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#60870 - 01/11/06 12:45 PM Bidding
mshaw Offline
Member

Registered: 01/11/06
Posts: 45
Loc: Fairborn, Oh, USA
How do you feel about competively bidding jobs with a number not to exceed and than performing the work on a T&M basis. I have used this with several sub-contractors at my facility with good results. In my side business I done this as well on several jobs and it is well recieved by my clients and profitable for me. The subs seem to like it as they feel with T&M they can not loose and I win becouse the not to exceed numbers must fall within the buditary parameters that are set up for the project.What experiences have you had?

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#60871 - 01/11/06 02:19 PM Re: Bidding
Radar Offline
Member

Registered: 04/30/04
Posts: 349
Loc: Los Angeles, CA
First let me say hello, and welcome to the board.

I've never been convinced that mixing T&M and competitive bid is a great idea. I'll try to explain:

In T&M work, the owner bears more risk but (sometimes) saves some money, i.e. - if the job goes well. On the other hand, in bid work, the contractor bears the risk of how the job goes. So it's a matter of who bears risk, and who reaps the reward for that risk.

In the case where a contractor offers a bid price as an NTE (not to exceed) and then works T&M up to the NTE point, the owner reaps some monitary benifet if the job goes well, and the contractor receives less than his bid amount.

If the job does not go well, the contractor still has the risk, and all of a sudden it's a firm fixed price deal.

Bidding work is the same as taking risk, and if the job goes well, the profit is the contractors reward. Why would he agree upfront to give some of it away?

Offering a price estimate (different than a firm fixed price bid) and then doing straight T&M work is OK, but the NTE part only serves to shift potential risk to the contractor, and shift potential rewards to the owner.

Just my thoughts,
Radar
_________________________
There are 10 types of people. Those who know binary, and those who don't.

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#60872 - 01/11/06 03:46 PM Re: Bidding
mahlere Offline
Member

Registered: 11/17/05
Posts: 514
Loc: New Jersey
radar,

i agree 100%. If i'm going to agree to a NTE price, and then do it T&M, I lose either way.

Come in under the NTE and I make less money, run over the NTE and I don't get any more money. I get screwed either way.

I'll do T&M, I'll do Fixed Price, but mixing the two just won't work for me.

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#60873 - 01/11/06 03:54 PM Re: Bidding
Dnkldorf Offline
Member

Registered: 12/12/04
Posts: 1091
Loc: nowhere usa
I concur with the above 2 posts....


Dnk...

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#60874 - 01/11/06 04:44 PM Re: Bidding
frankft Offline
Member

Registered: 10/13/04
Posts: 39
Loc: Maine
You could mix the 2 but only like this. T & M and a do not exceed, BUT if you come in under the NTE price, then you split the difference with the owner. IE: NTE price $1000, comes in T & M at $800, owner pays $900. Owner has a fixed price, they may save some money, and the contractor gets a little extra for the risk they are taking.
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#60875 - 01/12/06 06:38 AM Re: Bidding
mahlere Offline
Member

Registered: 11/17/05
Posts: 514
Loc: New Jersey
frank,

we take risks every day. why would you want to give up any reward?

just go with the fixed price and reap all the reward, or go straight T&M and release all the risk.

with your scenerio, you are still taking all the risk, but only reaping part of the reward. The customer releases all risk, but still reaps some of the reward.

Because in your scenerio, if it comes out to $1100, does the customer split your loss with you?

so why split your gains with them?

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#60876 - 01/12/06 08:17 AM Re: Bidding
Radar Offline
Member

Registered: 04/30/04
Posts: 349
Loc: Los Angeles, CA
Ditto Mahlere - in simplest terms, by doing this, virtually all the risk is shifted to the contractor and at least some of the reward is shifted to the owner.

We do use NTE values here in very specific cases. I'm not running my own business here, I work for a large public agency in the Los Angeles area. Sometimes, when trying to negotiate for a needed change to an existing contract, we reach a stalemate where and are unable to agree up front ahead of time. So, sometimes in these cases we will direct the contractor to proceed with the change work, keep T&M records, and establish a NTE value for the work. The contractor is then to proceed, keep track of the daily cost of the work, and to notify us when they reach 80% of the NTE value, and then to STOP WORK when they reach the NTE. We will reevaluate the change at that point.

Of course it doesn't always work out as smoothly as that, but the idea here is to lay out a path forward, put a cap on the cost of the work, but not place additional risk on the contractor.

It's all about RISK / REWARD.

Radar
_________________________
There are 10 types of people. Those who know binary, and those who don't.

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#60877 - 01/12/06 09:50 AM Re: Bidding
mahlere Offline
Member

Registered: 11/17/05
Posts: 514
Loc: New Jersey
you sir, are a gentleman and a scholar :-)

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