By Tom Black
Acquiring new business in the construction industry is accomplished in many ways, especially in a strong economic development cycle. General contractors, construction managers and subcontractors should know their risk control limits and be efficient and confident in the pursuit of new business. The work acquisition process in construction has as many inherent risks—as does work execution. Following are two of the most common ways to gain new projects.
Negotiated Project Delivery
Being a negotiated contractor requires that the primary business owner or leader possess a certain talent and time (or ability to hire new business development staff) necessary for growing personal relationships via networking and more. This takes a willingness on the part of those in charge to basically pursue business relationships constantly. There is rarely a time when the designated new business team member is not in pursuit of new business.
In addition, being a true negotiated contractor requires a tremendous investment in preconstruction activities, staff and efforts before a project becomes a reality. There must be a commitment on the part of the contractor to provide “at-risk” added value preconstruction services to its customer, which are services that go beyond just estimating plans, specifications and reporting costs. Services that the negotiating contractor may provide include site analysis and comparisons, first cost versus life-cycle cost equipment studies and energy use examinations, just to name a few.
The obvious trade-off to the investment of time, talent and added general overhead expense is that the negotiating contractor has minimal or no direct competition for acquiring a new project. Also, the expectation is that the inherent project delivery risk is lessened by the fact that the contractor has had more time during the often lengthy preconstruction process to flesh out and quantify the high-risk factors. Whenever contractors can minimize risk, the opportunity to deliver on projected profits increases.
Competitive Hard Bid
History is on the side of the competitive hard bid contractor. Even prior to the industrial revolution, contracting companies were successful simply being the lowest cost provider of construction services. Some of the most efficient and accomplished contractors today obtain their work in the competitive bid arenas.
Successful contractors that earn new business by being the lowest cost bidder are typically firms that have years of experience and a highly productive core competency in their work discipline. Additionally, these contractors are strategic in their pursuit of new projects by closely aligning their strengths with the scope of the projects they choose to pursue. Their pursuit requires estimating staff with an ability to produce accurate quantity surveys and a high aptitude for market conditions and current cost, in addition to the ever-powerful sixth sense to know just the right time to take a risk during a competitive bid effort.
Inherent benefits of a competitive hard bid project are that the pursuit costs are typically lower, the time invested is typically less and the anxiety period awaiting the outcome is almost instantaneous. On the contrary, while the low bid contractors might have less cost invested in the pursuit, so perhaps is the lower initial profit margin. It could well be their execution of the project plan that dictates and modulates any enhancement in the initial forecasted margins.
Choosing the Right Model
Acquiring construction projects can be done in various and creative ways, with no two project acquisitions ever being the same. What’s consistent is that at the core of every business will be an inherent factor that places it in one of these two contractor categories. The reason the company is there is because of the personality of the business leadership and their innate palate for risk. The best we can do is to remain true to our character and not try to be something we’re not. If we follow instinct and solid business sense, it’s a win-win for the next construction project owner and all the many stakeholders too.