The average bids costs were calculated at £60k in 2014 for contractors and £24k for consultants. However as those average bid costs cover a broad range of project values from <£2m projects to >£250m, looking at bid costs as a percentage of the project value gives an alternative and more revealing perspective.
The bid cost worked out, across winning and losing bids, to be 0.57% of the total project value.
Overall this data set indicates that when consultants and contractors invest more in the work-winning process on a bid, they are more likely to win. In this sample, the investment in bids that won is 25% greater than for bids that lost, with the average cost of bidding for losing bidders being 0.48% and for winners 0.65%.
Whilst these percentages may not seem significant at first glance, where contractors sub-contract a large proportion of the construction work, these figures can make a significant impact on the retained operating turnover. For consultants the key number is how much of the project value is actual fee. It would be worthwhile for consultants to look at the cost of bidding in the context of fee income as the project value does not give a true picture.
For smaller projects (less than £5m) the proportion of bid cost to project value is highest. Here the win rate will have a considerable influence on the pipeline/ cost to win/ processing systems, especially if there are many, smaller bids. Clearly, efficiencies and a methodical approach to selectivity are crucial to avoid unfocused activity and unnecessary spend.
Equally it is vital that all companies manage their opportunity pipeline; the number and nature of the opportunities and the likely costs to win them, but particularly so where there are many, smaller bids. Companies have to be sure that they have the necessary processes, systems and tools in place, with people mobilised, empowered, enthused and with the right skills to create winning bids. These results challenge the industry as to whether it is still a relevant strategy to have so many bidders.
The more bidders, the greater the cost to the industry as both winning and losing bids represent a significant investment by the industry.
For the bids submitted to this survey, the median number of bidders is five, which aligns with the typical length of a tender list (between 4 and 6). There are slightly fewer competitors in the private sector and more bidders (and therefore more losing bids) in the public sector.
This may well be challenged by procurement advisors, but if the industry genuinely wants to lower costs, then exploring viable alternatives to current approaches would be advisable as there would be a significant saving for the whole industry and its customers in having only three bidders.
In our opinion, it is a concern that so many respondents were unable to identify how many competitors they faced as this would be expected to be part of a bid selection decision.
Given the cost of winning work, the single most important tool organisations should deploy or revitalise is one that dynamically enables more effective selectivity.
It is a timely reminder that, whereas the focus of companies in the recessionary market had been on managing a diminished number of opportunities, as the number of opportunities increases, the industry is now facing more complex choices and decisions. The activities undertaken to win bids also need to adapt accordingly.
Bid selection will become increasingly complex, with many variables, so companies need to evaluate further their own specific markets, processes and governance to manage this effectively. There is a huge opportunity to better manage this investment in the industry, but from this sample we can only make general statements across a broad range of project types and sizes, of organisation types, of sector types etc. (Read more on the MarketingWorks Selectivity Tool.)
The survey outcomes suggest that organisations should delve deeper into the cost of bids and where time is being spent on various elements of a bid, especially if it can be related to or taken together with the information on reasons for winning/losing bids. This will help the organisations and the industry to identify areas for improvement.
We encourage our clients to capture this data rather than relying on isolated surveys. We provide them with tools and processes to capture this important data as, when analysed, it delivers invaluable information at company level. For this reason, we are looking for more contractors to provide us access to their internal metrics so we can explore this potential for them. This knowledge would equip them to make more consistent bid/ no bid decisions and inform them where best to focus their investment.
MarketingWorks offers a range of solutions to help our clients achieve these objectives including:
- Bespoke easy-to-use bid selection tools that help contractors and consultants to quickly evaluate their bidding opportunities, enabling consistency and transparency in decision taking.
By using MarketingWorks’ Selectivity and Reporting Tools you will be able to avoid waste by refocusing resources and effort on enhancing the quality of those bids where they have the highest chance of winning. Read More.
- Creating bespoke win work flow processes and guidance that supports company-wide adoption of a work winning culture with embedded client centric behaviours and attitudes that improve win rates and work winning efficiencies.
MarketingWorks works with you to identify desirable changes in behaviours and processes and then works with your teams to uplift their capability, achieving rapid buy-in to desired behavioural change resulting in dramatic and immediate improvement. Read More.
Notes on the sample
The sample represents a large proportion of the construction work carried out last year in the UK and is a good representation in the key areas of measurement:
- Sample value vs market value: £8bn costed bids submitted in £11bn total value of bids submitted
- Total value of contractors’ (only) winning bids with bid cost data is £4.09 billion – 3.7% of 2014 construction market value (£110 billion quoted as the 2014 value of the industry. Source: Office for National Statistics Output in the Construction.)
- 179 respondents; 118 with cost data.
- Almost even mix of won / lost bids in the sample.
- Good spread of procurement routes, project values, selection methods, sectors (broadly in line with planning data* for new starts by sector 2014)
The fact that 61 of the participants who provided a great deal of data nevertheless were unable to provide estimates of time and cost invested in the bid indicates that many construction companies probably don’t have enough data easily available to contribute to a survey such as this. This may be because they do not consistently capture what overhead is being spent (and where) on work-winning activities.
There were also other gaps in data provided by some contributors, for example, how many competitors they had on the bid; the sector; procurement routes. The assumptions being that either not enough was known or that this information about the bidding environment was not shared. This is surprising, as this information should have been captured as part of a bid selection decision.
“Possibly due to the accessibility of the data, we had to invest a good deal of time and effort, directly and through the survey supporters, to persuade companies to complete the questionnaire. However, it is hoped that the strong results relating to the financial efficiencies that can be made in the bid process and profit improvement potential, will make the industry more responsive to help us to explore further in the future.” Jan Hayter, Marketing Director, MarketingWorks
This blog is the seventh in a series prepared by members of the Constructing Excellence Procurement Theme Group to provoke debate and seek to provide thought leadership on a crucial aspect which we see as a major barrier to improving the productivity of the sector. Comments are welcomed on the Constructing Excellence LinkedIn page or on Twitter using the hashtag #CEProcurement.
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