Baker Tilly’s head of construction, Andy Monteith, examines the difficult topic of bid management, or should that be bid mismanagement?
‘This project is over budget, we will not deliver on time, and the customer is dissatisfied with us,’ This is a statement we hear all too often when our clients ask us to identify process and control breakdowns in projects that aren’t going as planned.
Is it always the fault of the project director for failing to deliver the project, or of the quantity surveyor for failing to manage the budgets effectively?
When projects go wrong, far too many construction companies fail to question themselves about the root cause of the problem. The elephant in the room is that the opportunity was always too risky, or the bid price was based on unrealistic subcontractor or value engineering savings.
According to MarketingWorks and the University of Reading research, the average cost of winning contracts between £2m and £250m in 2014 was £60,208.
Bid costs can amount to as much as 1.2 percent of the total contract value. The level of investment in bidding for new projects is thus significant, but it is also an area where processes are frequently not adequately defined and controls are not robust. As recent high-profile examples have demonstrated, the consequences of bidding on the wrong project or selecting the wrong contract price can be far-reaching.
Many internal audit functions spend surprisingly little time and effort on this area, preferring to focus on ‘live’ projects instead.
Our experience has identified that those construction firms with the fewest ‘problem child’ projects are those with a robust bid management process together with an inclusive and collaborative culture.
An Internal Audit function should consider how it can play a more proactive role in mitigating contract risk, right at the beginning of the project lifecycle, rather than once things have started to go wrong.
What should you consider when reviewing this area?
Our experience has shown that construction firms with the fewest ‘problem child’ projects are those that have a strong bid management process in place, as well as an inclusive and collaborative culture.
Internal Audit should consider how it can play a more proactive role in contract risk mitigation early in the project lifecycle, rather than after things have started to go wrong.
What should you keep in mind as you examine this area?
- Are the costs associated with bid development understood, and can this process be made more efficient while still maintaining adequate controls?
- Is the bid development process collaborative? Is it involving and engaging all key personnel and expertise in a timely manner?
- Are delegations of authority based on clearly defined criteria in place for both bid qualification and bid submission?
- Do individual personalities have an undue influence on bid decisions, thereby circumventing the process? If this is the case, how is this risk managed?
- Are changes in contract value and anticipated margin from the original bid submitted subject to reapproval if there are subsequent negotiations?
- Is feedback obtained from both successful and unsuccessful bids, and are these lessons used to improve the bid process on an ongoing basis?
- Is the role and objectives of a dedicated bid management function clearly defined, and are appropriate performance measures in place to measure their effectiveness?
Is there a process in place for capturing and evaluating risks when evaluating new projects and contracts to ensure they are within the risk appetite of the organisation?
Internal audit functions should also consider whether they have the necessary skills and expertise to challenge the business. Internal or external subject matter experts are used by high-performing Internal Audit functions to assist in reviewing this area. Commercial specialists, quantity surveyors, and project managers are a few examples.
As a result, it is clear that seeking advice to help you identify flaws in your bid management, estimating, and tendering processes could pay off handsomely.