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Sound Reinforcement - Forums for Live Sound Professionals - Your Displayed Name Must Be Your Real Full Name To Post In The Live Sound Forums => SR Forum Archives => Installed Sound/Contracting FUD Forum Archive => Topic started by: Rain Jaudon on July 17, 2008, 04:25:54 pm

Title: Future proofing your bid..
Post by: Rain Jaudon 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
Title: Re: Future proofing your bid..
Post by: Hal Bissinger/COMSYSTEC 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
Title: Re: Future proofing your bid..
Post by: Brad Weber 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.

Title: Re: Future proofing your bid..
Post by: Ivan Beaver 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.
Title: Re: Future proofing your bid..
Post by: Duane Massey 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.
Title: Re: Future proofing your bid..
Post by: Brad Weber 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.
Title: Re: Future proofing your bid..
Post by: Hal Bissinger/COMSYSTEC 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


Title: Re: Future proofing your bid..
Post by: Duane Massey 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.
Title: Re: Future proofing your bid..
Post by: Hal Bissinger/COMSYSTEC 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
Title: Re: Future proofing your bid..
Post by: Tom Young 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.
Title: Re: Future proofing your bid..
Post by: Duane Massey on July 20, 2008, 12:26:00 pm
I think the bottom line is to do what you can to protect yourself AND your clients, but make sure you at least plan ahead.

Hal, the large deposit should be used to purchase the gear and store it, unless the contractor is an optimist.......
Title: Re: Future proofing your bid..
Post by: Jason Lavoie on July 20, 2008, 03:56:30 pm
Duane Massey wrote on Sun, 20 July 2008 12:26



Hal, the large deposit should be used to purchase the gear and store it, unless the contractor is an optimist.......


absolutely.. it's one thing to come back to your customer about something that is unavailable or discontinued, but if you had the money to buy it and reserve it months ago then you look pretty stupid if you have a supply issue later.

Jason
Title: Re: Future proofing your bid..
Post by: Brad Weber on July 21, 2008, 08:38:15 am
As I mentioned, reasonable Change Orders are totally appropriate and most projects I work on have a process defined for addressing them, including for cost escalation.  Simply saying that product availability and/or pricing are subject to change with no limits, conditions or process defined is too open ended ot be acceptable.

In a competitive bid situation it is important that all bidders are bidding on the same basis.  You do not want some bidding with no escalation clause and others with greatly varying terms and conditions and this makes it very difficult to compare bids.  I'm used to how to address escalation often being covered in the bid documents including identifying the conditions under which changes to the Contract are allowed (types of changes, amount of change, documentation required, etc.) and the conditions for any change to the Contract (basis for cost and so on).  If your work is part of the Prime Contract (the contract for the building), then you probably want to look at the General Conditions defined as they will often have specific terms and requirements and you may be bound to them.  I have such documents for a 2 year plus long project (3 years plus from ground breaking) in front of me and some of the language Hal noted would conflict with what is specified (for example, the spec language places more onus on the Contractor to be proactive regarding product availability), so it is critical to read these documents and be responsive.  Bidding something that is conflicts with the specified terms and conditions may make your bid non-compliant.

Purely personal perspective here, but I believe that it is difficult to argue that an escalation clause like that Hal noted is equitable.  Beyond not being clear if the 3% noted is for individual line items or the overall contract cost and the vagueness of the phrase "by an amount reasonably necessary to cover any such significant price increases", if there is an escalation clause to cover cost increases then shouldn't there be a corresponding way to address any comparable cost decreases?  A change is a change and while it may not be as common, what I find interesting is that even when there were significant price drops or a Contractor received pricing lower than expected or a product was unavailable and the accepted substitution cost less, I don't think I have ever seen an Owner received a credit because the costs decreased from what was proposed unless I pushed for it.  I personally have no problem protecting the Contractor but if they want protection from the risks of cost increases, they should also be willing to share the benefit any cost decreases.  If they want to keep all the benefits of all cost decreases, then they should bear the risk of all increases.  Simply put, from the perspective as an Owner advocate, in order to be equitable to both sides I think changes to the Contract amount due to product availability or cost changes should not be limited to escalation but should cover any cost changes, including decreases.

Jason Lavoie wrote on Sun, 20 July 2008 15:56

Duane Massey wrote on Sun, 20 July 2008 12:26



Hal, the large deposit should be used to purchase the gear and store it, unless the contractor is an optimist.......


absolutely.. it's one thing to come back to your customer about something that is unavailable or discontinued, but if you had the money to buy it and reserve it months ago then you look pretty stupid if you have a supply issue later.

I agree.  It is also not the Owner's fault if the Contractor does not test a product when it was received and then when installed months later it is DOA and the replacement will cost more due to cost increases or discontinuation.  Or because a Contractor waited until after a known upcoming price increase to order a product.  This is exactly what I mean by having some terms and conditions that place some limits and responsibility for providing a reasonable effort to avoid.