliminated. But they cause all sorts of problems when bidding. And it’s time to face the facts about them.
Specs are Guidelines
They’re a starting point, a conversational shortcut.
But they’re not absolute, not finite, not exact. They’re “ballpark”.
What’s the problem then?
Customers use specs as absolutes at critical times. At a service contract’s birth, during its life, and just before its death.
Specs @ Birth
As a contractor, the problem with specs when bidding is we give them too much weight – we treat them as if they’re real.
For most bids, we walk the sites, and compare specs or HPW (Hours Per Week) to the physical reality.
If we ask Procurement about a discrepancy, they tells us to use the existing spec as is, or alter it to fit. Not a great confidence builder is it?
We need specs to base our price on. But bidding exactly to specs will lose you a fair number of bids you could have won. That’s could’ve won, not should’ve.
Specs Over / Under the Work Required
In general, specs will over or under estimate the work required. If they’re right on, lucky you.
When bidding, if you price exactly to over spec’d work – your price is too high, and you’re out of the running.
Price exactly to under spec’d work, and now you’ve won the bid. You’ve also got the Winners Curse. Having to deliver at your quoted price.
And sadly, you won’t know you’ve under bid until you start work. Then you’re faced with several very unappetizing options:
- Renegotiate (not fun)
- Cancel the contract (don’t expect to work with them again, or any of their friends or relatives)
- Run it at a loss (don’t expect to work for your company again, or any of its friends or relatives)
- Readjust your workload, shifting work from over spec’d areas (only if you can find them)
- Do #4 for 3-6 months, then try #1 (but only if you’ve been doing a great job during that time)
How To Bid Specs
QUESTION: Do we price our bid based on the RFP’s spec? Or, do we bid on what we believe the real work will take?
ANSWER A: Bid what you’re prepared to provide, at the price you’re prepared to receive.
That’s a short way of saying:
1) Start with the spec, walk the site & compare
2) Analyze the customer, their business style & business dynamics
3) Determine bid attractiveness – how badly you want it
4) Consider market pricing – what others may pay
5) Decide price according to bid’s attractiveness
6) Bid the job
As always, there are exceptions. For example, an RFP with union staffing. Or the RFP states an explicit number of hours, wages and benefits. In these cases you’ll bid based on that info, you have to.
But what if the specs over state the work needed?
ANSWER B: (IF WORK IS OVER SPEC’D)
Add an “Alternative Proposal”, if you can. Most times you can.
Many RFPs will ask for these outright. But even if not asked, add yours. Include text saying you’re “fully compliant with the RFP, but that you see opportunities for greater value at lower cost, and here is an alternative proposal”. Something like that.
In your alternative proposal, provide your “alternative” staffing/wage mix and its lower price. Base this on your perceived workload, which is less than spec’d.
Specifications During a Contract’s Life
Customers Change Their Minds
They do. Shortly after a bid is won, a new customer will ask something not in the specs.
Customers with integrity will agree to pay for work a “little outside” the spec.
Customers who want the work but won’t pay are giving you “spec as guideline”. They may even hint ominously that the prior contractor did it for free, why can’t you?
It’s you’re call what to do and what to bill. Some considerations:
- Negotiate – do this work for free, but ask for other billable work
- Push back – judge the value of the relationship/contract & respectfully decline to do it for free – offer discounted pricing instead
- Document freebies – do the work for free, but send an invoice with a balancing credit (it’ll remind customers how great you are)
Customers Don’t Always Speak Their Minds
They don’t. Customers’ expectations may never be spoken – until the contractor doesn’t perform to them. This is a cruel fact about customers’ expectations.
Customers have ideas about what they expect to see. But do they tell you? Do they articulate it so you can understand?
No. Some customers even believe contractors should telepathically figure out what customers are thinking.
What to do? Everything you can to get customers’ expectations down in writing. When confronted with it in writing, customers start to realize what they really want. Always better to spend the time before service starts defining their expectations.
Specifications @ Death
You know things are going bad when customers refer to “the specs” often. It’s the slippery slope.
You may regain your balance, or not. If not, it’s the “T” word for you, termination.
Or, the friendly customer euphemism “We’re not unhappy with your work, but we want to explore other options in the marketplace”.
The most frightening words you’ll hear about specs is “failure to perform”. Those words mean your in a law suit, or may be shortly.
- Win contracts at pricing based on bids’ attractiveness
- Extract customers’ expectations & get it in writing
- Do great work
- Communicate with customers frequently, high & low, informally & formally
- Make course corrections – like inaccurate specs & revised work
- Continually improve service, add value, & lower cost