Bidding for a big project: a nightmare or a golden opportunity? Check this 10-point list before taking the risk!

Increased financial risk

"As contractors bid on bigger projects, the financial risk increases," says Tim Holicki, senior executive at The Hartford. "There are more subcontractors to manage, more materials to procure, and that adds to the financial risk." Holicki explained that if a contractor fails to complete a project, the consequences could be serious, even bankrupt. "A large, unprofitable project is the fastest path to bankruptcy," he added. Before deciding to bid on a large project, Holicki recommends reviewing the following 10-point checklist. "This list helps contractors consider what to consider when bidding on a large project," he says.

10 factors before bidding on a major project:

1. Is the project suitable for the company?

• Let experience guide the types of large projects you bid on. For example, if you've built a 5km bridge and are looking to bid on a 20km bridge, consider how your company has expanded its experience and capabilities in the past.
• "We advise contractors to carefully consider past experience and reflect on past successes to ensure this leap is not too large," Holicky advised.
• Also assess whether past successes can be applied to the larger project under consideration.
• Holicki warns that in today's economy, normal-sized construction projects will seem bigger due to inflation. "Things you used to do don't cost the same. Inflation affects the cost of large projects."

2. Evaluate the company's capabilities:

• Carefully consider your own skillset as a leader, as well as the company's capabilities, before bidding on major projects. "Don't take on a job that's too big for you." Holicky said

3. Impact on cash flow:

• Big jobs can disrupt a company's cash flow and impact existing projects. The costs associated with big jobs are often higher than a company is used to, says Holicki. "Your company will need to set aside money upfront before it gets paid."
• "Help plan for the impact by increasing working capital, applying for credit lines from banks, or increasing your existing credit line," he said.

4. Evaluate the internal control system:

• Larger projects require a robust and comprehensive project management and accounting platform or program. Before bidding on a large project, make sure your company has the tools and technology necessary to scale up for larger projects.
• For example, your company may need tighter financial controls to manage expenses and monitor budget variances as close to real time as possible.

5. Check the standard employment contract:

• Before bidding on a major project, review standard contracts with subcontractors to see if any adjustments are needed to reflect the higher insurance limits.
• "You rely on others to carry out the contract with the owner, and if one of the subcontractors fails, it's a big problem for you," Holicki explains.
• Another factor to consider is whether the project is located in an urban area, which poses a greater risk to outsiders.
• For example, if 1,000 people walk past a construction site per day, your company might need additional insurance to protect itself from liability for unexpected events that might occur.

6. Find quotes from multiple subcontractors:

• When bidding on a large project, it is a good idea to request quotes from several subcontractors to determine the final project cost.
• "If you have only one bid for a sub-sector, you risk getting the bid price wrong," Holicki said.
• "But if you have five quotes with similar prices, you have the correct project cost."

7. Assess whether the current subcontractors are still qualified:

• If you're bidding on a much larger project, the subcontractors you typically rely on may not have the sophistication or technical knowledge to handle the large-scale work.
• Holicky recommends conducting a requalification assessment for the subcontractors you regularly use to ensure they meet the requirements for larger projects.

8. Make sure your team leader is committed to the project:

• Sometimes contractors will hire new employees with specialized experience before bidding on major projects.
• If your company's ability to execute a large project depends on a new project team, make sure they plan to stay with your company for the duration of the project.

9. Evaluate existing obligations:

• Before bidding on a major project, make sure you have sufficient resources to perform the work on the current contract.
• It is important to assess your capabilities to determine whether it is reasonable to take on additional large projects while still meeting the demands of the contract.

10. Be careful not to set the price too low:

• Large projects require longer periods of time and involve many unpredictable risks. Are you expanding your organization to meet the demands of large, long-term projects?
• Project risks may not arise at the beginning, but may arise 8 or 10 months after the project has started, because the cost of materials and labor was set for almost a year ago.
• Rising inflation and supply chain disruption make pricing big jobs more difficult.
• "Big projects take time, and you're pricing in the future," Holicki said.

summarize:

Bidding on large construction projects requires careful consideration. The 10 factors listed above are just the beginning of a comprehensive due diligence process. Before making any decisions, it is important to consult with financial experts, lawyers, and insurance professionals to assess the risks and opportunities associated with large projects.

Additional instructions:

• Study the project information in detail.
• Talk to the project owner to understand their expectations.
• Analyze the risks associated with the project
• Develop a risk management plan
• Create a realistic budget
• Be prepared for questions that may arise from the project owner.
• Find a construction material supplier that supports project-level work and has a dedicated sales representative to oversee it.If you don't have one yet Contact our sales team for dedicated support.

Bidding on large construction projects can be an exciting opportunity for your company. But we must be carefully prepared to deal with any challenges that may arise. Source:

• The Hartford Global Specialty Insights Center: https://www.thehartford.com/
• Construction Industry Institute: https://www.construction-institute.org/
• Associated General Contractors of America: https://www.agc.org/