Competitive bidding wastes time and discourages teamwork.
Here’s a better way.
I hate competitive bids. I hate them because I have to put
in a lot of time and I don’t always get the job.
Instead of wasting time, I’d rather spend it on almost
anything other than estimating a project.
I also don’t do well with competitive bids, because
the process focuses everyone’s attention on the one
area where my company doesn’t look so good: initial
price. We charge a lot for what we do, and if the focus is on
initial price, we’re going to be at a real
Bidding isn’t all bad, though. I would have missed
the chance to work for some gracious clients and talented
architects had I not submitted and won competitive bids. In
fact, most novice contractors get all of their early jobs
because they are the low bidder. It’s hard to break
into the market any other way, and like all novice contractors,
I got a lot of work and experience because I was so cheap. But
in the past ten years, my priorities, both as a businessman and
as a father and husband, have dramatically changed the way I
want to spend my time.
So a while back, when the market was strong, I decided to
reward myself for all the work I’d put into developing
a top-notch crew and an exceptional client base. My reward was
to stop bidding, except very selectively. Eventually, all of
the lessons I learned from being extremely selective about
where I bid convinced me to stop bidding altogether. This
article is about why and how I did it.
The Rules of Bidding
the years, I have deduced the following set of "rules" that
clients use to determine the accuracy and fairness of bids.
These rules apply to any collection of three or more bids, for
any project, at any time:
1. The high bid is always inaccurate and unfair, no matter
2. The low bid is always more accurate than the high bid,
unless it’s lower than the client’s budget by
a greater margin than the high bid is higher than the
client’s budget, in which case it’s less
accurate, but more fair.
3. The accuracy and fairness of any bids in the middle
depend on where they fall in relation to the high and low bids
and to the client’s budget. For instance, if the low
bid is right near the client’s budget, a middle bid
that is close to the high bid and way over the budget is
neither accurate nor fair. However, if a middle bid is much
lower than the high bid and very close to the client’s
budget, then it is both very accurate and very fair.
The fascinating thing about these rules is how they apply
absolute meaning to relative data. When a contractor’s
bid is high compared with one group of competitors, the bid is
by definition wrong. But compared with an entirely different
set of competitors, the exact same bid becomes, as if by magic,
both accurate and fair. Or "more reasonable," in the parlance
The assumption underlying all of these rules is that the
plans and specs are so clear and unambiguous that any randomly
selected, reasonably competent contractor will be able to do
the job exactly as envisioned. It follows from this assumption
as well that any over-budget bids are not due to different
interpretations of the plans and specs —which are,
after all, perfectly clear — but are the result of the
bidder’s sloppy estimating, high overhead, and
inefficient construction practices.
The fact is, however, that the more thought and research
that goes into a bid, the higher it becomes. When proofreading
an estimate, for instance, contractors will more often find
omissions they need to add than waste and inefficiency they can
safely take out (unless, of course, they really need the job,
in which case they can find all sorts of waste and inefficiency
to take out). In the grand irony of bidding, then, estimates
that are slapdash and carelessly prepared tend to be "more
reasonable"; estimates that are thoughtful and carefully
researched tend to be "less reasonable."
Everyone has a story about a bid, and here’s mine. I
once participated in a sealed-bid competition with two other
companies for a moderately large residential remodel. When we
opened the bids in the client’s dining room, I was
somewhere around $180,000 and one other bidder was somewhere
around $165,000. The "winning" bidder had already turned white
as a ghost by the time his bid of $119,000 was opened. I
thought he was going to lose his lunch when one of the clients,
in an attempt to be helpful, said, "That seems very
Although the best possible outcome would have been to win
the bid by a just a little bit, I was the happiest contractor
in the room because I had received the second best possible
outcome, which was to lose by a whopping margin. Next comes
losing by a little bit. But the absolute worst outcome was to
get the job by a whopping margin.
But is this any way to run a construction company?
experiences like the one just described might have been enough
to convince me eventually to stop participating in bidding
competitions. But the real reason I stopped bidding was a
moment of revelation I had during a meeting of ten remodeling
contractors gathered together for intensive peer review of our
businesses. I was standing before this jury of my peers, each
of whom had a copy of my marketing data, reporting confidently
that architects were a good source of work for my company, and
that I was, therefore, cultivating those relationships
At one point, a remodeler in the group said something like
this: "You got 30 leads from architects, but only 2 jobs. You
got about 60 leads from past-client referrals, and 40 jobs. Why
are you schmoozing architects and not past clients?" The truth
of his insight was as hard to avoid as the blinding light on
the road to Damascus: Architects were a great source of bids
but a bad source of jobs.
Let me be clear that I have a profound respect for the
difference a good design professional can bring to a project.
While I have often regretted not bringing an architect into a
project, I have never regretted using a good architect to help
us through a tricky design or detailing issue. Yet many
architects and their clients believe that bidding is essential,
that the best way to choose a builder is to dangle a project in
front of three or four of them and see who wants it most
Although the bid process does not eliminate the possibility
of good teamwork, it does nothing at all to cultivate or
encourage good teamwork. On the other hand, the alternative
— a good architect and a good builder working together
with a client from the beginning toward a common goal
— can make an unbeatable team.
Try telling this to a client: "I’m looking at four
jobs right now for that time slot. They’re all good
jobs, so I’ll be picking the one that will make me the
most money." How interested will that client be in you or your
services? But we builders are supposed to be interested and
committed when a client says: "I’m talking to four
builders. They’re all good companies, so I’ll
hire the one who gives me the best price."
While more and more clients are aware that they
can’t just hire the low bidder, few do much research
about which contractors to ask for proposals. Who can blame
them, when we contractors play along? A free proposal is like
an ante in poker: It’s the minimum required to get
into the game.
Contractors tell me, "If I stop bidding, I won’t
have any work." This fear sure weighed heavily on me, and long
postponed my decision to stop bidding. But consider how much
work comes your way without your having to bid for it. Sure,
you may not get "the big jobs" that way, but the big jobs are
often better for the ego than the bottom line. I’ll
bet your most profitable jobs were negotiated, not bid.
don’t like being a salesperson — I
don’t even like the word. I want people to hire me
because I’m a nice, honest guy and because I do good
work. If I try to talk people into hiring me and fail,
that’s a real blow to my self-esteem. In this sense,
bidding is completely safe. If I get the job, it means I
offered a good price because I’m fair and fast; if I
don’t get hired, it’s not because I
don’t do good work and am not a nice guy —
it’s because some back-of-the-pickup, low-bid bubba
undercut me by a few thousand dollars. There’s no way
an honest, quality builder like me can compete against
I think competitive bidding means we don’t have to
be good salespeople — in fact, we don’t even
have to call ourselves salespeople. I hear so often from
contractors (including myself): "I like meeting people;
it’s one of the best parts of my job. But I hate
sales, and I hate estimating even more."
There’s a connection between those statements.
It’s true that we like to meet new people; we like to
be invited into someone’s living room to talk about a
project and to be listened to as an expert. We usually
establish a strong rapport and often go away thinking,
"I’m the one they want to hire." But after we do the
estimate and realize how much the thing is going to cost, we
start thinking: "Boy, they’re not going to like me
quite so much after they see this price."
At that point, we have two choices: We can stick the
proposal through the mail slot and run away, as if
we’ve just egged their house, or we can try to sell
Sell It — Don’t Bid
Choosing not to bid means choosing to develop
your sales skills. This may require sophisticated training and
penetrating self-appraisal — it’s not for the
faint of heart. I have benefited tremendously by working with
Fred Huyghue of the SSIM Group (617/237-6900), who has taught
me more clearly than anyone (other than my clients) that
integrity, openness, and a commitment to service need to anchor
any serious, sustainable sales effort. I have also realized
that a salesperson has the most credibility with prospective
clients when telling them something they don’t want to
hear. A contractor is supposed to slip on his own drool at the
opportunity to bid a big project. If you tell the prospect you
won’t do that, you will, ironically, have more
credibility — and more of the prospect’s
attention — than the four or five other contractors
who are panting into the phone.
Apples to Apples?
remodeling, as a builder friend once told me, "We’re
building the prototype and the finished product all at the same
time." There’s no such thing as an "apples to apples"
comparison of bids when you’re offering such a unique
combination of services and highly customized products.
Services are notoriously hard to sell because their value is
not understood until after the services have been delivered. So
whenever a prospective client uses the phrase "apples to
apples" in an initial conversation, I make sure I explore at
length just what they mean by that. Or I start walking
backwards out the door.
Clients are mostly good, fair, reasonable people. If you
explain to them that you play by different rules, and that you
do it in the interests of better service, you will have their
attention. They will not run away scared or laugh in your face.
If they do,
they are probably not qualified prospects anyway.
Value, Not Price
get work depends on how you are perceived in the marketplace.
Do people come to you for a bid, or do they come to you to do
the work? If you’re perceived mostly as a bidder, then
yes, you may have trouble getting work if you stop bidding. But
it’s not preordained that a builder has to be seen
exclusively, or even predominantly, as a bidder. If you want to
get out of the bid arena, you need to make sure your marketing
maximizes the number of leads that come your way that are to do
the work rather than to do a bid.
How? In my case, I used the insight of that builder friend I
mentioned earlier and started marketing to past clients. I
stopped spending money on Yellow Pages ads, newsletters, and
door-hangers, and put it into free, unsolicited warranty work
for my past clients (see "Follow-Up Visits Win Referrals,"
Of course, you still have to change the way you respond to
inquiries. When a prospective client calls to ask you for a
bid, tell them, "I’m sorry, but my company policy is
not to provide bids." They will either hang up on you (although
that has not yet happened to me), or they will ask you to
explain how you do business. This second result, if handled
well, gives you a wide-open opportunity to shift the
client’s focus from "Who’s giving me the best
price?" to "What are my needs and which contractor is best
equipped to meet them?" Now you have a chance to discover early
on — usually within an hour or two of conversation
— if there’s going to be a good fit between
you and the prospective client. If there isn’t, you
can part company amicably, having lost little and gained time
for other activities or more promising clients.
If there is a good fit, you can talk some more. If nothing
gets in the way of a win-win agreement, then the job is yours
as long as you continue to identify and satisfy the
client’s needs, and they reciprocate with a
commensurate financial commitment. Make no mistake, however:
Clients who work with me exclusively don’t often get
the "best price," but they always get the best value we can
ever offer. They benefit from our full attention throughout the
Competitive bidding discourages such relationships because
of the uncertainty of the outcome. I remember a John Wayne
movie from years ago in which a kid eagerly asks John Wayne
what his horse’s name is. In his gruffest voice, Wayne
responds: "You don’t name something you might have to
eat one day." I haven’t worked this analogy out to the
point of knowing who the horse is — the client or the
contractor — but the moral is the same regardless:
It’s hard to make a commitment when there’s
no guaranteed relationship.
What Refusing to Bid Does Not
Refusing to bid doesn’t mean you get
a free ride. Here’s a list of consequences that will
You cannot charge whatever you want. In fact, you will have
to be even more focused on value than before. You may also have
to be a lot more open about where the money goes, but your
clients will be more comfortable with what they pay for your
The sales cycle will not be shorter. To the contrary, you
will spend more time at each step of the process for each lead
you choose to pursue. But you will be spreading this effort
over many fewer prospects, so the net effect will be a time
Clients can still talk to other contractors. Instead of
discouraging clients from interviewing a number of contractors,
you should encourage them to focus on the relationship until
they find a good fit. If your goal is outstanding client
service, you have to understand that you cannot possibly be the
best choice for every client. Be prepared, as part of your
service, to offer referrals to other contractors who might be a
You are not guaranteed to get the job. The job, however,
will be yours to lose. If you don’t get the work,
it’s probably because you failed to ask enough leading
questions, or you mishandled the process to the point of losing
the client’s trust. Occasionally, you’ll lose
a job because a client takes advantage of you. Usually, the
warning signals will have been there from very early on and you
will have chosen to ignore them.
Time Well Spent
The time I
used to spend on putting together a bid was of service to the
client only if I got the job. So 80% of the time, my effort
benefited absolutely no one. The exceptions were cases when, in
the course of putting together my losing bid, I offered new
ideas about how to approach a problem or raised warnings about
troubling products or details in the plans or specs. But this
sort of free consulting was not a very good strategy for making
a living from my knowledge and expertise in a demanding
Since I’ve stopped bidding, the time I devote to
turning a lead into a contract is spent exclusively on
activities that will be of real service to the client. I
identify the client’s needs and budget, and devise a
plan that enables those two sometimes conflicting priorities to
converge gracefully. I am able to profit by managing the
process to everyone’s benefit. Alternatively, I spend
time determining that I am not a good choice for the project.
This process also benefits the client by saving them time and
by helping them think about what would constitute a good
With a no-bid policy, I get a lot of work with very little
traditional marketing. I don’t need many leads, just
enough really good leads. I don’t waste resources
bringing in four or five times as many prospects than I need to
meet my revenue and gross profit goals. Most important, I can
focus my marketing efforts on serving past clients, who are
without exception the single biggest and best source of any
good contractor’s leads.
Paul Eldrenkamp is president of Byggmeister Associates
Inc., in Newton, Mass.