business development

#242 The Winning Bid

Click on the image to go to the source.

Click on the image to go to the source.

The title of this post is incredibly ironic. I don't really know what it takes to put in a winning bid on a large project. As of right now, I've worked on a number of smaller projects where it is likely that no one else was bidding. I was contacted directly by the client or the proponent. In the last 16 months, however, I've lost about 10 large proposals for projects on Bureau of Land Management Land (BLM) in Nevada. Let's examine the last two and try to figure out why.

First, a word about RFQs

The proposals I've written or have been a part of were Request for Quotes (RFQs) issued by the Nevada BLM. They are released under the Government Service Administration (GSA) program so you have to be a GSA contractor to bid on them. The requirements for getting on the GSA Schedule, as it's called, are very strict and expensive. Right now my company doesn't qualify on its own.

About a year ago I was contacted by a GIS firm that found me on LinkedIn. They were looking for a small-business archaeology firm in Nevada so they could bid on the projects here. The southern California firm and I began submitting proposals together right about the time the government decided to shut down. 

One of the big requirements of the BLM RFQs is Past Performance. They require references for past work of a "similar scope and type" as the one you're bidding on. Oh, and they like it to be "relevant" which means it happened in the past three years. They have a provision for new companies like mine where you can claim "Neutral Past Performance" but, I think that's most likely some sort of cruel joke.

Pine Nut - The WTF Award

On all of the proposals I've lost I was underbid. In fact, when you ask who they awarded the project to, pretty much all they say is who won and how much they bid. This last one though, the Pine Nut (don't bother with the name, it's a placeholder), was absolutely absurd. Lets go over the numbers.

The Numbers from the BLM

Here are the basics of the Scope of Work:

  • 3,430 acres
  • 13 discontiguous, irregularly-shaped, areas
  • Rough terrain
  • In an area with MASSIVE mining activity from the mid-1800s on
  • In an area with a high amount of obsidian and obsidian-related prehistoric resources

DIGTECH's Numbers

Most of you probably know about the difference between an hourly rate and a billable rate. For those of you that don't, no worries. I didn't know what the difference was for the first few years I was in CRM. Your hourly rate is exactly that, the pay you get per hour. Of course, the state and the Feds take their cut, but, that's between you and them, not the company you work for. The billable rate, however, that's where it all happens.

The billable rate is the amount the company charges the client for each hour you work. As a field technician, you might get $15 per hour, but, your company is billing you to the client at $50 per hour. WTF? You might say. That extra $35 is what pays for your employment taxes, office space, trucks, Trimbles, unbillable office people (secretary, accountants, etc.), and myriad other overhead expenses. It's also where the profit comes from. 

I've heard that many firms use a "multiplier" to determine the hourly rate so everything is even across the board. For example, if you make $15 per hour, your billable, with a multiplier of say 2.5, would be $37.50. More likely, it's way higher than that. The billable rate is also likely based not on what you actually make, but, on the high end of the range for your position.

Here are DIGTECH's hour and billable rates:

  • Field Technician
    • Hourly average: $20
    • Billable: $35
  • Crew Chief
    • Hourly average: $23
    • Billable: $38
  •  Project Manager
    • Hourly average: $26
    • Billable: $40
  • Principal Investigator
    • Hourly average: $28
    • Billable: $45

Sites and Coverage

The two biggest factors in determining what you'll bid for a project, aside from billable rates, relate to how fast you can get the project completed. That is determined by two things: the number of sites already in the area combined with the number of sites predicted, and, the amount of land one person can cover in a day.

The number of sites here in Nevada are generally predicted by using the online site system called NVCRIS. It's accurate to about 4-5 years back but is a good way to get a general idea about the area.

Coverage is where companies really start using shady math. I have a spreadsheet where I type in the variables: total acreage, number of people, and hours in a day. Once I type in the "Acreage per Day per Person" I get the number of person days and the total number of days to complete the project. One company I used to work for put in 40 acres per day and drastically underbid a project. The reality was about 15 acres per day due to a high site density.

Because of the terrain and potential for a high number of sites and challenging mining complexes I put in 20 acres per day. Even that was probably overestimating. Once the other costs, such as per diem, vehicles, and tablets were entered, and the costs of actually processing data and writing the draft and final copies of the report were entered, my spreadsheet came up with a value of about $88,000. Remember, I had a GIS firm as the prime, so, they entered their numbers. Once they entered their "discounted rates" for GIS work at $80 per hour and an overall project management rate of $100 per hour, the total proposed cost came out to $120,000.

The winning bid was $78,000. WTF?

How did they do that?

So, what the hell happened? If all the other factors stayed the same, I would have had to increase my acreage per day to almost 45 acres to bring my cost down to that price point. Even if the GIS was half the cost and I kept my acreage at a realistic level my overall proposed cost still wouldn't have been close. Either the bid winner thinks they can cover more ground than is humanly possible, or, some of the principals are working for free. I don't know what it is. I do know that when a company gets stressed out because there isn't enough work coming in that they'll do whatever they can just to make payroll. Even if they don't make a profit on the project, they'll probably be able to hand out paychecks for another month as a result.

Maybe that's what happened, or, maybe not. I don't know. I do know that I simply won't inflate my acreage per day just to win a project. It's shady and it ultimately costs the taxpayer more money when work has to stop for the filing of a change order.

The Spruce RFQ

I'll only briefly mention the other project I lost. My bid was $130k and the winning bid was $120k. Again, I think it's a "trying to make payroll" issue because I know for a fact that the bid winner has higher billable rates than I do. They must be slightly inflating what they think they can accomplish. 

This, my friends, is called "underbidding" and we all complain about it. The reasons for it are as varied as the ways it can be done. Does anyone bitch when they're employed? Probably not. They may only have that job, however, because their employer underbid the project. It would be nice if we had regulated billable rates, or at least ranges. That way, the only differing factor would be the speed with which the project is completed. That has it's own problems, though.

In the end, I think I'll have to partner with another archaeology firm in order to get ahead in this business. Either that or just focus on app development and education. I'm actually good at that stuff!

Thanks for reading and I'll see you in the line for soup!!