Asking several vendors to send competitive estimates for a project is controversial. Anyone who runs a service business can talk to you about the tyranny of the bidding process. It takes a lot of time. It takes a lot of mental energy. It’s a moving target. But for the folks at Honest Buildings, makers of a sophisticated Commercial Real Estate (CRE) management software, it can be simplified, transparent, flexible and less painful. It’s also essential.
The real estate industry is built on relationships. You probably assume the service providers you’ve worked with for years are the best for your projects, and you may very well be right. Familiarity with process, company culture and mutual expectations are strong factors in favor of maintaining a go-to team.
Competitive bidding on your projects is, however, a critical part of optimizing project and portfolio returns. It’s ok to pay more for vendors that you know will deliver a quality product, but you have to know exactly how much more it is. Competition yields these insights.
Additionally, multiple bids reduce costs and mitigate risk. According to a study published in Journal of Construction Engineering and Management, competitive bidding leads to an 8% reduction in the “bid low price.” This cost reduction increases as the number of participating bidders increases.
Your vendors should be as diligent at modernizing and making their shops more efficient as you are.
Before you decide to skip competitive bidding and give your new project to a ‘go-to’ vendor, ask yourself these five questions:
Technology is changing every facet of the way that people do their jobs. Real estate has been slow to adapt, but the curve is quickly pointing up - industry leaders are leveraging technology to drive transparency, efficiency and higher project returns.
If you are sticking with vendors based on past relationships, are you falling behind the innovation curve? Are there newer ways to manage your projects? Are there more efficient ways to get quality work done at better prices?
Your vendors should be as diligent at modernizing and making their shops more efficient as you are. Whether your ‘go-to’ vendor is still faxing in change orders or resisting modern construction practices, the cost of inefficiency is added to your bill.
Competitive bids reveal the cost of sticking with a preferred vendor for a known level of work. Over time, you can work with preferred vendors to manage their costs based on fair market value - if you establish your baseline.
If they assume they’re already getting the best deal or don’t see a reason to negotiate with suppliers, you might be missing out on trade discounts.
Does your ‘go-to’ vendor assume they will always get your business and get to charge the price they want? Even if you continue to work with the same team, getting comp bids will give you confidence that you’re getting the best rates and it may help you negotiate a better price when you’re not.
Do you know how much of your business comprises his total business? It might seem beneficial to be your vendors’ primary source of work, but you’re putting yourself at risk. As a general rule, your vendors should derive no more than 20% of their income from any one customer.
You don’t have to spend more in terms of time and resources going through the process of bidding than you’ll save in getting a lower proposal. You do need to have good process in place to run an efficient bidding process, but that process should only need to be created once.
You need a few basic things in place to start building a strong competitive bidding process:
If you’re manually leveling bids, it’s no surprise that your team is disincentivized to invite multiple bidders. With an automated bid leveling tool, you will align your cost-savings goals with the limited amount of time that your team has to manage the process. CRE software does the administrative work, freeing your team to spent their time on critical business challenges.