Get key pricing for your project: Contractor's Corner - June 2017

By Dave Stafford

“Sean, this project will be at least 40,000 yards of carpet tile, 120,000 feet of ceramic tile, and miles of cove base and accessory items. This could make our entire year. I estimate it will be a $2 million job with extras. And the best part is, I’ve had a successful project with this construction manager before. He’s assured me that he’ll accept a bid so long as we have the right price and can get the required bonding. So, can we bid it?”

Many of us have had opportunities like this during our flooring career. When the initial salivating is over and we face reality, the tough questions surface: Can we really afford to bid such a large project? Can we qualify financially for the required bonding? Do we have, and are we able to provide, the installation resources and the qualified management personnel? Before all of that, though, will we be able to get key pricing for the project? Without the right project pricing, your bid has no chance, and pursuit of the project is futile. Here are some guidelines based on mistakes and successes over the years.

Before expending the time to do a detailed quantity takeoff from blueprints, look at the finish schedule. See what is specified for carpet tile and broadloom, and check to see if the manufacturer is someone you work with on any regular basis.

What is the predominant flooring? If your expertise is carpet, and the project is primarily a ceramic tile or VCT spec, you may want to rethink your commitment to the project. Let’s say that 70% of the flooring is carpet. Now, there may be an opportunity.

What about the carpet manufacturer? Is it a large, well-known and financed mill with a great reputation-one of the big three-or a lower-tier mill with its first big specified project? Have you done any significant business with the mill over the last year? How big is your line of credit? How is your relationship with the mill rep (and do you trust him)? How tight is the carpet specification, or are there several alternate products or manufacturers specified? Sometimes notes to the finish schedule will state, “The specified product is meant to be descriptive but not restrictive.” In large government-connected bids, acceptable manufacturers may be specified along with specific products. The government’s reasoning is that, while others may have acceptable products, these manufacturers meet the government’s criteria insofar as desired quality and performance. Why take a chance on a second-tier mill that may not be able to back up a costly manufacturing defect?

PLAYING THE GAME
On a large project example-and I’m talking about a project large enough that word of it spreads across the floor contracting community-you might find out there has been a showdown between three larger manufacturers to land the specification. The canny architect plays them against each other, and rather than specifying the product, he leaves it a “jump ball” between the three. He does this by listing three acceptable products and their companion items in broadloom for the bulk of the project, any of which would be acceptable to the client. The architect explains this to his client as follows, “Since money for the project is tight, you’ll be able to squeeze the supplier because none have a real advantage, and it will become, ‘How bad do you want it?’ and so the job will be driven by the cost of production.” The dealer selection is relegated to the best of the manufacturer’s dealers with the key project price and who can develop the best terms and set aside the labor to perform on schedule.

So the games begin. A total of eight dealers look at the project and, based upon their credentials, are “invited” to submit their price to furnish, deliver and install all of the specified flooring. There are many backroom conversations about pricing. Of major importance are the terms and conditions, phasing delivery and flexibility of payment. Once the dealer meetings are done, there are only four dealers who are interested and have the capabilities to deliver. The final project price-the key price-changes several times, as predicted by the architect. Finally, one and then the other manufacturers throw in the towel and give their best and final number. The last manufacturer takes another hard look at raw material cost, production time and overall volume, and shaves another quarter a yard off the price. Through all of this turmoil, the dealer has been in the uncomfortable position of not knowing whether he could compete for the job or not. By bid day, he is given the final numbers along with special terms and delivery: 5/60, 3/90, N91 and phased delivery according to his installation schedule. Excellent terms, but the job duration is a worry since it would stretch out over some 19 months. The dealer will not be awarded the job without the tacit approval by and support of the manufacturer. This is an example where “the dealer was just along for the ride,” and the final outcome is actually controlled by the manufacturer.

After you’ve reviewed the scope of work and finish schedule and determined that you’d like to pursue a bid, the first step is to contact your mill rep. He should be a wealth of information about the project-how it’s specified, competition you should expect and challenges to be faced. If he’s candid, he’ll also let you know how your bid might be viewed from his standpoint as well as from the client’s perspective. If you have a good rapport, he should also let you know how project and key pricing will be done. “We actually got this one specified through Rush Brothers Flooring; they’ve been working on this specification for over a year. Honestly, I don’t know that you’re going to be that competitive.” Or, “The client has us screwed down tight-it will be a jump ball, one key price to qualified flooring contractors. Certainly, I’ll be glad to extend that price to you. However, from what I’m hearing, there is going to be a lot of competition, especially from the Baltimore boys. It will get ugly.” Finally, “Just so you know, the client is concerned about the entire project, so it’s not just low price but rather quality, on-time delivery, consistent project management. My advice would be to bid in such a way that you make money on the base bid. Don’t count on making it up on change orders.”

Of course, the worst news is that the preferred manufacturer doesn’t want to do business with you and actively works against your interests. This can take the form of not responding to phone calls or returning them. This has happened to me, and the most infuriating situation is when the mill rep doesn’t have the intestinal fortitude to be upfront. I once chased a mill rep for a week, trying to get an answer and some idea of pricing and terms; I got the runaround, and he suggested I call his regional manager “since he controls pricing.” What a waste of my time. “You should be talking to your local mill rep, Dave.” Agghhh! By asking around among my competition, I found out the real story: the mill had locked out competition and was working with one dealer and resisting pricing to other dealers. In situations like this, just walk away, because you probably cannot win at a price that will make you a profit.

RESEARCH AND PREPARATION
The best approach is to be prepared for the conversation with the mill rep or regional manager that will provide pricing. Make sure you’ve done your research about the project and have a good idea of the parameters. Don’t expect to get key pricing without some cajoling. Offer to meet for lunch to talk about the project rather than try to do the whole sales job over the phone or by email. Sometimes sensitive information might be misconstrued or missed with a verbal exchange, and emails may be unclear and come back to bite you.

Once you are able to find out if you will be one of the lucky ones to get the key price, and you want to nail that down, then other negotiations begin with the mill. “So, Kurt, you feel good about us working together on this project, and you’ll be providing the key project pricing to us, right?” Without that agreement, it’s just a conversation, not a deal. If an agreement is made, then here are some other issues to iron out. “Will you increase our credit line to accommodate this large project? After all, I don’t want to upset our other ongoing business with you.” This is so important and must be planned for upfront. Have the mill take a look and let you know the dimensions of any credit line increase. Otherwise, you might get a project but cannot buy the product efficiently.

Terms and delivery time can be critical. If you know that delivery, installation, billing, and a check from the client will run beyond 90 days, you’ll have a big problem with 45-day terms from the mill. With a large order, it is easier for the dealer to have a phased delivery as his client is ready for installation, since the mill’s billing will be tied to its delivery to you. You can only imagine the horror we felt when a mill mistakenly shipped three trailer loads of carpet tile early to our dock. Where would we even store it? With that order, we could not get paid for stored materials, only for product delivered and installed. Generous terms and a good credit line will make a big difference on job profitability and your cash flow. If it looks like you have a good shot at getting the order and have a history of prompt performance, then use that to negotiate exceptional terms. Rather than 3/30, N45, perhaps 5/45, 3/60, N90. This, along with key pricing, will make the whole experience worthwhile.

One thing mills absolutely hate is producing a large product run and being unable to just ship it out the door. Smart mill reps will do everything possible to get you to agree to accept the whole shipment when produced. Once you have key pricing nailed down, in writing by quote number or in an email, and are ready to generate a purchase order to the mill, do a thorough review of the purchase order, especially when issued by another department. Is the price correct according to what was agreed upon? I once lost about $10,000 in prompt payment terms because I didn’t catch a mistake: “When your order came in, it specified 3/30, N40 terms-you signed it, we accepted it and sent the order out to you. Now when it comes time to pay the bill, you’re protesting the terms. No, we won’t change it.” And just like that, we lost the money.

If delivery is to be phased or on a pre-determined basis, make sure you state that. I even went so far as to avoid specifying the delivery address until I had approved the shipment for release. As long as timing of delivery is part of the advance negotiation with the mill, there should be no problem.

Don’t forget about bonding. Many bids have been lost when bonds could not be secured. Get a commitment from a bonding company based upon a certain range of bid-not just a bidder’s bond, which is sometimes required, but a payment and performance bond. You’ll have to supply detailed company financial information, so this is not usually left to the salesperson. Bonding cost can be an issue, too, and can run from 1% to 5% of the job. An extra 2% to 3% cost on a $2,000,000 job can be devastating.

Going after any large project will test your sales skills, starting with the manufacturer and the mill rep in providing the key project price, terms, credit line increase and delivery schedule. Once you have that nailed down, then you have to tell the client that you’re the right company to furnish, deliver and install to rave reviews. If you stumble with any of those, you won’t get that career-making job or make your year.

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