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

 

[urgross]

One of the large advantages of doing federal work is the Brooks Act. A-E services must be qualifications based. So if some branch of federal government is hiring professional services, say EPA, they are not selecting based on price competition. Once qualifications are established, requirement is to pay "fair" rates compared to market analysis. If peer review is performed at $55/hr, then I'd be asking to see the market research or question the appearance of violation of public law. The company that was qualifications based selection to the EPA sounds like the bad guy, having an A-E firm present qualifications, then bait-and-switch for lower standing. I've been in the bait and switch issue with unscrupulous A-E firms, and as a result administrative costs go up quickly, as every advertised position must be qualifications based, not just the firm, subconsultants, and general process. Even when an environment is provided to have all work qualifications based, by human nature there is always a firm/individual that will crap in everyone's mess kit to squeeze an extra nickel off of each dollar.

 

[PEDARRIN2]

Sometimes, a lower fee is proposed so employment is continued. A $100,000 fee means work for several months, even if there is little or no profit accrued, especially if there are profitable (good fee) projects in the works, but not breaking loose yet.

If times are slow, and you want to keep your employees billable, the company may even take a slight loss (but not for long) just so their employees have something to charge their time against.

Also, a lower fee (or a loose scope) might be a door into a client who has future work.

It is all a juggling act - one in which I am glad I do not take a direct part in - but I see it a lot.

 

[glass99]

zdas04 - I heartily encourage you to not undercut yourself with fee, but I also understand the strong pull of a political project. If its some kind of environmental study for a new project or something of that nature, engineers should have a voice just like big business, the environmental and local community lobbies do. We all complain about politicians and the deck generally being stacked against us, so we need to step up and be heard more. And its a simple pitch: more engineering = better results. Maybe ASME should step up and subsidize you.

 

[zdas04]

The project is not (yet) on the radar of ASME or SPE. Both are letting API do the heavy lifting on it. API has a policy. The policy works for people who are on salary, but not so well for contractors. Anyway, the deadline was last week and I turned down their kind offer of minimum wage labor.

David Simpson, PE
MuleShoe Engineering

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

 

[glass99]

zdas04 - I probably would have turned down the project too - my public service budget is only so big.

This is probably off topic, but letting the American Petroleum Institute represent engineers is not ideal. Doctors are very well organized with the American Medical Association, and would never let a hospital represent them even if their interest was the same.

 

[IRstuff]

" Doctors are very well organized with the American Medical Association, and would never let a hospital represent them even if their interest was the same. "

Not true in the least, at least for solo doctors. Their turf is being drastically eroded by nurse practitioners, who, with a scant 6 months of additional training, are allowed to diagnose patients and prescribe medicine, supposedly, "under physician supervision," but we all know how that turns out. My wife has tons of horror stories of NPs missing symptoms and misdiagnosing.

TTFN
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[CELinOttawa]

Basic calculations to a problem defined and controlled by someone else is a commodity, engineering itself is not. Any client who takes the attitude that their engineering is a commodity is throwing good money after bad... Deservedly so as well.

A good engineer is a value engine. The concepts applied, based on the experience, knowledge and skills of the individual Professional Engineer, are what a client should be purchasing. Those who do, profit. Those who don't are welcome to hire a crappy commodity for $55/hr.

 

[brandonbw]

We have sent out bids like this and price accordingly. They say no and I ask what bid are they looking at? I can't believe what prices people are willing to work for. I figured out I would make more working at McDonalds for one particular project. My thing is we aren't the expensive guys because I try to keep our overhead as low as possible, but we definitely are not the cheapest around.

I got into a conversation about this with my old boss, and the conclusion is that some retired guys might be really bored and instead of going for golf that week they decided to stay indoors and design something.

B+W Engineering and Design
Los Angeles Civil Engineer and Structural Engineer

http://bwengr.com

 

[moltenmetal]

CELinOttawa: you're describing the professional services a client should be purchasing, rather than what many clients actually receive. Too often, engineers providing services only are motivated by interests differing in important ways from those of the client. Engineers need to be involved in the execution of their designs not only as a critical learning opportunity to make their designs better, but also as a means to keep more of the value they generate. If you find a new way to deploy materials to make a project safe and durable against the loads it will encounter and to do so for greatly less cost, and your only up-side is the opportunity to potentially win future business from the same client, you've left a huge amount of value on the table. And if your fees are entirely divorced from the cost to execute your design, there can be a tendency to over-design and little motivation to innovate.

 

[glass99]

moltenmetal + CELinOttawa- 100% correct about not defining your work as being a human calculator, and being involved in making the project a reality. An engineer should also be an entrepreneur.

One of the challenges in the above is in keeping your scope tightly defined so that you can make sure you execute efficiently. Its hard to say "I'm done, stick a fork in it" if you have an open ended scope. But at the same time, this is key to unlocking all these higher value things which we can do for clients.

One of my strategies is before the project even is signed up, is to push the client to do more with the engineering, and make engineering more central to the project. Do longer spans in a more exotic material for a good reason etc. Yes they could technically steal your idea, but it more frequently leads to fees multiple times more than the human calculator model. On the same job, I was paid $15k to plug and chug some calcs, or $60k to make the whole thing happen. BTW: these are real numbers on a recent project where I had two similar clients with very similar scale and scope of construction, but a much different scale and scope of professional service. Neither contract was subject to bidding, and the client who paid more was much happier with the service!

And there is no limit to how far you can extend you scope. At my old firm we went as far as helping clients with fund raising. We did presentations to donors to get the Seattle public library built.

 

[kylesito]

Moltenmetal...you made the statement that engineering services ARE a commodity.

If so, then by the principles of economics I should be looking to solely maximize my profits by focusing solely on internal costs (overhead) since by definition a commodity industry is one where you cannot charge a price higher than any competitor without the risk of losing all of your customers. I have no control then over what I charge customers since everyone else could do the same job at a lower price.

I would disagree and adamantly argue that if our industry is in this state, or heading towards this state, we must stop it. If my profitability is solely measured by internal costs, then my priority is not the health, safety, and welfare of the public. And this is largely my argument against "bidding" for work. As a business, engineers cannot place both internal cost control and the health of the public at equal priorities. Eventually one will override the decision of the other. Choose safety and you may find yourself, and your employees, out of work. Choose profit and you run the risk of causing harm.

NSPE used to have a canon in their code of ethics addressing this very thing. They have since removed the language and I am very curious as to why.

If we are a commodity then we must not be held liable for the safety and welfare of our designs. If the health, safety, and welfare of the public remains in our charge, then we need to be compensated based on our ability to provide this safety more efficiently or to a higher degree than our competitors.




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]

kylesito, you missed the humour in my statement. My point was that to some, all engineers at a given level are interchangeable widgets and hence worth exactly the same hourly fee, ie..a commodity. I don't believe that for a minute, nor does any engineer worth their salt.

 

[JedClampett]

I was going to add to this thread, but I thought that what needed to be said was being done better by others.
But one point that I thought was important is that most firms do work for about the same amount. If someone can do it for way less, then they've probably got an unsustainable business model. If some retired guy wants to make a hobby of doing work for a few bucks, he can only do so much. And he needs to do his own CAD or hire someone. And, if you hire someone (assuming it's not some other old codger working out of his garage) now you need an office, a payroll department, and all those other expenses that drive up the costs. Or if he's successful, he needs to hire other engineers. And no one is going to work for less than the market rate, unless they're below market in talent.
Or maybe some firm has figured out how to do everything on schedules, without a lot of calculations or drawings. Don't you think the big guys are going to copy this? Or the drawings are so hard to build from that you have an unhappy client at the back end.
So my point is that we shouldn't be afraid to bid (although I think it's counter productive) projects. It's like that commercial, where someone opens up a $5 haircut place across from an existing barber shop. So the established guy puts up a sign, "We Fix $5 Haircuts" If you don't win this one, maybe you'll get the redesign. And don't be afraid to charge for that.

 

[zdas04]

JedClampett,
There is another facet to this dynamic. If I can start with an anecdote:

I bid on a job a few years back. I had an excellent idea how I would address the problem (the key to success was data management, not hard-core engineering) and I bid $96k (which was over twice the hours I thought I needed). A couple of middle-size engineering firms also bid on it and both were right around $1.5 million and their proposals made it clear that they didn't know it was basically a data-management job. The big difference in this case was that they didn't have anyone in the bid process that had ever done a similar job (both companies had people who had done similar jobs, but they were too senior to be bothered with a pissant bid). As a one-man company I was better positioned to properly evaluate it and my final hours on the job were within 5% of my original estimate so I made twice my normal hourly rate. Overhead alone did not account for a 15 fold difference in expected costs.

The point of this story is that in addition to the obvious issues with larger firms, there is also a significant difficulty with trying to apply appropriate experience to each bid--the guys that know are too busy to participate in too many cases. Sometimes the $5 haircut really is a bargain.

David Simpson, PE
MuleShoe Engineering

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

 

[moltenmetal]

JedClampett: because we execute our own designs in our own factory, we require far less engineering to offer a fixed price on one of our projects than a competitive engineering company who will have to use a fabricator to build the unit. Sure, people can copy our business model, but the "big guys" never will, and those who don't, can't compete with us in our niche any more than we could possibly compete with them on a billion dollar project. We're not cutting corners by generating a shoddy design- we're more efficient, by design.

 

[glass99]

moltenmetal - if you get paid for delivering a built object rather than for designing it, the business model is pretty different. Design is only one cost among many, and not even the biggest one. Interesting that you are able to compete effectively with folks who outsource fabrication. These days everyone wants to build out of house like Apple not in house like Samsung. But maybe Samsung will carry the day...

 

[KENAT]

"Design is only one cost among many, and not even the biggest one" well that's a sweeping generalization.

I've been on projects where the cost of engineering effort was far greater than material and assembly costs.

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[kylesito]

There is definitely an economy of scale with how much design plays into a job. Smaller jobs tend to have as much in design/engineering as materials. Larger projects it's a much smaller percentage. KENAT, since most structural jobs are 'big dollar', the statement does hold true that engineering is often minimal compared to overall cost of construction.

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

 

[GregLocock]

Typical car project the car costs around 15k to build, , sells for 25k+taxes, and generates a profit of maybe 3k on a good day, and owes about 2k in up front engineering and tooling costs. So if you can sell twice as many that drops to 1k, or you can spend twice as much on the next one, which means it'll probably be both better and cheaper. This is the inexorable virtuous circle of bigger sales when selling in the consumer marketplace.

Cheers

Greg Locock


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[glass99]

GregLocock -thanks for the automotive datapoint. On a typical commercial building project, total design fees including architecture, structural and mech engineering, landscape, lighting misc consultants will be approx 15%. Its variable though. Frank Gehry charges 20% just for architecture. The "classic" number for structural engineers on a building is 2% of the value of the whole building, and that structure is 20% of construction cost.