Previous design-build experience with an outside design partner buoyed contractor Las Vegas Paving to spend $2 million in 2012 to bid and win the $234-million widening of I-15, which it executed proftably.
Photo Courtesy of Las Vegas Paving Corp.
Firms Refine Steps to Bid the Right Job
In chasing work, architecture, engineering and construction firms have always weighed and scrutinized up-front costs and resources—mindful of not over-extending themselves, underperforming and jeopardizing client relationships, future work and company profits.
But in a changing marketplace of more complex procurement choices, firms see new challenges to find the best project proposals to embrace and develop vetting approaches that make the "go-no-go" decision the right one.
"Go-no-go regimens are more and more prevalent, and in all cases much more rigorous," says Scott Braley, principal of marketing consultant Braley Consulting & Training, Atlanta. "Firms of all types are screening pursuits and prospects much closer, and committing to the cost of a proposal is better thought through. The higher the cost of proposal preparation, the more focus is paid on the potential for a win."
The emerging post-recession economy has been a blessing and a curse for many firms, providing new opportunities but also adding cost and resource pressures in bid and proposal decision-making for large and small firms alike.
"There is still a pervasive fear about the post-recession economy and competition, fear that we must submit to stay in the game," says Robert Brustlin, CEO of engineer VHB, ranked at No. 76 among the ENR Top 500 Design Firms. "Compression and expectations have both intensified. We are compressed for time, with shorter turnaround for proposals and with expectations for more, more, more technology and visualization on myriad projects, not just the megaprojects."
Canuso Jorden, a $50-million Pennsylvania contractor, feels the resource pressure on work pursuits, which William Long, principal and vice president, attributes to "a net outflow of personnel, both at the trade and management levels." He adds, "Fees contracted substantially, and they have only rebounded slightly. In many cases, [both design and construction] firms are spending a large portion of their potential profit" to chase work and "are becoming much more selective and evaluating their return on investment."
Industry consolidation is a complicating factor, Brustlin says. "The continuing proliferation of mergers and acquisitions has made go-no-go decisions more difficult," he says.
"Larger and medium-size firms continue to partner extensively on pursuits despite the growing in-house capabilities of these megafirms, so we carefully assess why we are being added to a team and the likelihood of playing a meaningful and substantive role on the project once it is awarded."
Labor-Intensive
Firms are taking note of proposal requirements that now mandate labor-intensive, project-level detail, such as floor plans, renderings, LEED scorecards and even preliminary energy models, says Scott Butcher, vice president of JDB Engineering Inc., York, Pa.
"This is a critical issue because, when proposals go beyond the marketing department and require significant input from senior technical staff, we need to be very selective in deciding which projects to pursue," he says. According to Butcher, such detail may ultimately prove useless, even in a project win. "You've only created a hypothetical solution," he says. "We've walked away from many opportunities because of the amount of up-front work required in the proposal stage."
Project stipends are few and far between and usually only available for more complex procurements, and the amounts offered seldom defray all expenses of a pursuit, say industry observers. Some also note challenges in accounting for a stipend. It is not "earned revenue," says Elizabeth Hensley, U.S. marketing director of architectural practice at Dewberry.
However, project proposal reimbursements are not always a key component of the decision-making process, insiders say. "Design-build is up to 10 times more expensive in up-front costs than traditional design-bid-build jobs, although there are no risks associated with design changes, thereby adding a little more margin," says Corey Newcome, division manager of Las Vegas Paving, which had $268.5 million in revenue in 2013.
The company spent over $2 million pursuing a $234-million, 5.5-mile design-build widening of Interstate-15 in Southern Nevada, despite a $300,000 state stipend for bid finalists. Las Vegas Paving was motivated by the potential to please a repeat public client, the Nevada Dept. of Transportation, and boost its status as the agency's go-to general contractor.
"Factors that complicate the go-no-go process almost always have to do with the client and not wanting to disappoint," says Kirk Kistner, vice president of marketing and business development at Bartlett Cocke General Contractors, a $388-million San Antonio firm. He says pursuit costs are steady, but one challenge is gauging how chasing one project will affect "a larger and potentially more profitable project we will not be able to acquire because we have tied up resources."
Gilbane Building Co. Inc. has developed a multi-tiered risk assessment for go-no-go decisions. "We look at whether it's a onetime opportunity or a client for life," says Executive Vice President Dennis M. Cornick. "There are certain internal triggers on project type, size and contractual relationships that require it to go up to a corporate review committee."
Others note more C-suite involvement in pursuit decisions. Anchorage-based geotechnical engineer Dowl HKM now includes senior executives as go-no-go decision-makers "because the investment level is so high," says President Stewart Osgood. "We do not pass this off to project managers and mid-career people." Adds Texas-based marketing consultant Bernie Siben, "One purpose of the process is to help a firm principal say no when no is the right answer."
Weighing P3 Costs
Fluor Corp. Senior Vice President Richard A. Fierce notes the added expense now linked to public-private-partnership pursuits. "It would be difficult to try to put any metric on that, but the need for additional outside advisers is a big piece of it," he says. "P3s also include additional work and services to estimate, such as the operations and maintenance scope and renewals.
The trend toward larger short lists may cause contractors to avoid bidding certain prospects, particularly when combined with shrinking bid stipends." Bartlett Cocke decided "not to chase P3s as a prime due to political challenges and the extreme cost of the pursuit," says Kistner.
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Sundt Corp. Vice President Teri L. Jones says the owner's selection process is key. "How many steps are involved? Is the selection transparent? How are price and qualifications weighted?" she says. "We track win rates by markets, clients, project size, delivery method and account manager and weigh those against the cost of pursuit. We have passed on more opportunities in the past 12 months than in the past 24."
In its go-no-go process, DPR Construction relies on its "red-zone calculator," which includes a potential pursuit's objective measures, such as profit, and subjective impacts on the firm's workforce and reputation, says regional manager Mike Humphrey. Using an 11-point measure, "if you score nine out of the 11 or less, you have to plead your case," he says.
Lianne Becker, marketing information manager at Minneapolis design firm Hammel Green and Abrahamson Inc., is its full-time analyst of win-loss metrics. "In the past, a simple checklist score counted yes or no answers, which helped steer our decisions. But it didn't do enough," she says. "By recording the scores over time, we can evaluate outcomes overall and—filtered by practice group, principal or other factors—we can identify areas of strength and weakness.
Becker says, "A hit rate is a good metric, but it only accounts for a total count of submittals and the subsequent win rate. So, we combined hit-rate metrics with marketing dollars spent and net service revenue for an overall summary to become more objective about whether or not to pursue an opportunity." She adds, "A summary report is run each month for new data, and metrics are reported periodically as well."
Like other firms, Virginia-based engineer Dewberry relies on Deltek's Vision software as a key tool in project, client and risk management. "We know that we have competitors who make decisions based on a certain threshold, so we look at it more holistically," says marketing director Hensley.
"Dewberry's go-no-go process is the same for all alternative delivery methods—to determine if the opportunity is worth the investment in addition to analyzing whether we can win," she points out. "We ... analyze the cost of the design-build process from start to finish. Risk thresholds that correlate to levels of senior management approvals are programmed into the workflow. It takes the anecdotal discussion out of the process."
Milwaukee-based construction-sector marketing consultant Laura Ricci praises Deltek as "the gold standard" in data analysis but cautions firms not to "leave these critical decisions to a black box. I also haven't seen an automated system that can correctly gauge the nuances of a complex opportunity."
Adds consultant Siben, "If you learn to ask the right questions, you can make a decision more quickly than you can input data into any decision-assisting software and get results."
Staying Focused
Ricci, a former marketing manager at design firms Radian and Nolte & Associates, says companies should treat the go-no-go process as a "living document" that needs new inputs as team members join and new information comes to light. "New intelligence may indicate a competitor has an unstoppable lead or the client has unreasonable expectations, and few firms are willing to pull the plug and save themselves further investment," she says.
But Matt Handal, business development manager for construction claims consultant Trauner Consulting Services Inc., Philadelphia, cautions participants who "feel obliged to step in for one last look" after a go-no-go decision is finalized to make a major proposal rewrite that could "gum up the works."
Management consultant Gerry Salontai, former CEO of Kleinfelder, says not enough firms track pursuit investment costs, and industrywide benchmarking data is insufficient, particularly among small and medium-size firms.
Jeff Latture, senior vice president of specialty contractor Barnhart Crane & Rigging Co., which just initiated a scoring system for large project pursuits, says, "In a time of resource constraint, we know it is important to stay focused."
