Getting Beat by Low Proposals 21

[bigmig]

Forgive me for raising a subject that would appear to be pretty common. I tried finding some threads that address this, but they seemed to branch off into other topics.

My problem is that I work for a company that operates with great intentions from a professional standpoint. We subscribe to trade journals, go to continuing education seminars, keep our software updated...in essence we try to stay up to date with our industry so we can offer our clients the real picture of where things are at.
The added expense of maintaining the overhead associated with this “keeping up to date” stuff, combined with buying the latest codes, employing a secretary etc. puts our overhead up to a healthy amount. This in turn sets our hourly rates in the $110-$150 per hour range.

When we go to price our work, our proposals are suddenly too high and we can’t get work. After interviewing the owners of our lost jobs, I have found that we are getting beat by the sole proprietorship engineer who is characterized by years of experience, works out of a home office, has little to no overhead, works off of a code that is 4 years out dated, has no professional membership ….you get the picture. The sad part is that these guys where sitting right where I am, 4 years ago. They layed off all their employees and downsized to survive and now win jobs by under pricing everyone.

After pondering how they can price themselves so low I began to realize that the plans they produce are not at all like the plans we produce. Overly simplified, blanket design methods etc. But unfortunately the owners who review the proposals don’t know that. How do I convey to the typical economy stricken owner that trying to save money by using an out of date engineer will not save them money? For some reason the most common response I get is "why would I pay you twice what I will pay this guy for a stamped set of drawings?"

I have thought about doing a short flier, or a blurb on our website trying to shed light for an owner that they are really not saving money by using these guys. Should I put it right on the proposal? Any thoughts?

 

[MiketheEngineer]

Welcome to the real world. SOMEBODY will always "low-ball" the price. It is up to you and your firm to quantify and jusify your costs - however you do it!!

Good luck

 

[bigmig]

Mike,

I have noticed that alot of the responses to your posts are merely comments and not responses. Like for instance, I see you say "hire a lawyer", or "hire an engineer" quite abit. I just want to politely point out that your answers are obvious and do not really answer the questions that I'm asking. I'm not trying to be rude or critical but am just politely asking that you perhaps expand on your contributions. Take for instance the response above. Perhaps you could explain how you justify and quantify your costs to your clients, or how you see the low ball crowd. That would give me a lot better idea of how others are doing it rather than your response of "welcome to the real world".

If I had all the answers I wouldn't be picking the minds of my peers. Which is sort of the reason for this site. If everyone answered the way you do, we would just cancel this site and hire people qualified to answer our questions. I'm assuming that is not your intent but just wanted to politely let you know that this is the way you are coming across.

 

[Terminus0]

I don't know much about structural engineering.

But I do know a little about people, and making hard sells.

You mentioned having seen some of you competitors work. You could follow up on how their projects turned out. What I'm trying to say is accumulate a couple of examples (with names changed to protect those involved) of how similar lowballed projects turned out in the end. With clear differences you could show and cite as things you would have done differently along the way (and how these would have benefited your client).

It helps sell the extra price difference, which is hard to discern from just a quote. You can pick up two watches or phones and try them out and discern which is of better quality. It's hard to do the same with engineering without clear examples you can cite.

 

[IRstuff]

"how you justify and quantify your costs to your clients"

It seems obvious to me. You need to show what you bring to the table that makes up for the high cost. That could be anything; only you know the answer to that question. If you don't bring anything to the table, then you are just high priced and you will sink.

TTFN
faq731-376

 

[miningman]

Sounds like you and your colleagues need to assist your organization in reducing overhead. Perhaps all the continuing education seminars that you attend should be done on the basis that as an employee who gets the primary benefit, you should not be charging your employer... perhaps you take vacation time or time off without pay to attend these sessions. Perhaps your entire organization is four years behind your cost competetive competion. Perhaps you should all accept lay -offs and offer to provide your services on a contract basis. Perhaps if you went without work for say 4 months, you might realise that todays market rate for your particular speciality is only $ 85 per hour.

Perhaps your competetion is offering the srvices of someone with say 30 years experience at $ 85-90 per hour and your clients are getting annoyed at paying someone with say 6-10 years experience, say $120 per hour, and perhaps the different levels of competancy is obviouis to the client, even if not to yourself.

Perhaps MiketheEngineer is giving you good advice

 

[msquared48]

bigmig:

In regard to your first post's question, I would never denegrate another engineering firm's proposals, regardless of the quote or who it was. Information (what people say)does get spread around and you do not want to burn your bridges. You are not going to win any bids by whining. You may need to change your market focus if you have more employees and can handle larger jobs. But then you will be bidding with larger firms who may be outsourcing to keep their costs low too. Bottom line is that you really can't get away from it. Sharpen your pencil... Offer some service that the others don't - do your research on your competitors, but keep your mouth shut.

As Mike said though, welcome to the real world. Been on both sides of this issue here.

Mike McCann
MMC Engineering

http://mmcengineering.tripod.com

 

[bigmig]

miningman, thanks for your comments. You are right. Critical self inspection, albeit difficult, is definitely warranted. The market determines the price, and data by good sources have indicated that the going price has dropped.

 

[KENAT]

Are your competitors doing anything that violates PE code of ethics etc?

Could/should they be reported to the relevant authorities?

I've seen some folks in other industries give a brief blurb of why they're better than the typical lowest price bidders. Sadly if you're appealing to the public, they may not be able to grasp what you're trying to tell them.

I'd think the big seller would be how your more complete package of work will typically reduce construction time scales & costs etc. or some such.

Posting guidelines faq731-376

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

(probably not aimed specifically at you)
What is Engineering anyway: faq1088-1484​

 

[Erdbau]

I suggest some introspection, and thinking about what kind of clients and jobs you are pursuing, and what value you add over the "other guy". If the work you are pursuing is amendable to the cookie-cutter methods the other guy is using, then are the projects technically challenging enough to justify the added expense of going with you? If the solution is simple, then why pay extra for it? There are some clients (especially developers, in my experience) that only care about the bottom line, and it's very hard to change their mind.

One angle you take on things is a clear demonstration of the value you bring to the client: the ways you can save them money on the front end of things, as in more efficient approaches, innovative solutions, etc. If you take the other approach and say "if you use the other guy, then it may cost you", it will probably fall on deaf ears. The client doesn't want to hear how you MIGHT have saved him money in the long run, IF he had only spent more money on you in the first place. A client is expecting that whomever he hires will do a satisfactory job. The risk that the cheap guy will mess up is a risk that he can't quantify clearly enough to make a decision to go with you.

On another note, you say you and your company are members of professional societies. You may want to check what the model codes of ethics for those societies say about bad-mouthing the competition. I may be wrong, but I thought there was something in ASCE's code of ethics about that, but it may just have been naming someone specifically. Regardless, as an engineer, you should base your reputation on your own merits, not someone else's lack of them.

 

[IsaacStructural]

To get off BigMig's case for a minute.

My guess is simply that you, as a medium sized company, are going to have trouble competing against an experienced sole proprietor. It sounds like you have to go after larger projects, or a mix, the work that a sole proprietor won't be able to handle. Otherwise an engineer like your described, who can bill them self out regularly, with low overhead costs, will do quite well. Grossing 100k only requires about 1100 hours of billing a year at $90/hour.

For what it is worth, don't forget, the software purchases are at your discretion, if they are causing your costs to run high, they aren't really doing their job, because they should be making you more efficient, not less. If you are a carpenter and you buy a hammer and you now pound nails slower than you did before, what good is the new hammer?

M.S. Structural Engineering
Licensed Structural Engineer and Licensed Professional Engineer (Illinois)

 

[JedClampett]

If you're competing with commodity providers, you'll probably never be able to catch up. If they can't get low enough, the clients will figure out a way to outsource the work for even less.
Speciality is the key. If you can do something the others can't, and there's a need, you'll get the work. Find out the work you do best (and hopefully make a profit on) and punch that. Maybe it's the size of project or one certain type of project, or some material that's hard to design (FRP comes to mind). Market it hard.
I like the idea of the post mortems. Ask the clients how your project went. Visit the project after it's built. You're likely to hear a lot of venting, but within that, there might be some gems.

 

[IRstuff]

"never denegrate[sic] another engineering firm's proposals"

You don't need to do that specifically, but "ghosting" does the job, which is to cast doubt on other proposals in favor of your own.

You don't need to say, "XYZ's proposed flimbobble is a silly approach." You can say, "There is one supposed alternative, flimbobble, but this approach results in increased maintenance costs because the coatings are inferior to ours."



TTFN
faq731-376

 

[zdas04]

When I was evaluating bids, the first time an Engineer said a single word about a competitor I crossed them off the list for consideration. Didn't matter if what they said was true or not. Didn't matter if hearing it helped me make a better decision. Nothing mattered. I wanted to hear what you can do for me, not why someone else can't.

When I have to bid on stuff I have won every bid I've submitted. I bid one job for $90k (and final billing was $85k) and the next highest bid was $600k (and they would have lost money at that price). Being a sole proprietor probably means that I'm one of the people that folks like you complain about (I work in Oil & Gas so we're not bidding against each other). But all of my my codes are current. The quality of my work is far better than I'm getting from the large and medium sized firms that I occasionally contract for disciplines other than Mechanical. Trying to paint the guys who used to be stars at your company as slugs on their own can only backfire on you. If I got the flyer you are talking about I'd keep it long enough to add you to the "NEVER USE THESE JERKS" group in my outlook contacts list.

You've got the current software. Say it costs $20k. If it doesn't reduce your billable hours by $20k worth the first year then you've wasted your money. Remember, it is doing arithmetic that was invented before computers, and the last generation probably did it properly (but maybe not as pretty, but still workmanlike). The pipeline model I use was written in 1975, and ported to DOS in 1984 and that is the copy I use because it works. The current generation of similar programs can't touch it in terms of ease of building a model or matching observed field conditions. I recently had occasion to get paid to develop a model in parallel with a mid-sized Engineering firm who was using the latest and greatest. I developed the model, calibrated it, developed a recommended list of projects to alleviate the problems in three days for $5k. The mid-sized firm was finally able to calibrate PipePhase in 4 weeks and was pulled off because they'd reached their billing cap of $75k. The recommendations I made were implemented and worked very close to what my model said they would do. This was a case where overhead, supervision, and the latest software added at least a factor of 15 to the costs (and if they had been left to finish the job it would have been closer to a factor of 45), not justified on any planet that I know of.

Memberships. I know a lot of sole proprietors (including myself) who are not only members of multiple Engineering societies (I pay dues to four), but are active in doing presentations are officers and attend national meetings. Almost all the officers in my local SPE the year I was Section Chairman were sole proprietors.

Continuing education. I have to do 30 hours a year to maintain my P.E. Last year I did 230 hours. I got paid for a very small part of it (the first time you teach a new course you can call twice the time spent in front of the class "continuing education"), but mostly it was on me. I only do continuing education that I can see a direct impact on my value to a client. I don't go to a Covey Time Management Course or a Electrical Engineering for non-Electrical Engineers course.

Bottom line is that if you are spending money on stuff that does not REDUCE the time your people spend on a given project then you are wasting your money and deserve to lose bids. If you get an Engineer to stop using Excel and start using MathCad then (in my experience) he can do any math-intensive free-calculation in less than half of the time. Most of what Engineers do today is running black-box applications, but we also spend a lot of time doing ancillary arithmetic (often pre-processing to feed the black box). If you are doing some of that, but not including it in your bids (e.g., your standard time for preparing a data set is 30 hours, so you put that in the bid even when your guys can do the task in 10 hours with the new software) then you are going to lose bids to the guy who isn't trying to steal time from the clients. I see that all the time.

David Simpson, PE
MuleShoe Engineering

"Belief" is the acceptance of an hypotheses in the absence of data.
"Prejudice" is having an opinion not supported by the preponderance of the data.
"Knowledge" is only found through the accumulation and analysis of data.

 

[MiketheEngineer]

Looks like a bunch of people expanded on my sugestions. Yes - I can be curt - you just asked a simple quesion. Simple answer. I am not about to derive Pi to the 22nd place for you!! I can't tell you HOW to do it - just where you might want to look.... Every one is different and every company is different. That is why we all have competitors!!! Those that figure out where they belong and how to do it "right' are successful. Walmart is succesful - supposedly - but do I shop there - NO way - I would rather spend an extra buck or two with the local merchant who knows my name and my wants and has time to TALK to me and make the right decision. I don't usually buy the cheapest model either - unless its a nail or a screw!! Even then - I have been known to buy the more expensive nail or screw because it has a GOOD name standing behind it. Get a GOOD name and keep relationships going. Word of mouth has always been about 95% of my business!!! I do no formalized advertising... Good quick service works almost always!!

PERSONAL relationships make the sale - 9 times out of 10. Maybe you need to spend a bit more time with your clients. Again, just a suggestion - I have no idea how you run or want to run your business..... But engineers tend to NOT be people persons - me included. But anytime I can get with a client usually pays off big time in the long run. Heck - I have even given a good customer the name and phone number of a competitor for a second opinion. Guess what usually happens - back they come. Maybe I lose one job - but I get 10 in return!!

BTW - My bother is the lawyer and I don't ask him engineering questions and he refers engineering questions to me. Do ONLY what you know!! I don't ask my doctor how to program my computer!!

 

[Ron]

My bother is the lawyer

....many people could say that!

Yes...personal relationships are important to make the "sale".

In reading the OP and the comments, I continue to see a distressing trend. Look at the terms "trade journal", "cost competetive competion"(sic)....these are tip-off that you are not treating yourselves as professionals but as commodity service providers....WE ARE PROFESSIONAL ENGINEERS!! Get that through your heads FIRST!

Stop "competing". zdas04 has given good advice. Let your performance speak for you and charge what you are worth, high or low, depending on the project at hand. I charged high rates for my services when I was a Senior level engineer in a large company and I charge high rates for my services as a sole practitioner. There is no difference. The service is worth it.

Larger groups are inefficient and charge for things that are unnecessary. Your rates of $110 to $150 are in line with the rates that should be charged for such services. If some a$$ wants to cut those...you can do nothing except try to build a relationship with the client that will make them look past the lowball techniques of (in my opinion) unscrupulous engineers who cut their fees to compete.

Propose on projects...don't bid.

As others noted...don't denigrate your opposition....you sink to their level.

 

[SteelPE]

I'm on the other side of the table. I was laid off about 8 months ago and decided to try to go out on my own. While my target hourly rate is in the middle of what you stated I find that I sometimes go over the hours that I figured for a project. A lot of it is just dealing with typical office BS I never had to do before. I am sure some of the problems that you are dealing with have to do with the other engineers not having the proper experience and accidentally underbidding jobs too. As time passes I'm sure I will get better at this and the mistakes will go away.

I recently bid a project against a larger engineering company. I was the low bid by quite a bit (I was told this after all the bids were in) and asked myself why my number was so low compared to theirs. I came to the same conclusion you did. I don't have a secretary, don't have to rent an office in a swanky down town location, don't have to pay accountants to do my books, minimal marketing etc.... I lost the project anyway because the architect refused to work with me (good for the original engineer). I was a little ticked. A few months later I was presented with a project from one of my clients. They needed someone to help them design connections for a project and guess which project it was, the one I lost out on. The engineer refused to design the connections, the same connection design that was in my proposal.

I have yet to be in a situation yet where someone has asks "engineering company x is a $xx.xx can you beat that".

I understand the current economic climate. However engineering, and especially civil engineering, is a slightly different profession. If you lay off someone who works in a factory they go home and try to find another job. If you lay off a professional engineer they have two options, go find another job or start doing consulting on your own. The employee you layoff today may become your competitor tomorrow.

I'm sure people will not like my story but it's just my $0.02

 

[FixedEarth]

I enjoyed SteelPE's insight- very true. Sometimes it is other factors that decide who gets the work. While you can't win all the jobs you bid (even if you are the most competitively priced), the following actions will assist you in winning more work:

1-Avoid hourly rate, instead propose a not to exceed sum for a given scope. If connection design is not included in the scope and later you are asked to do it, you have more work. If shoring design is not included, and you can do it, you have more work. Some engineers see this risky, but you have to wear the client's shoes. They don't want an open account.

2- If your firm is experienced in doing pedestrian bridges for example, and it takes you only 100 hours to do it but most firms can do it in 150 hrs, are you going to charge less because you are more efficient & you have developed a niche?
Charge a rate that compensates for your special expertise, which most likely will be higher than 100 x $150.

3- Spend some time chatting with the client about their project. Sometimes I spend 45 minutes on a call with a future client. Later, the client feels obliged to reimburse me for my time. Sometimes they remmeber it for a year or more and after I had forgotten about it, they have not and I get the work. I never say what type of competitors avoid, I just explain about the steps my firm will take to get them their engineering documents.

4-Send referral work to allied professionals- Geotechnical engineers(Are you in CA?), Civil Engineers, Contractors and Architects. In no time you will get reciprocal referrals. These type of referral work is yours regardless of your price. You were sought by the client or were referred by their trusted friend.

5- Be more flexible, If you are asked 10% reduction on one job's quote, do it. Make it up on the next month.

6- Seek to work on nearby cities outside your immediate location. You can overnight the engineering documents and you may find that there is less competition there which will support higher quotes. And

7- Develop more competence in your firm by bring engineers with specialty experience so that you can work in more specialized but related fields. Good luck.

 

[zdas04]

SteelPE,
If you think that the bottom feeders ever go away you are kidding yourself. Most of them are out of business in one to two years, but during that time 15 other guys have been laid off and have hung out their shingles and they are all hungry. The low ballers won't last, but they will be replaced by other versions of that stereotype.

I was once given a competitor's bid and asked what I could do. I took the sheet, crossed out the total, wrote in a number that was precisely twice the bid, wrote in my company's name and my name and signed it. The guy was shocked. I asked him to call me in 6 months and tell me where the project was at (it should have been a 90 day project). He called and said that the project had been at "80% complete" for 2 months and costs were 4 times the original bid. I told him that I really would have done it on time for twice the original bid. I ended up getting a lot of work from that guy before he retired last year.


David Simpson, PE
MuleShoe Engineering

"Belief" is the acceptance of an hypotheses in the absence of data.
"Prejudice" is having an opinion not supported by the preponderance of the data.
"Knowledge" is only found through the accumulation and analysis of data.

 

[bigmig]

A wealth of information. Thank you all very much.