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This is a three-part series that explores how developers are de-risking projects and reducing project cost overruns by virtue of smarter planning and execution during pre-development.
- PART 1: How and why to scrupulously manage pre-development expenses
- PART 2: How to aggregate and leverage historical cost and vendor data to reduce risk and decrease project costs
- PART 3: The keys to running a competitive bid process
3 Ways to Strengthen The Competitive Bid Process In Project Delivery
More often than not, commercial real estate development teams struggle to deliver ambitious projects on time and under budget.
Developers can no longer rely solely on past relationships, gut instinct, and ad hoc conversations to make decisions that will impact the viability of their developments.
To reduce cost overruns and boost profits, best-in-class development teams are increasingly implementing a competitive bidding and vendor procurement process to improve long-term project outcomes by providing greater visibility into vendor relationships.
While competitive bidding is foundational to any general contractor’s workflow, real estate owners and developers have historically shied away from running competitive vendor procurement and instead have relied on word-of-mouth referrals and repeat vendors.
Why? Running a competitive bid process isn’t easy. Today, bidding for vendors and establishing a team of consultants to guide your project to success has not changed very much in the past 30+ years.
- There is no marketplace or consolidated database of commercial real estate vendors, which means identifying potential vendors is still largely reliant on phone calls to colleagues and word of mouth.
- Beyond that, running a formal bid process is very time-consuming and labor-intensive.
- You have to draft lengthy RFPs
- You have to reach out to vendors and constantly follow up.
- When you receive proposals, you have to manually level and organize their proposals into a format you can compare apples to apples.
- And If you put in the up-front effort, you have to pull together thorough bid templates that sometimes may be missing key scope that you are unaware of but that you may discover from vendors through the bid process.
Furthermore, real estate owners and developers are typically more leanly staffed than their general contractor counterparts, as overhead and personnel costs, especially those related to pre-development, are expenses that can’t be simply invoiced or billed back to a client as a general contractor would.
Given the administrative burden of running a competitive bid process, most real estate project teams sacrifice the virtues of ensuring their project gets the lowest bid from the most qualified vendors and instead are forced only to evaluate one proposal per scope of work and on the same group of repeat vendors.
What does that mean? Developers leave millions of dollars of project savings (or overruns) on the table. Here are just a few ways failing to run a competitive bid process could cost your project hundreds of thousands, if not millions of dollars.
- The vendor you hire is simply more expensive than alternative
- A vendor might pad their proposal if they’re aware your team isn’t evaluating competitive bids
- You might employ a repeat vendor who is prone to sending an inordinate amount of change orders once they’ve been hired
Project teams fail to identify missing scope items which come to light during competitive RFPs.
Today, leading real estate owners are turning to novel, cloud-based technologies to ensure their team and projects reap the rewards of competitive bid processes that decrease project costs and de-risk project outcomes.
Below are three things project management teams are doing to build a strong and efficient competitive bidding process.
1. Automizing RFPs
One of the most commonly expressed frustrations with competitive bidding is the labor-intensive process of putting together Requests For Proposals (RFPs).
RFPs are a crucial component of vendor bidding but can often be a deterrent because of the vast amount of information and attention to detail each one requires when documenting the accurate scope of project needs. Creating RFPs is only half the battle; developers have to reach out consistently and follow up with vendors throughout the bidding process.
To better address these friction points and avoid spending thousands of dollars on third-party services for competitive bidding, project management teams are leveraging automated tools to streamline creating and following up on RFPs.
These tools offer teams bid templates built based on industry best practices and instinctively facilitate correspondence between developers and potential vendors through a portal in the cloud – saving teams hours of tedious administrative work while limiting scope gaps that are often a product of human error.2. Switching Up The Routine
Because of the opaque vendor market and antiquated processes developers often rely on for vendor bidding, many find it challenging to identify new qualified contractors they can trust to get the job done. As a result, developers are reusing the same vendors for every project – not because that contractor is the best fit for the job, but simply because it is more convenient.
Project managers typically do not have a consolidated report of each contractor’s performance to reference and can sometimes restrict themselves because of how difficult it is to discover new trustworthy service providers.
Luckily, teams increasingly utilize cloud-based, multi-vendor marketplaces to browse possible contractors, invite them to bid, and build out their network for future projects. These vendor platforms enable developers to have greater autonomy when choosing whom they want to collaborate with on complex projects by giving them access to institutional data on contractor performance, pricing, availability, and geographic location.
3. Gaining a Competitive Edge
Bid comparison is perhaps the most laborious aspect of competitive bidding – traditionally requiring development teams to organize proposals into outdated spreadsheets and manually level costs and itemize scopes across bids.
Not only is this process time-consuming and labor-intensive, but it is highly prone to error. If bids are not correctly converted into a format where they can be intelligently compared, developers run the risk of overpaying for a service or overlooking a vendor that is a better fit for the project’s specific needs.
With bid management systems, project leads can organize, compare, and ultimately choose the contractor that seamlessly fits their project budget and goals. By taking the guesswork out of bid comparison, developers can feel secure that they receive the best possible service for the most competitive price.
Developers no longer need to miss out on the benefits of competitive bidding for fear of wasting precious time and resources on outdated bidding processes.
Project management teams who are leveraging pioneering technologies to automate and strengthen their competitive bidding process are not only cutting costs for ongoing projects, but also paving the way for success in future endeavors by gaining invaluable insights into vendor costs and performance, saving teams time on complex projects, and equipping themselves with the tools to make more informed financial decisions.
This is the third and final installment of the three-part series on “How to Reduce Project Costs During early Pre-Development.” Check out the first post HERE.
Tag(s): Real Estate Development
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