How to respond when you lose a commercial project: Contractor's Corner - Oct 2016

By Dave Stafford

That Thursday morning, I thought everything was going well, right up until I heard Bruce, a commercial sales rep, let out a string of curses and throw his coffee cup against the wall. “I can’t believe it! I worked on that project for 18 months, and now they’re telling me I won’t get the job, saying, ‘Your price was too high and we were not convinced you could deliver the job on time. Besides, we have to give other vendors a chance, right?’”

You’ve probably had days begin like that, too. So, I sat down with Bruce to debrief him and make sure I understood what I thought I’d heard. Bad news like this must be shared immediately if anything is to be done.

Had they already made the project award to another company, or was this just a heads-up on what they intended to do? Unless the bid has officially been awarded to another and is public information, it may be subject to change. It is much tougher to get the buyer to change his mind after an award is made; that usually requires a bid protest in some form. Taking action prior to an award, questioning bid pricing, capabilities, delivery options and extra consideration may result in a reversal of their stance.

In this case, we spent time to go over the bid amounts and what had been presented. There was room to move the price if need be, and Bruce admitted he hadn’t done the best job in selling our capabilities. I suggested Bruce go back with new information to his contact, since an award had not been made, and say something like, “Jay, I thought my price was fair, but I want your business. If I can book this as ‘sold business’ in October, I can get a price break from my supplier and pass it along to you. So, where do I need to be?”

Bruce was fortunate in that his buyer had wide latitude in making an award based on best value. Once the quibbling over price was done, Jay’s delivery concern seemed to evaporate. In hindsight, this seemed to be a ploy by a veteran buyer to auction down the price, and he succeeded in getting a lower number from us than we had hoped.

The business segment type matters. Whenever public funds or those generated by taxes or user fees are involved, there may be more legal oversight than with corporate or private projects. The best salesperson may not be able to overcome a high number at a public bid opening; conversely, a poor salesperson will be a disaster when confronted with a “no” that could easily have been turned into a “yes.”

A highly effective retail sales closer was frustrated when all of his closing appeals were shot down by the purchasing agent at a school system. His repeated closing questions frustrated the buyer until he said, “Look here, you can continue to ask for the order, but that’s not the way we work here. I have to have a request from facilities and they have to have funding, and your product and pricing does not meet their request.”

Product cost may have been an integral part of the reason the salesperson didn’t get that commercial project. In fact, I’d say that wrong product pricing is the reason for 50% of those lost projects, especially when a retailer is bidding in the commercial arena.

At a trade show where I was speaking about commercial business and practices, an attendee stood up and said, “I don’t understand it, I have done over 25 commercial bids and haven’t got a single one.” Upon questioning, he admitted that he was usually using dealer pricing from his suppliers rather than key dealer or project pricing, which are generally based on relationships with specific mills. If the dealer price for a product is $16, then the key dealer price might be $13.50 and project pricing could be $11.90. Now you see why he wasn’t getting any projects. You have to have the “right price” on a project to have any chance—labor won’t vary that much (or shouldn’t).

Another issue that will cost you projects or lead you into bankruptcy is profit margin. There is a vast difference in typical profit percentage levels in retail and mainstreet commercial, and commercial projects. One reason is the inexperience of the buyers, relative size of the sale and length of time to be paid. A $2,000 retail sale may be completed and fully paid within two to four weeks and be at 40%+ while a $150,000 commercial build-out project may span a month or so, take 75 days to be fully paid and be at 23%. Price a job too high and you won’t get it; price too low and you’ll wish you hadn’t, especially a large one that can drag on for months. More than one company has gone bankrupt from a commercial project gone sour.

All projects can be opportunities, but their eccentricities and variances in proposal requirements and bid criteria may rule out an otherwise competitive bid. Some projects are all about price, others are more carefully crafted to be for best value, while some are so filled with legalese and obscure references to arcane state or federal code requirements that you’re up to your neck in alligators and it’s tough to remember the objective is to drain the swamp.

In those cases, which are frequently government or government-funded projects, it is more about protecting the purchasing office from protests than about getting best value. “Yes, I understand we asked for proposals, and yours was okay. However, there was another company with a lower price.” Yet if you point out that the other company apparently did not have experience with this size project, had only been in business for a short time, had limited financial resources and used questionable subcontractors, you may be told, “But they did have a lower price, and since the bid was based on best and final price, we have to make an award to them. They had the same information you did and feel they can do the job; if we do not award to them, there will be a protest. You have no grounds to file a protest since it is up to the government to make that determination and we have no basis to declare them unsuitable for an award.”

Things to do if you find out you’ve lost a commercial project: First, don’t panic! Quickly find out the reasons and the criteria for their intent (or decision) to give the job to someone else. Then review your proposal or bid, worksheet and any supplementary attachments for details or mistakes that might impact their intent or decision.

Can you talk about this decision with the buyer? Will he respond to logic or emotion? Does he really make the final decision or is there someone else involved? Is there any room for personal, private motivation? Is there something he’d like to see offered as a “sweetener”?

I once had a buyer who was on thin ice with his own employer; he needed to look good to his boss. So I asked him, “Jim, other than the difference in price, how do we look on getting this job?” His response, “Okay, the pricing is in the ballpark, but I need to make sure the project comes in on schedule.” So, it was not only price but also the worry that he would look bad to the boss if there were any delay.

I said, “Tell you what, Jim, I’ll not only meet your budget price but I will commit to adding an additional crew so we can get the project completed ahead of your required schedule. You get a better price because I can place the order today and use a bigger labor team, too. Fair enough?” I got the job and Jim justified the award by better pricing and faster delivery. A win-win for all, because there was profit built in to the point that it was worth it to lower the price so as to take the job, and the crews were being paid “piece rate” so each crew got fewer yards of carpet to install but were paid the same rate, allowing the installation time to be cut, thereby accelerating the delivery time.

Always find out as much as possible about the buyer and his motivations, whether a corporate bid, a government job or a multi-year requirements project. In spite of a 50-page document detailing all the terrible things that will happen if you don’t do the job, the emotion of the buyer must always be figured into the equation. Most larger bids are determined by a team; a buyer may only have purchase authority up to $25,000, a supervisor to $100,000, a contracting officer to $500,000. Frequently, the guy you have to convince is the buyer who “makes a recommendation” (and whose head will roll if it’s the wrong one).

When you’ve lost the project and something is fishy or you believe a mistake (honest or otherwise) has been made, first look at any written document connected with the project. That should outline the steps you may take to file a protest.

KEY POINTS WHEN FILING A PROTEST
Two points are key to remember: time is of the essence in filing a protest; and you’ll win a protest fewer than 10% of the time, even with good grounds.

A timely protest may constitute ten or fewer days from notice of intent to award and the actual award itself—and not necessarily business days either. That is apparently the reason that many awards are signed and dated on a Thursday or Friday before a holiday weekend. In one instance, after working on a large, hotly contested project for 21 months, the award was signed and faxed to me at 3:30 p.m. on a Thursday afternoon, December 23rd. By the time everyone had enjoyed the Christmas and New Year’s break and returned to work, the time for protest had expired. The contracting officer knew there would be significant angst but chose this timing to mute the response.

If you are going to protest, make sure you have valid grounds, like if the other bid is defective because he did not furnish the required bidder’s bond, or if the low bidder did not bid on the specified product, but rather provided another product as an ‘or equal’ that had not been approved prior to bid closing (which may be grounds for throwing out the bid according to the fine print of the bid document).

Unless the amount is large and there are clear-cut solid grounds for the protest, I wouldn’t file one. Even the threat to file a protest can damage a potential relationship beyond repair. From a purchaser’s perspective, it is calling into question the work they did, their judgment, ability and reputation. It can make them look bad, to everyone. They hate protests.

It is much better to have a candid conversation with the buyer and see if there is any way to change things in your favor. One buyer told me, “Dave, I just can’t make the award to you on this one; the numbers aren’t quite there and I have to give other companies a chance. However, I have something else coming up and you’ll get first crack at it. Okay?” Forcing a smile, I said I understood. Sure enough, I got a call in several weeks about a much larger project and ended up getting the job.

Often, losing a project is the best thing that could have happened to you. This is particularly true if you have priced in the “aggravation” or “difficulty of performance” factors. If you get the job at your price you’ll have sufficient profit to handle the extra work and frustration. If not, maybe it will drive your competitor crazy or out of business. You’ll probably learn more from rejection than from those projects you won.

Related Topics:RD Weis, Armstrong Flooring

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