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Author Topic: Future proofing your bid..  (Read 4565 times)

Rain Jaudon

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Future proofing your bid..
« on: July 17, 2008, 04:25:54 pm »

How do you guys word this?

For example, I have a bid Im writing this month.
Church will not break ground for a few months.
And construction will not be ready for installation for at least a year and a half.

How do you cover your bid for subsequent price increases between the time you write the bid and when the gear is actually ordered when its going to be at least a year?

Thanks
Rain
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Multitude Audio
Subcontracting under Magnolia Music Center
Audio Visual Installation and Service
Gulfport, Ocean Springs and Pascagula, MS

Hal Bissinger/COMSYSTEC

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Re: Future proofing your bid..
« Reply #1 on: July 17, 2008, 04:52:12 pm »

We don't have a crystal ball and especially today there is no way to tell what the price of anything will be a year from now. Everything is subject to increase- labor costs, copper and equipment. What we do is include in the quote "Prices are firm for acceptance for a period of thirty(30) days from above date".

Unless you expect them to sign a contract within that thirty days for something a year and a half out that should do it. If they do then you need an escalation clause that spells out that cost increases between now and when the work is to be done will be passed on to them.

-Hal

Brad Weber

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Re: Future proofing your bid..
« Reply #2 on: July 17, 2008, 05:38:41 pm »

As a Consultant many of my projects last several years and when I worked for a Contractor we had numerous projects, both design/build and design/bid/build, that lasted a year or two.  I have what seems to be a little different view and believe there are two different situations that may be relevant.

Increases in costs that occur over the length of the project is part of doing the work and you should accommodate that in what is proposed.  If you know up front that the project will last 18 months then why should the Owner be subject to extra, and perhaps even unspecified, charges if it actually lasts 18 months?  I don't see a reason for a separate escalation clause due to a project lasting a known length of time although it might be relevant to delays in accepting a proposal or extensions in the construction schedule.  That's one reason I suggest always including a proposed schedule in the proposal, it protects everyone by documenting the schedule upon which the proposal is based.

However, I feel that is quite different than addressing things like discontinued products or unexpected field conditions.  Changes in cost related to these types of issues are usually addressed on an individual basis via Change Orders.

One thing you might consider is to work out a progressive or milestone payment arrangement where you can order the equipment and get paid for it earlier in the process.  There are many factors to consider here such as the impact on warranty, equipment storage and liability for the equipment and so forth, but this is a pretty common arrangement.

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Brad Weber
muse Audio Video

Ivan Beaver

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Re: Future proofing your bid..
« Reply #3 on: July 17, 2008, 05:40:36 pm »

Our prices are only good for 30 days.  We require a 50% deposit to secure the job.  That money (in theory) should be used to purchase the equipment.  IF you wait, you take your chances.  That is not the customers fault.

Now the warranty issue rears its head, but as a real dealer, the warranty whould not start untill the actual install.  That of course can vary.
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dB Audio & Video Inc.
Danley Sound Labs

Duane Massey

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Re: Future proofing your bid..
« Reply #4 on: July 18, 2008, 08:16:26 pm »

If the project will take 18 months, then you should put in a disclaimer that product availability and pricing are subject to change UNLESS (as Ivan does) a substantial deposit (at least 50%) is paid upfront.

There were several instances when I was at Core Systems where a product was specified by the consultant, the contract was awarded, and then the product was discontinued (specifically in one case, JBL Evo's), and did not have a straight replacement. This is where having a good relationship with the consultant and client will help.

Of course, you take your chances if you don't have all your bases covered.
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Duane Massey
Houston, Texas, USA

Brad Weber

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Re: Future proofing your bid..
« Reply #5 on: July 19, 2008, 11:36:57 am »

Duane Massey wrote on Fri, 18 July 2008 20:16

If the project will take 18 months, then you should put in a disclaimer that product availability and pricing are subject to change UNLESS (as Ivan does) a substantial deposit (at least 50%) is paid upfront.

There were several instances when I was at Core Systems where a product was specified by the consultant, the contract was awarded, and then the product was discontinued (specifically in one case, JBL Evo's), and did not have a straight replacement. This is where having a good relationship with the consultant and client will help.

I would reject any proposal that stated pricing was subject to change, that would be signing a contract agreeing to what is effectively a blank check.

I believe an important aspect is to understand that a sales contract is just that, a binding legal contract.  If someone is unable to comply with the Contract terms due to reasons outside their control, such as a product being unexpectedly discontinued, then both parties need to develop an acceptable solution and modify the Contract to reflect that.  This is the purpose of Change Orders, they are the means to effect a change to the Contract.

I run into this all the time, in fact I have just such a situation with a discontinued product on my desk right now.  I will work with the Contractor to find an alternative project that fits the project requirements and requires no change to the Contract amount.  If that is not possible, then we will work together to find a product that minimizes the cost impact while providing equal or superior performance to what was originally to be provided.  This is pretty standard procedure whether it is a Consultant or the Owner working to help find a solution.  And by the way, since it is usually not their Contract, a Consultant can only recommend an action to the Owner, only the Owner can actually approve anything changing the Contract, so nothing is binding until the related paperwork is in place.

I also want to point out that there is a huge difference between a manufacturer discontinuing a product with no notice and no replacement and simply wanting to substitute a different product or being dropped as a dealer or being on credit hold or anything like that (yes, I've actually seen Change Orders submitted because the Contractor was on credit hold with the proposed manufacturer and thus needed to get an alternative product at a higher cost).  And if you know a product is going to be discontinued, it is usually a good practice to let the Owner know this and see if they want to work out an arrangement to purchase it before that time or to wait and try to find an alternate later.

In my experience, it is not understanding the proper procedures and documentation for issues like this that kills many Contractors as they try to move up into bigger projects where there are very defined processes and documents.
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Brad Weber
muse Audio Video

Hal Bissinger/COMSYSTEC

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Re: Future proofing your bid..
« Reply #6 on: July 19, 2008, 03:12:39 pm »

I would reject any proposal that stated pricing was subject to change, that would be signing a contract agreeing to what is effectively a blank check.

Well, not quite. It seems that you certainly are legally entitled to be compensated for cost increases.

I posed this question over on the electrical contractor forum to see what they do in this situation. We are no different. There are actually state laws that govern this so check with your attorney. Here is the response from a member there:



Here's my escalation clause, which I think might have come from either NECA or ABC originally:

Notwithstanding any provision herein to the contrary, in the event that, during the performance of this agreement, the price of copper wire and cables, aluminum wire and cables, steel conduit and/or any other necessary commodities significantly increases, through no fault of (your company name), the price of any materials, components, or goods to be furnished under this agreement shall be equitably adjusted by an amount reasonably necessary to cover any such significant price increases. As used herein, a significant price increase shall mean any increase in price exceeding three percent (3%) experienced by (your company name) from the date of the execution of this agreement. Such price increases shall be documented through commercial quotes, invoices, receipts or other such documentation. Where the delivery of materials, components, or goods required under this agreement is delayed, through no fault of (your company name), as a result of the shortage or unavailability of commodities, raw materials, components and/or products, (your company name) shall not be liable for any additional costs or damages associated with such delay(s).

-Hal


Duane Massey

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Re: Future proofing your bid..
« Reply #7 on: July 19, 2008, 10:38:08 pm »

Brad, I indicated that such a disclaimer would only be used if you did not receive a substantial deposit.

In most cases a good relationship with the consultant and client will ease the difficulties of this type of issue, but if you sign a contract without planning on the issues, you certainly could be in a bad position.

Of course, the client does not have to accept such a contract, and the choice is always yours as to how far you will expose yourself to risks such as these.
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Duane Massey
Houston, Texas, USA

Hal Bissinger/COMSYSTEC

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Re: Future proofing your bid..
« Reply #8 on: July 19, 2008, 11:33:29 pm »

...such a disclaimer would only be used if you did not receive a substantial deposit.


If you think about that it's also quite foolish for a project that is 18 months away. Unless you use the deposit to purchase the materials immediately then store them it's not going to offset any price increases. Unless you have an escalation clause you wind up eating the increase.

Escalation clauses are a standard part of today's construction contracts and your customer would be lying if they acted surprised when you include one. It used to be in simpler times that you could easily estimate any increases but with today's volatile economy there is no telling what costs will be even tomorrow. An escalation clause is a fair compromise for both parties. Without one you would have to increase your bid price to what you hope will cover any increases. If you guess low you lose, if you guess high the customer loses. An escalation clause provides a formula that uses the actual increases so you can give your best price based on the current costs and know that you won't lose your shirt.

-Hal

Tom Young

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Re: Future proofing your bid..
« Reply #9 on: July 20, 2008, 06:46:23 am »

plus (and I'm not sure if this is specific to our industry or is widespread across all trades) often there are no price increases for 1-3 years (in pro audio) and then one occurs.

This year we are seeing more price increases, it seems. And it will be interesting to see what happens next year, post oil price increases.
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Tom Young
Electroacoustic Design Services
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