Covering for cost increases on proposal

[brantmacga]

I haven’t had an issue with this yet because most of the stuff I bid is fairly small, but it’s something that’s been on my mind.

I do bid and get some larger projects here and there, and I’m curious what others do in case there is a drastic increase in commodities pricing (copper, steel, etc....)

My supplier quotes are good for 24/hrs, and I expire my proposals after 30 days.

I recently bid a job (that I did not get) that was just over $2M, and about 2/wks after the deadline, and before a contract was awarded, the material cost went up by $20k.

I need to be including some sort of language to account for this. We obviously wouldn’t have signed a contract knowing the cost went up by that amount, but how do others approach this? Is it as simple as saying, “I can’t do it for this amount now.”

I don’t know how the GC’s cover for this on their end but certainly they must.

 

[petersonra]

You can try to put some weasel words in your proposal language to cover this kind of thing but if you have this language in your contract and somebody else doesn't there's a good chance this will be not looked upon favorably by the person evaluating the contract. For most of the stuff that we buy the prices are held by the distributor for 30 days except for things like wire and pipe and strut. But it is a small enough part of what we do that doesn't really matter much if the price goes up a little. You can sometimes get price guarantees from either the distributor or the manufacturer if you ask. It has to be a big enough contract to make it worth their while to do that but the chunks they're willing to do are often surprisingly small. I bought as little as $10,000 worth of strut and the manufacturer held the price for us for 60 days and gave us a pretty good deal on the pricing too.

 

[Fulthrotl]

I haven’t had an issue with this yet because most of the stuff I bid is fairly small, but it’s something that’s been on my mind.

I do bid and get some larger projects here and there, and I’m curious what others do in case there is a drastic increase in commodities pricing (copper, steel, etc....)

My supplier quotes are good for 24/hrs, and I expire my proposals after 30 days.

I recently bid a job (that I did not get) that was just over $2M, and about 2/wks after the deadline, and before a contract was awarded, the material cost went up by $20k.

I need to be including some sort of language to account for this. We obviously wouldn’t have signed a contract knowing the cost went up by that amount, but how do others approach this? Is it as simple as saying, “I can’t do it for this amount now.”

I don’t know how the GC’s cover for this on their end but certainly they must.

gc's normally contain costs by beating their subs down.

20k on 2m is 1%. if you are bidding stuff where a change of 1% is a problem,
you need to evaluate your bidding strategy.

some people will, and should put language in their bid so if catastrophic unforseen
things happen you can adjust the bid.

in 2005, i was a PM for an A contractor, putting in a 2,500 acre devopment, roads sewers,
and utilities.

then, katrina hit. took out all of the gulf coast, where PVC is born. within a week 2" schedule 40
pvc touched the price of 2" GRC. the EC's pvc bill exceeded his entire contract. i looked at his takeoff,
and had my wholesale house price it. he was that upsided down.

he had *not* signed his contract yet. in a private conversation, i suggested as it was a green book
job, he could re negotiate under the "acts of god" stipulation..... he'd a got a fair price, we'd have
passed the increase on to the city developing it, and everyone would have survived the hit.

he was concerned about having to do that, and signed the contract. i still don't know why he did that.
he went broke halfway thru the job, and we had to use his bond to finish the work.

sometimes sparkies don't bid well. my suggestion is to put enough in the bid to
cover oopsies, as they happen. if you don't get the work, bid something else.
if you aren't getting any work, either race others to the bottom, or find a niche
you can thrive in.

 

[brantmacga]

20k on 2m is 1%. if you are bidding stuff where a change of 1% is a problem,
you need to evaluate your bidding strategy.

1% of the job sure, but certainly not the profit margin. 20 grand is 20 grand.



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[petersonra]

gc's normally contain costs by beating their subs down.

20k on 2m is 1%. if you are bidding stuff where a change of 1% is a problem,
you need to evaluate your bidding strategy.

some people will, and should put language in their bid so if catastrophic unforseen
things happen you can adjust the bid.

in 2005, i was a PM for an A contractor, putting in a 2,500 acre devopment, roads sewers,
and utilities.

then, katrina hit. took out all of the gulf coast, where PVC is born. within a week 2" schedule 40
pvc touched the price of 2" GRC. the EC's pvc bill exceeded his entire contract. i looked at his takeoff,
and had my wholesale house price it. he was that upsided down.

he had *not* signed his contract yet. in a private conversation, i suggested as it was a green book
job, he could re negotiate under the "acts of god" stipulation..... he'd a got a fair price, we'd have
passed the increase on to the city developing it, and everyone would have survived the hit.

he was concerned about having to do that, and signed the contract. i still don't know why he did that.
he went broke halfway thru the job, and we had to use his bond to finish the work.

sometimes sparkies don't bid well. my suggestion is to put enough in the bid to
cover oopsies, as they happen. if you don't get the work, bid something else.
if you aren't getting any work, either race others to the bottom, or find a niche
you can thrive in.

there is a huge difference between an act of god situation and the "normal" price fluctuations of this kind of commodity.

i wonder what the other bidders are doing to protect themselves.

 

[Besoeker]

I haven’t had an issue with this yet because most of the stuff I bid is fairly small, but it’s something that’s been on my mind.

I do bid and get some larger projects here and there, and I’m curious what others do in case there is a drastic increase in commodities pricing (copper, steel, etc....)

My supplier quotes are good for 24/hrs, and I expire my proposals after 30 days.

I recently bid a job (that I did not get) that was just over $2M, and about 2/wks after the deadline, and before a contract was awarded, the material cost went up by $20k.

I need to be including some sort of language to account for this. We obviously wouldn’t have signed a contract knowing the cost went up by that amount, but how do others approach this? Is it as simple as saying, “I can’t do it for this amount now.”

I don’t know how the GC’s cover for this on their end but certainly they must.

Get your supplier to validate his quotation for the same period you do for your customer or go elsewhere.

 

[brantmacga]

Get your supplier to validate his quotation for the same period you do for your customer or go elsewhere.

24/hr pricing is standard across all of the suppliers here; it’s coming down the line from the distributors.


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[GoldDigger]

24/hr pricing is standard across all of the suppliers here; it’s coming down the line from the distributors.


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In the case of major market fluctuations or Acts of God, I can see the supplier being no more able to absorb an unforseen price increase than the contractor, so long term fixed price quotes are going to be very unlikely.

 

[kwired]

24/hr pricing is standard across all of the suppliers here; it’s coming down the line from the distributors.


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Surely just on commodity items wire/cable, strut, raceways.

If you want a price on switchgear, MCC's, panelboards, even lighting products you might be waiting a month to even get that equipment on some large projects.

 

[cdslotz]

I haven’t had an issue with this yet because most of the stuff I bid is fairly small, but it’s something that’s been on my mind.

I do bid and get some larger projects here and there, and I’m curious what others do in case there is a drastic increase in commodities pricing (copper, steel, etc....)

My supplier quotes are good for 24/hrs, and I expire my proposals after 30 days.

I recently bid a job (that I did not get) that was just over $2M, and about 2/wks after the deadline, and before a contract was awarded, the material cost went up by $20k.

I need to be including some sort of language to account for this. We obviously wouldn’t have signed a contract knowing the cost went up by that amount, but how do others approach this? Is it as simple as saying, “I can’t do it for this amount now.”

I don’t know how the GC’s cover for this on their end but certainly they must.

GC's don't cover for this. Your price is your price for 30 days.

When you are bidding large jobs, you should know the feel of the market because of constant contact with distributors. We would have outside sales people from various supply houses roaming our offices every day.
They would usually warn you about commodities going up or down.
Then we would consider this when summarizing our bids on bid day. Quoted items were never a problem of holding their price.
Suppose on your $2M job example had the price gone down $20K? You going to give that to the GC?

 

[petersonra]

As a small timer he does not have all that much clout. But on a $2 million project there should be enough material to grab the interest of suppliers if handled correctly.

If he is dealing with the counter guy, he probably can't get much of a better deal. If he wants to do better he is going to have to deal more with the account managers and the suppliers more directly. I am always amazed at how prices can come tumbling down once you get past the counter guys. I am pretty much convinced the counter guys main job is to make you feel guilty about price shopping.

 

[gadfly56]

there is a huge difference between an act of god situation and the "normal" price fluctuations of this kind of commodity.

i wonder what the other bidders are doing to protect themselves.

A few years back we engaged an EC to run EMT/flex and pull cables for a fire alarm retrofit. He has a clause in his proposal that he was basing his price on $xx/ft for various cables tied to the spot price for copper, with yy feet on the project. We passed that along to the customer and they didn't complain. Copper prices were very volatile at the time.

 

[RumRunner]

I haven’t had an issue with this yet because most of the stuff I bid is fairly small, but it’s something that’s been on my mind.
I do bid and get some larger projects here and there, and I’m curious what others do in case there is a drastic increase in commodities pricing (copper, steel, etc....)
My supplier quotes are good for 24/hrs, and I expire my proposals after 30 days.
I recently bid a job (that I did not get) that was just over $2M, and about 2/wks after the deadline, and before a contract was awarded, the material cost went up by $20k.
I need to be including some sort of language to account for this. We obviously wouldn’t have signed a contract knowing the cost went up by that amount, but how do others approach this? Is it as simple as saying, “I can’t do it for this amount now.”
I don’t know how the GC’s cover for this on their end but certainly they must.

Companies sending out “Invitation to Bid” on projects, are just as aware as everybody else of the volatility of the market.
Just because a contractor came up with the lowest bid is not a guarantee that he will be awarded the contract.

This may not apply to small projects, but when you are dealing something that involves substantial amount of money. . . companies that are bidding out jobs also consider whether the lowest bidder could finish the job based on the bid price. Owners also have their own engineers, economist evaluating unforeseen events that could happen.


Of course one can argue that the EC may have bond or “Completion Insurance” but companies/owners would rather not go this route if they can help it.

 

[JFletcher]

1% of the job sure, but certainly not the profit margin. 20 grand is 20 grand.



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While I agree with you, I'm more in agreement with Randy's reply. $2000000 is a pretty huge job, and you should be able to recover it elsewhere, such as limiting overtime minimizing mistakes waste Etc

The largest job I have worked where material prices changed rapidly involved about 85,000 feet of communication cabling. This was back in 2008 were copper prices soared. I believe the material cost was close to 40% higher by the time the job was cabled then when the job was bid. Some of the cost was absorbed by the company already having cable on hand, and the rest was compensated for by more efficient installation practices, which wasted less wire and wear faster to install. While some profit was lost on that job the more efficient ways were carried on to Future projects resulting in very drastic cost-saving measures over the old style of doing things.


Last year, we wired a city wash station that required two sets of three phase 500 MCM, full size neutral and 4/0 ground, run almost 400 ft. Wire prices changed enough from the time the job was spec to the time of job was wired to cost almost an extra $2,000 in wire cost alone. the gentleman I was working for at the time wound up eating it, and was not happy about it.

 

[Ingenieur]

2 mil div 16 is not a small job

what kind of job allows you to back out of a bid and not honor it if you are low and within the valid period of 30 days?

no bid bond?

you need your suppliers to guarantee their quotes for the same period as you
or until you get the notice to proceed and guarantee them that if you are awarded you will buy from them

 

[kwired]

2 mil div 16 is not a small job

what kind of job allows you to back out of a bid and not honor it if you are low and within the valid period of 30 days?

no bid bond?

you need your suppliers to guarantee their quotes for the same period as you
or until you get the notice to proceed and guarantee them that if you are awarded you will buy from them

You would think a supplier would be more willing to stand for a longer time on a quoted amount for a million dollar sale then for a thousand dollar sale.

 

[Ingenieur]

doesn't make sense

when the buyer quotes he likely (or the mfg) has already bought the material so the price is fixed
likely on the shelf or in the warehouse, or at least the raw materials are procured

if the price on FUTURE goods increases it sounds unethical (illegal?) to jack the price on present goods

not talking 6+ months, but at least 60 days
takes that long to settle contracts
if it was based on daily price fluctuation it would be next to impossible to conduct business

 

[kwired]

doesn't make sense

when the buyer quotes he likely (or the mfg) has already bought the material so the price is fixed
likely on the shelf or in the warehouse, or at least the raw materials are procured

if the price on FUTURE goods increases it sounds unethical (illegal?) to jack the price on present goods

not talking 6+ months, but at least 60 days
takes that long to settle contracts
if it was based on daily price fluctuation it would be next to impossible to conduct business

Your commodity items - wire, cable, conduit, strut, are the most subject to daily fluctuations and sudden price changes. Switchgear, breakers, motor starters, lighting fixtures, etc. usually won't make as sudden price changes when the commodities used to make them change as there is more involved in their cost then then mostly just the commodity items they are made of.

Steel conduit can make price jump at times but fittings usually seem to remain more stable.

PVC conduit also seems to vary in price but fittings usually remain more stable in price.

Loadcenters may vary some with steel prices, but circuit breakers to install in them usually remain more stable in price.

 

[George Stolz]

Heck, sunset it in 24 hours, they're not signing yours anyway... :lol:

 

[ptonsparky]

My daughter works in the A/C world with a major supplier. The roof curbs alone for their units were looking at an immediate 45% price increase a week ago. IDK how it turned out.