Further to the post I wrote in November 2014 about the bid cost survey MarketingWorks and the University of Reading were undertaking, the results have recently been published in Construction News.

The results were very instructive and clearly demonstrate the need for everyone working in the construction industry to be:

  • more selective about the work they pitch for; and
  • spend much more time pre-bid getting to know the client and understanding their drivers, needs, concerns and aspirations for the project.

When I was working in-house, I spent much of my time being instructed to ‘take a punt’ on opportunities we were clearly not going to win, because we didn’t have the right relationships or experience. Basically we hadn’t done the right groundwork in advance. The impact of this was sub-standard submissions, no marketing and a very cheesed-off bid coordinator (or bid gimp, as I started calling myself).

There were some interesting statistics published in the article, including the rather startling assertion that some contractors are spending an average of 22% of their operating turnover pitching for work. If companies were more strategic about their bidding activities and the opportunities they were pursuing, they could convert this potential loss into a potential profit.

How much does it cost to bid a construction project?

The bid cost data was collected throughout 2014 and provides a snapshot of the industry during an improving market. It provided a sample of £11.3bn of total project value, of which £8bn has full cost data. This reflects a significant chunk of the total industry for the year.

Using this data, it was calculated the average cost of a winning tender was:

  • Contractors: £60,208 
  • Consultants: £23,821

These costs were calculated as an average across all respondents and project sizes.

This is where the 22% of operational turnover comes in. It is based on a conversion rate of 1:5. This figure will be challenged by many, however look at it from the opposite perspective. Basing your bidding strategy on a conversion rate of 1:5 still means you are planning to lose four out of every five pitches you submit. If your hit rate is lower than this, you are actually planning to be even less successful and therefore waste more overhead on pursuits you won’t win. Surely it’s time for a new approach?

Work-winning behaviours

The article points out that a number of behaviours play a critical role in work-winning, bid selectivity only being one of them.

Spend more time developing your proposal

This includes business development activities, like getting to know the client and understand the project, as well as bidding activities such as Go/No Go, proposal development and review. Clearly, this will cost the business more in terms of overhead spend, but if you are being more strategic and selective about the work you are pursuing, the costs will balance out and the rewards will be greater.

Client feedback, or lack of it

I know only too well the difficulty in obtaining quality client feedback following a submission, whether it has been successful or not. As Philip Collard rightly points out, the bidder not understanding the reasons for bids being unsuccessful “…leads to the conclusion that the industry as a whole (both sides of the work-winning process) are not valuing the role that feedback plays in improving the efficiency of work-winning approaches and behaviours.”

From a bidder’s perspective, if you don’t request feedback on bids, whether they are successful or unsuccessful, how will you know where you have gone wrong and how you can improve your submissions in the future. Similarly, clients must be prepared to provide detailed and valuable feedback to bidders, clearly highlighting perceived weaknesses and strengths. Closing this loop is essential if the industry is to make any attempt at continuous improvement where bidding is concerned.

Both Philip Collard and Jan Hayter (marketing director, MarketingWorks) can be contacted directly if you wish to discuss this research in more depth. You can also join in the discussion on Twitter via #bidcostsurvey.