Asked to "bid" for professional services 6

[kylesito]

It seems like the new trend for architects is to "bid" consulting services when putting together their teams; meaning they ask us to submit estimated fees for a particular project and then select the low bidder from several consultants. I think this is HIGHLY dangerous for us as a profession to engage in. It completely undermines the professionalism of our work and cheapens our services to commodity level. We can talk until we are blue in the face about providing exceptional service but if architects are only going to base their project teams on "fees" then there isn't much we can do to demonstrate value to our clients.

Has anyone else noticed this trend? What does your firm do to counter this threat?




PE, SE
Eastern United States

"If a builder builds a house for someone, and does not construct it properly, and the house which he built falls in and kills its owner, then that builder shall be put to death!"
~Code of Hammurabi

 

[PEDARRIN2]

It is a common practice for architects to get fee proposals from MEP and other consulting entities when they are putting together a proposal to an owner/client.

Often the owner will choose, base on cost, but also experience.

We commonly provide fee proposals for differing teams (different architects) who are putting together a proposal.

Whether we like it or not, what we provide is a commodity and sometime the owner gets what he pays for when he picks the lowest bidder.

 

[glass99]

kylesito - I 100<sub>% agree that professional services have an inherently flexible scope, and the whole notion of bidding them out is gross. The implication is that you should treat them like a replaceable commodity too. Normally I go into bat for my architects or clients and defend them against all comers. If they are dicks, I will let the bus roll right over them. I don't care if its burns the relationship because the client hires on price alone anyway.

Also: you want to change the color of the door from green to blue where is says green in the contract, its going to cost you a million bucks.

I find that architects will get multiple proposals for big projects where the client is a developer and tight with money. In reality for me it only happens maybe a quarter of the time, but in previous firms it happened literally every time.</sub>

 

[msquared48]

When I know this is the case, I either refuse to provide a proposal, or charge for my time for writing the proposal. I have found that frequently, they have a preferred engineer, and are just trying to get leverage for him to reduce his price.

However, it is the case, not only with Architects, but owners too, particularly the bean counter crowd.

Mike McCann
MMC Engineering

 

[kylesito]

True statements from both Pedarrin and Glass. The owner treating design services like a commodity is typical. Sometimes it's just their inexperience in knowing what actually goes into "design".

The issue I have is an architect solely deciding who to put on their team based on fees. I even had a architect recently tell me "just to let you know, we already have a number from another structural engineer and his was pretty low". In this specific case, I intentionally made our fee high knowing he wasn't going to pick up. We didn't really like working for him in the past anyway and I'm not playing stupid games. But now it seems even some of our more 'reputable' client architects are trying this and it just isn't setting well.

PE, SE
Eastern United States

"If a builder builds a house for someone, and does not construct it properly, and the house which he built falls in and kills its owner, then that builder shall be put to death!"
~Code of Hammurabi

 

[RacingAZ]

This is a very common practice unfortunately and very upsetting.

I have a take it or leave it approach. You can shop around if you want but the price I give you is the one I will accept. I'd like to think my rate is very reasonable and I normally estimate based on how many hours I think I'm going to need to finish. This is a prime reason why I don't work on those patio roof additions / already built patio but needs a permit projects unless I'm doing it as a favor for a preferred client.

No stress on my part and I can choose the projects that I'd work on. I know this strategy would not work on someone practicing with a big monthly overhead (i.e., payroll, rent, etc.). That is the key though, reduce your overhead as much as you can so you don't have that monthly cash flow problem then you don't have to play the game with the bottom feeders.

 

[IRstuff]

If you do work for money, then cost is a consideration, regardless of what your personal viewpoint might be. To assume that you should be somehow immune from cost considerations is, I think, absurd, given the fact that there are gobs postings in this website about salary, and "I didn't get the salary I wanted," "Will I get paid more for getting a PE license." Doctors go through a yearly battle to get paid more from Medicare.

Even in these examples of buildings and structures, the overall cost of the project is definitely a consideration, and while the lowest bidder might get chucked out, a lower bid is certainly more likely to win that a higher bid. Does everyone really expect the lower cost to be sucked up solely by the construction contractors and not by the "professionals?"

TTFN
faq731-376

Need help writing a question or understanding a reply? forum1529

 

[Ron]

NEVER!!
I'm with Mike on this. Tell them no if you know you are in a bidding situation. Selection should be on qualifications, not price......and no, I'm not naïve. I've been doing this for over 35 years and have thus far avoiding bidding when I am the decider (which is all the time for most of the past 20 years). It really pisses me off when architects and others treat the engineering profession a sub/para professional. OK..I'm off my soapbox

 

[CELinOttawa]

I charge reasonable rates, and discount them for early payment. I do not bid, and I make it plain that I will not. I hardly even quote.

We've had clients opt for us when we've pointed out what we can do and what value we bring to them, and we've had clients walk.

I don't care about those that walk. Good riddance.

You can only be sold cheaply and turned into an Engslave if you allow this. I have been known to openly tell clients that they should understand they are hiring a Professional (W-expletive) and not a (S-expletive); I am talented, able, and willing... And I expect to be paid for every service, without exception.

While a very new firm, our approach has resulted in 100% payment for nearly a year now. Not near 100%. One-hundred-percent.

Speak plainly, and tell them no. Tell them what you expect, and what they can expect in return. Our pitch is that we meet our deadlines, speak truth to power, and will protect the Owner's money as if our own. In many ways it is; We will only get repeat business when we prove our value through merit and our superiour mettle.

 

[glass99]

@IRStuff - the better way of dealing with money for professional services is to work with people you trust and to negotiate a fair fee. This is my MO for the majority of my work, and my clients keep coming back. My clients do hire other engineers from time to time on other projects, so they have a sense of what the market rate is, and I know there is competition if I get sloppy.

The difference between a contractor and professional is that the contractor's scope revolves around the delivery of an object which can be measured against defined performance parameters. A professional provides a much more elastic service. Occasionally a client hires me to just run and black and white calculation, but far more often its more a matter of navigating them through a process.

 

[zdas04]

I don't know about the structural business, but in Oil & Gas, more and more people are doing the whole "3 bids and buy" BS. When someone asks me to bid on something, I carefully calculate may expected hours, double it, add 20% to the inflated hours because I can, then multiply the inflated price times my hourly rate. And I tell the client that that is the price if he wants me to assume all the risk. If he's willing to share the risk, I am happy to do the work T&M and the final price will be less than half. I don't have appreciable overhead (cell phone, internet, office phone, etc, about a day's work/month total) and I have never failed to win a competitive bid. When they tell me I got the bid I offer again to do it on T&M and they say "no".

At the end of the job I show them how much extra the bid process cost them and they rarely reject my T&M offer again.

Discounting your time is a good way to drive the value of your time into the dirt.

David Simpson, PE
MuleShoe Engineering

Law is the common force organized to act as an obstacle of injustice Frédéric Bastiat

 

[glass99]

zdas04 - there is no shame in making a nice profit in a lump sum job. It is possible that there is a delta between your cost to provide a service and the value of that service to a client.

 

[CELinOttawa]

zdas04: I've heard many people complain about the fact that we offer an early payment discount, or pooh-pooh this and say that we're devaluing our service...

I don't know Oil and Gas, but in Structural Engineering the "failure to pay" runs to about 30% of billable. Generalising you'll find that Ten to Twenty percent are late paying, into the 90 and 120 days, and between ten and fifteen percent simply never pay.

I saw an article (WISH I could find it again to link here!) which stated that Engineering firms typically spend close to $1.15 (If memory serves) for every $1 in aged receivables they eventually collect.

I base my required hourly rate on what I require to break even, times four (for design work - much a commodity in the eyes of clients), times five (for site work and value engineering) and times eight (for forensic & detailed investigative work). This is generous, so I am able to discount by twenty percent comfortably.

The firm is small, and we have made a business decision that works for us. No one with a bricks and mortar office can compete with our rates, and we prefer to be paid a little less if this means we don't do the unpaid/unrecorded/thankless chasing, etc, on unpaid bills. My business is far more profitable than any of the large engineering offices I worked in before...

Three bids and buy is far more likely to see rates in the dirt than simply discounting rates to pass along the savings of not having an office and not needing to chase bills. You see, in the final computation, our ENGINEERING rates are actually much higher than our competition's; We're just being smart about how to build a business.

 

[zdas04]

No, No, No. If I'm getting something (like early payment or even better pre-payment) I offer all kinds of discounts. It is the discount-to-get-the-job attitude that makes me think some people are not acting in their own (or the profession's) best interest. Value given for value returned is a negotiation. "I'll give you 25% off if you'll just let me work for you" is desperation. I've had 100% of my invoices (eventually) paid and several times I would have rather given a discount than waiting 90 days for the full amount, but that was never on the table.

I had an offer to do a job that I REALLY wanted to do last week. They could only pay $55/hour (30% of my normal rate). One of my regular clients knew what this job was paying and was watching closely. If I had taken it, I would have defined my rate with my second client at a number I could not have tolerated and would have had to drop them. Didn't want to drop them so I stood firm on my rate. Now the job will be done by people willing to take $55/hour and is unlikely to be the result that anyone wants.

David Simpson, PE
MuleShoe Engineering

Law is the common force organized to act as an obstacle of injustice Frédéric Bastiat

 

[CELinOttawa]

$55/hour is an insanely low rate. I work our of a basement, with little computing power, no draftspeople, and effectively the minimum of everything and I won't work for $55/hour. That's a joke for any Professional Engineer.

Do you know who they did employ? Are they hiring a firm from somewhere else and getting the added advantage of a significant dollar conversion?

I don't think the average firm can pay salary, EI, insurances, utilities, rent/mortgage/maintenance/whatever, etc, and break even at $55/hour.

 

[zdas04]

No, the people who end up taking this will be basically donating their time, so it is pretty certain that the people they hire will have an agenda. The US EPA has contracted for 5 peer reviewed white papers to be written on topics with pending regulations. These white papers will form the basis for the regulations. The contractor writing them is hiring peer reviewers for $55/hour. I'm betting that at that price most "peers" will come from the e-NGO side of the discussion and will all have their pay supplemented by the e-NGO. On the industry side of the discussion, the industry associations are being high minded and will not supplement payment for peer reviewers so as to "retain independence". I don't have much hope for the outcome, but I can't afford to work for $55/hour and expect to spend the next few years fighting the resulting biased documents.

David Simpson, PE
MuleShoe Engineering

Law is the common force organized to act as an obstacle of injustice Frédéric Bastiat

 

[Ron]

David...well said!
Ron

 

[GregLocock]

on the other side of the fence... evaluating bids from suppliers is not just a case of grabbing the lowest cost provider and making them stick to their quote (well, you can try it but that is a path to failure).

A proper bid evaluation includes far more than cost. If your architects aren't doing it properly then they will be ultimately out-competed by grown-ups. Perhaps you need to educate them.

Cheers

Greg Locock


New here? Try reading these, they might help FAQ731-376

http://eng-tips.com/market.cfm?

 

[kylesito]

Thanks for the other perspective, Greg. I suppose it's reasonable to assume "bids" aren't always being based on the low bid. But it seems like this!


PE, SE
Eastern United States

"If a builder builds a house for someone, and does not construct it properly, and the house which he built falls in and kills its owner, then that builder shall be put to death!"
~Code of Hammurabi

 

[moltenmetal]

Engineering services ARE a commodity, subject to bidding on an hourly rates basis. We're all interchangeable widgets, don't you know?

There's a push for "qualifications-based selection" for engineering services on publicly tendered projects. That means the firm which can field the best experience list and resumes is supposed to get the work, irrespective of the price. They're of course free to put the "B" team on it after award, though. It can be and is used as a means for big firms to exclude low-cost competition springing up and eating their lunches.

Then there are two-packet evaluation processes, where price or rates and qualifications or technical proposal are sent separately. The old joke is that this just reduces the work of the bid reviewers by putting all the useless irrelevant information into a separate package that can go right into the shredder...But done properly, a truly "quality-based" rather than merely qualifications-based selection process at least has a hope of obtaining good value for money for services without resorting to a purely rates-based selection process or merely dividing the work up amongst the old boys club.

The best way to get paid properly for the true value of engineering services, in my opinion and experience, is to sell a solution or product rather than engineering man-hours. Incorporate work which embodies, and allows you to profit from, a portion of the savings that your efficient and smart design, selection and procurement etc., offers to your customer. Sell it on a fixed price basis with a defined workscope. Tougher to get screwed with non-payment that way than if you're providing only paper drawings and specifications.

Yes, you can get screwed doing this too. I've seen a detailed workscope I developed in previous employ, as part of a free bid for a fixed-price project, used by the "client" to direct the work of the lowest fee T&M bottom-feeder. Giving out free detailed proposals is a mug's game which in some industries is played by all participants.

My current business does "studies" on a reimbursable basis at reasonable rates, which define the workscope and give the client at the end of this work, a fixed price for the complete execution of the design. It takes us far less work, and far less of their money, to get to that point than competitors who follow the fee-for-service design, then multiple bid construction, model that is prevalent in our industry. It works well for our clients, who get a firm price for very little up-front investment of time and money, and for us in that we don't give our engineering work product out free of charge. We do respond to requests for free bids sometimes, but there are ways to draw the client into our more normal model even then, as seldom is their workscope for the project complete enough to allow an apples to apples comparison amongst bidders.