How to Avoid Getting Fooled When Evaluating Refractory Contractor Bids
As a refractory contractor focused on installation, maintenance and mechanical work, we’re used to filling out Request for Proposals and cost grids. These are extremely helpful for industrial manufacturing purchasing departments to use to compare unit pricing and select the lowest bid.
But sometimes, these end up hurting you.
How is that possible?
First, let us clarify that we completely support manufacturers’ efforts to obtain the lowest possible total project cost. We need manufacturers to be successful and rely on long-term relationships, and avoid the (sadly, common) questionable practices to make as much profit up front as possible. 98% of our customers have used us for a repeat job, so honesty and transparency are extremely important to us. We’re always trying to provide the lowest total solution cost, because that’s what our long-term clients value.
But as the use of RFP templates and price grids has increased over the years, we’ve seen the unintended effect of making it more difficult for a manufacturer to determine the lowest total solution cost, sometimes steering them toward the highest cost solution.
This arises from:
- Comparing apples to oranges
- Underestimating installation time
- Allowing the contractor to be vague
- Not factoring in all costs
- Selecting an inappropriate installation method
- Not adhering to deadlines
- Not accounting for waste
- Avoiding proper safety procedures
We don’t mean to be critical of this approach; we wanted to share some recommendations that you can use to avoid making a mistake that will hurt your company down the road. We’ve just seen it too many times over the years, when a short-sighted analysis of job requirements at the front-end leads to equipment failure and unscheduled downtime.
Here are 8 tips to avoid getting fooled when reviewing your refractory contractor bid:
-
Comparing Apples to Oranges
This is common. We’re all busy. It’s human nature to quickly scan a proposal to find the total cost. When Vendor A’s quote is $500,000 and Vendor B’s quote is $510,000, Vendor A is commonly chosen, when Vendor A’s bid doesn’t match the elements of Vendor B’s bid. (And sometimes, Vendor B’s bid is truly lower). The bottom-line number is simply a summation of all of the components, so to avoid this trap, review each bid component and ask vendors to bid on identical services / products.
-
Underestimating Installation Time
Some of our customers have enough experience to properly estimate the job timing requirements, even though they are not contractors. Others don’t, and will tell us (or other vendors) what timeframe should be used to complete a job. This is challenging, because if we bid the time that the job will actually take, we’re stuck in the Apples to Oranges trap, and if we bid on the underestimate of time, the job won’t be completed safely.
-
Allowing the Contractor to be Vague
It’s common for some contractors to not specify which materials they’ll use during installation. When you see language like “We’re going to use a high-end castable,” or “anchors” ask which specific castable and which specific type of anchor? There are variances in costs and vagueness leads to the Apples and Oranges trap and can make a huge difference.
-
Not Factoring in All Costs
Unscrupulous contractors may leave out specific costs and try to sneak them in with change orders during the job. The best way to compare bids is to ensure that each vendor has addressed each item of the job, including freight FOB points, specific equipment requirements (is the forklift or air compressor necessary included or will this be a “change order”?), utility and connection requirements and who is responsible, disposal of debris, site-specific safety requirements and, most important, payment terms.
-
Selecting an Inappropriate Installation Method
There’s no perfect installation method, but there’s almost always the best installation method for a specific job. Selecting a lower-cost installation method that won’t last as long or causes potential safety issues almost always ends up costing you more over a 12-month or 24-month period.
-
Not Adhering to Deadlines
Having deadlines on your RFP is a good way to start a working relationship with a new vendor. It’s easy for contractors to provide price sheets or vague cost estimates, but it takes time and resources to prepare a properly-designed solution for a big job. If your contractor invests the resources to meet your deadline, that shows their respect for your timelines and a desire to win the job. Extending deadlines for others might allow a contractor that doesn’t have the right resources for your job to put together an attractive bottom line price. Every legitimate contractor wants to complete the job as soon as possible, if not sooner. Ridiculous and unreasonable timeframes benefit no one and make an objective comparison difficult at best.
-
Failing to Account for Waste
This isn’t as common as the above items, but make sure that you understand and compare the total volume of material you will be purchasing, instead of the just the amount that’s actually installed. Review the verbiage in your bid to ensure that your contractor has quoted the full amount of material required for the job.
-
Avoiding Proper Safety Procedures
Safety is paramount for every job. Different contractors apply different levels of safety precautions, so be very specific about your plant’s safety requirements. And if safety truly is important, and it should be, make it part of the evaluation process. A low-bid from a contractor with high recordables and high incidence rates should be factored into the process and a contractor with a safe record should be super-scored when compared to other bidders. Some of our clients use a 3-5% range. If the proposal is 3-5% higher than low bid, but the company’s safety information is better they will lean toward choosing that contractor. Otherwise, what’s the use in having your contractor compile and submit all of the safety and pre-qualification information if you’re not even going to consider it while evaluating proposals?
At F.S. Sperry, it’s our practice to provide a quote for a full solution, done the right way, that provides the safest and lowest total cost of ownership. As you can probably guess, this often results in our quote being higher than other bids. If our competitor can produce the same quality installation and product at a lower rate, we’ll suggest that you go with them.
However, we’ve sadly seen good people lose their jobs and companies lose significant amounts of revenue due to downtime because of cutting corners in the RFP process. That’s why we wrote this article.
Don’t hesitate to talk to us if you’re unsure about the true requirements and costs for your job.