Charging for design/bids?

Tinman

I've never directly charged for the service of providing a proposal and the requisite design needed to put together that proposal. Many times, I'll wait until the job is sold before doing a load calculation unless its a quick and easy one. As far as I know, nobody in the Chicago area is charging for bids either. Most of them have salespeople on staff that work on commission so they don't need to.

I do all of our bidding and roughly half of our business is commercial boiler work...apartment buildings, churches, etc. Its extremely time consuming and if you get on a bad roll, that's a lot of work without anything to show for it. I don't think I can charge for the residential jobs but I need to find a way to charge for the commercial jobs.

I'm open to any and all suggestions if you're already doing this. PM me or send me an email if you can share hard numbers. Thanks.

Danny Scully

Step 1: stop thinking you "can't" charge.
Step 2: start charging.

Jamie Hall

Interesting question. The engineering firm for which I worked for a number of years did bid on jobs fairly regularly; so far as I know we never charged for working up the bid. Nor, when we were evaluating bids from contractors on jobs we had designed, did we ever pay them for that (in fact, there was always a charge for the contract bidding documents). On the other hand, our overhead multiplier on wages was 2.8 -- we didn't use much in the way of materials, so I can't tell you what our margin would have been on that.. Most of our work was fixed price, but some particularly odd jobs would be time plus multiplier (that 2.8 again).

Fred

What is your local competition doing? If they don't charge, I would think you might miss out on some opportunities by charging. Nobody want's to pay for a proposal if everybody else does it for free (at least what appears to be free). I'm sure your margins/overhead on the jobs you win cover the bidding costs on those you don't. Why add another obstacle to your opportunities (if others haven't already established the precedence)?

Tinman

All very good points, thank you. I do my best to cover it in overhead and then we get the expected question of "why are you so much higher"? For that, I'm well prepared.

What I see locally is that most companies have canned pricing for installations and replacements with the hope of coming out on top more times than not. That doesn't make sense to me. I approach every job as unique and I'm not going to change that so I invest the time on the front end to make sure we're not scrambling because I missed something on the bid.

Ironman

If a bid requires any amount of design work, then that's work and you should get paid for it. Typically on commercial, an engineering firm is hired to design and spec the job and it's put out for bid. If you're providing this service, then you should be compensated just like they would.

There's a difference between an "estimate" and an "exact". If someone wants an "estimate", then I'm not gonna spend a lot of time on designing. And, that's what they'll get: an estimate.

Here's how I approach it: If it's a job that's gonna require design work, a load calc, etc., then I simply tell the customer that. I tell them that due to the complexity, it's gonna require several hours (maybe days) of work to produce a design for bidding. I tell them that an engineer is normally hired to do this but that I can handle it and that I'll guarantee my design from which I can give an "exact" bid. I tell them that, of course, I'll have to charge for my time doing this but, that I'll also be happy to give them a rough, non-binding "estimate".

If they choke on the "estimate", then I know there's no use going any farther with them. If they say it's within their budget, then I say "great, would you like me to start the design process?" If they say "yes", I then get them to agree to my charge for that and put it in writing with them signing for it.

Depending on how much you trust them, you may want to ask for a "retainer" when they sign.

If they make changes to the design that costs you more time, then they have to pay more for the extra time.

You know your customers better than anyone else, so you'll have to modify the approach to fit your situation. But, "The laborer is worthy of his hire". Simply put: you should be paid for your work.

If it's one thing I've learned in my short life, it's this: people will take advantage of you as much as you let them.

Harvey Ramer

I do what Bob does.

Jamie Hall

I might add -- putting on my other hat, here -- that I, as a building super., would have no problem at all in paying for a professional -- such as it might be one of the Wallies! -- for their time in coming up with a redesign and bid on it. But then, as you all know, I'm a little weird...

Harvey Ramer

I've had people hang up on me when I replied "no" to to their request of a free estimate. And that's ok. I'm still busy.

ratio

I don't know what persuades people to call up and belligerently demand their free estimate. It boggles the mind.

Ironman

ratio said:

I don't know what persuades people to call up and belligerently demand their free estimate. It boggles the mind.

It's their greed and selfishness and the mindset that they're entitled to something free. It doesn't matter to them that someone else has to pay for it.

Rich_49

We do not perform free estimates either . Too much money lost . Consultation specifications and design are all paid for work . We sel these services and also let the customer know that they can then distribute the generated lists and calcs for bid to as many contractors as they see fit . The number on the bottom line is our guaranteed maximum price for that specific job , other contractors are all bidding the same thing . We also include vetting other contractors , and yes , I can be impartial . We have even helped a few get up to speed and better their knowledge base and systems .

Free is worth every penny you paid for it and Price is only an issue in the absence of value .

EBEBRATT-Ed

Steve, your probably like a lot of us, do the job right, picky ,and attention to details. that's what makes the job come out right. but it takes a lot of time to do that.

You probably have to take a modified approach.

quote the job without designing it and try "ballparking" the estimate with a little fudge built in if possible. it takes a little more guestimating. Maybe you can come up with a way to speed up your estimating to cut down on time.

then design the jobs you get.

Fred

There's two sides to every coin, guys and, as a customer, I likely wouldn't have any issue paying any of you, specifically, for a design. I might have for a quote, which I see as an opportunity for you to win business. There is a cost of doing business and if you cover the quoting process in your overhead, you are already being compensated for that. Additionally, we have all seen too many installations done here by companies who call themselves professionals and the finished product is a shame to the industry and a job that needs to be redone.
Price is not just an issue in the absence of value it is always a concern or there likely wouldn't be a bidding process. The REASONABLE customer wants the most value for a fair price but unless he/she is a PRO in your profession, they can't possibly know if they are getting what they are paying for. I suspect if Requests were let to six contractors you'd get six different designs, some of which would probably not even work. Of the remaining ones,which will best meet the need? The most Expensive? The mid range quote? or the least costly? It's a crap shoot unless the Customer is also a Pro.

In an perfect world, the Customer would:
- Educate themselves
- engage a Qualified Contractor (qualifying that contractor may be a challenge in and of itself) whose only role is to design the system, vet and qualify the bidding contractors, certify the final design.
- Develop an RFI (Request for information) for release to the short list of potentially qualified contractors (Administrative/licensing, insurance, workmanship aspects and warranties, Project management, any sub contracting/scheduling issues, payment terms, etc).
- Review and certify the Responses to the RFI.
- Develop an RFP (Request for Proposal) to those contractors who made the RFI cut. The RFI would include the proposed design.
- Review and revise the proposed Design based on the RFI responses, if warranted.
- Develop an RFQ (Request for Quote) to all contractors that made the RFP cut. All responses must apply to the final, published design , no modifications. Separate and Secondary responses can be submitted if the Contractor so desires.

There is a lot of work in this process and still the only Contractors being compensated is the one managing the Design/bidding process and the contractor finally awarded the business. Maybe some reasonable compensation awarded to any contractors who responded to the RFI with value added changes to the Design that get incorporated into the final design (Maybe a % of implementation savings and/or projected first year improved operating efficiencies).

The process would work for big and maybe medium sized jobs and customers with deep pockets but is cumbersome and probably not worthwhile for smaller ones (if risks can be managed).
At the end of the day, those contractors who don't want to engage simply don't have to and those who do engage have a shot at a significant opportunity and those customers who want to continue to take a shot in the dark can do so, using Contractors that may or may not be qualified and systems that may or may not be functional and efficient.
I also understand we don't live in a perfect world.There is a cost to doing business. I understand you have to protect your business but the customer also has his/her investment to protect also.
If you all got together and refused to bid any job unless you were compensated for the quote, could you survive?
Costs, as always is what the market will bear. Most HO and small businesses won't pay for a quote. Oh well, JMHO.

Harvey Ramer

@Fred
You are paying for the design bid no matter who you hire. You only see the bids.
Wouldn't you rather pay for a comprehensive design that you can do with what you will, and then get multiple bids on the very same design?

Fred

Harvey Ramer said:

@Fred
You are paying for the design bid no matter who you hire. You only see the bids.
Wouldn't you rather pay for a comprehensive design that you can do with what you will, and then get multiple bids on the very same design?

@Harvey Ramer I agree. As I said, I wouldn't have a problem paying for the design. I probably would have a problem paying for the quote(s) based on that design.

Jamie Hall

@Fred 's comments have some merit. Well, a good deal of merit. But I think part of the problem has to do with the scale of the job. To switch back to my engineer's hat for a moment, the process he describes is very like the normal procedure for larger jobs. That is, the client comes up with an idea or a need for a project. They then search out -- sometimes though a bidding process -- an engineering or architectural firm which has the job of designing the project and overseeing the bidding for the contractors (usually multiple) who will actually do the work. The architectural or engineering firm does this -- usually for a fixed and agreed fee, which is usually a pretty princely sum -- and in addition is usually hired to oversee the rest of the work, which is typically done for a percentage of the winning bid.

For smaller jobs -- such as almost all the ones we usually get here on the Wall -- I don't think that would work well. As I said earlier, if I am contemplating a job with a design element to it (as opposed to, for instance, "can you put another vent in on that pipe over there" or "will you come and clean and adjust my boiler") I would expect to pay for the design work. It wouldn't matter to me whether that payment was rolled into the overall cost of the job or billed separetly, but if I had requested a design and estimate up front, before hiring someone to actually do the work, I'd expect to pay for it separately, when the design was done. But, as I said earlier as well, I'm a little weird...

Gordy

Charging for a design, and then allowing that customer to get multiple bids off of your design made the playing field much easier for the customer, and you. Everyone is apples to apples. the bidders are using the same scope of work from the design, and the customer knows everyone is bidding to that design criteria.

In the end if you don't get the job, at least you were paid for the design.

Bottom line, charge them Stephen your worth every penny, and don't feel guilty. There are still people out there that believe they are getting more, and better when it's not free.

Jean-David Beyer

A workman is worthy of his hire. As a customer, perhaps a way for a professional to handle this is to charge for the design-estimate, but say that money can go as partial payment to the cost of the entire job, should they hire you to do the job. Since if you get the job, you have to do the design anyway. And if they are just window-shopping and wasting your time, or worse, give your design to a competitor, you at least get paid for your work.

Rich_49

Fred said:

There's two sides to every coin, guys and, as a customer, I likely wouldn't have any issue paying any of you, specifically, for a design. I might have for a quote, which I see as an opportunity for you to win business. There is a cost of doing business and if you cover the quoting process in your overhead, you are already being compensated for that. Additionally, we have all seen too many installations done here by companies who call themselves professionals and the finished product is a shame to the industry and a job that needs to be redone.
Price is not just an issue in the absence of value it is always a concern or there likely wouldn't be a bidding process. The REASONABLE customer wants the most value for a fair price but unless he/she is a PRO in your profession, they can't possibly know if they are getting what they are paying for. I suspect if Requests were let to six contractors you'd get six different designs, some of which would probably not even work. Of the remaining ones,which will best meet the need? The most Expensive? The mid range quote? or the least costly? It's a crap shoot unless the Customer is also a Pro.

In an perfect world, the Customer would:
- Educate themselves
- engage a Qualified Contractor (qualifying that contractor may be a challenge in and of itself) whose only role is to design the system, vet and qualify the bidding contractors, certify the final design.
- Develop an RFI (Request for information) for release to the short list of potentially qualified contractors (Administrative/licensing, insurance, workmanship aspects and warranties, Project management, any sub contracting/scheduling issues, payment terms, etc).
- Review and certify the Responses to the RFI.
- Develop an RFP (Request for Proposal) to those contractors who made the RFI cut. The RFI would include the proposed design.
- Review and revise the proposed Design based on the RFI responses, if warranted.
- Develop an RFQ (Request for Quote) to all contractors that made the RFP cut. All responses must apply to the final, published design , no modifications. Separate and Secondary responses can be submitted if the Contractor so desires.

There is a lot of work in this process and still the only Contractors being compensated is the one managing the Design/bidding process and the contractor finally awarded the business. Maybe some reasonable compensation awarded to any contractors who responded to the RFI with value added changes to the Design that get incorporated into the final design (Maybe a % of implementation savings and/or projected first year improved operating efficiencies).

The process would work for big and maybe medium sized jobs and customers with deep pockets but is cumbersome and probably not worthwhile for smaller ones (if risks can be managed).
At the end of the day, those contractors who don't want to engage simply don't have to and those who do engage have a shot at a significant opportunity and those customers who want to continue to take a shot in the dark can do so, using Contractors that may or may not be qualified and systems that may or may not be functional and efficient.
I also understand we don't live in a perfect world.There is a cost to doing business. I understand you have to protect your business but the customer also has his/her investment to protect also.
If you all got together and refused to bid any job unless you were compensated for the quote, could you survive?
Costs, as always is what the market will bear. Most HO and small businesses won't pay for a quote. Oh well, JMHO.

This is exactly what we do Fred . It works and wasted or uncompensated time has fallen to almost zero .

Stephen ,

This approach works . The RFI step is where I and my partners vett potential contractors . Very few get through and the bidding pool shrinks substantially . I do review others bids if the home / building owner requests . Most folks end up realizing or asking , " why would I waste my time allowing others to do the work when the guy that designed it is available . There is also another possible revenue stream in designing and offering this service in remote locations where you will not perform the work but can offer a bit of piece of mind to builders / homeowners who are leary of the local pools capabilities . We always start with educating them about the pitfalls . I usually send along links to nightmares that we discuss here , usually right in the same geographic area as the prospective client is from . Many of the jobs I do actually originated from here from those who have followed discussions and decided to use ny contact information , those folks already know that they might really need a designer / consultant .

Stop workin for free

Gordy

^Perfect @Rich !

Paul Pollets

This topic has surfaced many times over the years. Giving "free estimates" lowers the bar. Professionals get paid for their services. A site visit and/or plan review takes at least 2-6 hours for most residential projects under 4K sq ft. Who can afford to give away that amount of time un-reimbursed?

ChrisJ

I don't know what's normal, or what you should do.

What I do know is I wouldn't drive out to some dude's house and spend my time there looking at things for free. I just wouldn't.

I don't know how much is fair, but zero isn't fair for you.

Tinman

I appreciate all the input, everyone. The education never stops. I have much more to go on now and all these ideas and suggestions will be put to paper. From there, a plan, and then executing the plan.
Thank you.

Tinman

"Free Estimates" has been removed from our website and our company policy. Step 1 - complete.

Gordy

When approached right it gives your business a level of transparency.

Tinman

Agreed. I've spent the last 3 hours getting the services organized and assigning pricing for these services.

jumper

Depends on the customer. Somebody like UnionCarbide or Kodak won't orphan you when you provide unbilled proposals. But a guy in a tough business like a commercial laundry? He rather use his staff or his brother-in-law rather than pay you.

Also there's danger in taking money. Your work becomes part of the job even when you don't do it. If there's an expensive problem or legal trouble, people are desperate to blame somebody else. So even though the work brazenly does not conform to your specifications you get dragged into a messy process. Ever try to explain a technical issue to a layman?

Jamie Hall

On the other hand, @jumper , if you provide a written bid and design and specs., and there is evidence, like a bill, that you actually put some work into it and didn't just wing it, and someone builds it otherwise, you have a usable defence. If it's just your word...

Fred

Also, if the documented design meets industry accepted standards/practices, the individual/company that did the design is at little risk. It probably is always wise to have a Disclaimer on all specs/designs that says: Not responsible for any deviations to these designs/specs,without prior written approval of the Designing Company, any Third Party workmanship, quality of materials used or system components used by any third Party.

jumper

Technically true,Jamie,and a good idea,Fred. It's still too bad for me when a plaintiff lawyer gets involved. When a building suffers an expensive problem even if it has nothing to do with you your liability insurance rate increases. So like I say one's policy regarding charging for proposals should depend on what customer. I used to think that collecting a sufficient fee for design only was an easy business. But when something gets truly messed up you can spend way too much time for stuff that you won't be compensated for.

Tinman

I put my designs on the line for every install we do just like all other contractors. I don't know if I am trusting enough of others to execute my design properly. Ok, yes I do know. I'm not.

EBEBRATT-Ed

Hold on. You have to be very careful with this design stuff. I don't know about other states but I know MA law.

If you design a system and install it with your own company (design and installation by the same company) then your ok.

If you design for others.......don't do it.

If you do you are offering your services to the public as a design engineer and you need to be a PE.

You can't design for others to install.

Jamie Hall

@EBEBRATT-Ed is right; the specific thing is "design for your own company" and "design for others". However, if you created the design for you own company with no intention or contract to provide it to others, you should be clear of that particular problem. Note. Should be.

And, of course, that's part of why engineers carry Errors & Omissions insurance, which is really really expensive!

Tinman

I was just responding to the fact that is was brought up by others. I just want to get paid for my time on my jobs. But for all intents and purposes, I see pros designing systems for amateurs and other pros all the time via the World Wide Web.

Fred

Cal it an " Implementation Plan" or an "Execution Plan" it's all based on the manufacturer's design and intended use of the various components. That Implementation/Execution Plan may even be perceived by the Customer to have more value than a "Design"

GW

I'm a more simple man. Easy job, any schmoe can do it, homeowner likely doesn't have much care or worry.. sure, some schmoe will oversize your furnace or boiler, or install it poorly, but hey, they hired a schmoe
Medium scale job: all schmoes will quote but some pros will point out to the homeowners some matters of concern. Homeowners may put 2 and 2 together and hire the pro.
Complex job: the homeowners likely realize they need a pro. Most schmoes will still quote. Some pros will either charge of a quote or give a cost range while asking for a deposit to proceed with design work.

Everyone has their own MO on this topic, we can't get miffed at others that may do business that we don't necessarily approve of.

Gary

Gordy

I have a high degree of confidence Stephen has a business plan, and knows how to implement his "new" business plan. He saw a problem in his model, and wants to correct it. First step kudos to him.

Tinman

Thanks @Gordy. I like to keep things simple too, @GW. But when I see a problem, I like to fix it. That's all I'm trying to do.

jumper

Like I said design only can look like easy $. A guy once paid me to obtain a permit for replacing boiler. RayPak did most of the work for me. But the customer didn't buy the RayPak nor for that matter did he use my design. When the schmoe job didn't work......

Tinman

Unbillable hours causes angst.