Jacob Austin 00:00:17 Hi all, Jacob Austin here from QS.Zone and welcome to episode 56 of The Subcontractors Blueprint, the show where subcontractors will learn how to ensure profitability, improve cash flow and grow their business. Today's episode, number 56, is about the importance of clarifying your price. And for this episode, I'm going to share with you the story of an ill fated project of mine and the lessons that I learnt from that, that you can take away and implement to protect your business. And before we dig in, if you're new to the show, please do subscribe for more user friendly advice on all things subcontracting now. This project was one that was quite early in my career as a QS, and I was working at the time for Mansell Construction, which no longer exists. One of those companies hoovered up by Balfour Beatty that then disappeared from the face of the earth, and I was working in their specialist works team, which handled their small works projects, if you like, and they handled really small projects down to the likes of a few thousand pounds, up to probably 2 to £3 million at the other end.
Jacob Austin 00:01:21 And the backbone of that work was coming from the EMPA framework, which is the East Midlands Property Alliance framework operated by Scape. And with that framework we could be awarded projects which range from nothing all the way up to £2 million. And one of the drivers behind the framework was getting the contractor on board, so that you got the benefit of their knowledge and expertise in helping to come up with the feasibility study programme and scope, advice and build ability, and to help them to build up a robust cost for the project, which would then be delivered either as a lump sum or under a target cost arrangement. And part of the idea being that the client would use less in-house resource. They would partner with the contractor who would act on their behalf, and that would act as a mechanism to keep the costs low for elements of preconstruction design and things that could quite often run up a big bill before the client had even committed to completing the job. And under that framework, I was given license to go out and meet clients who'd issued us with an expression of need under the framework and to help them get, from whatever this stage they'd started at through to the end of the job.
Jacob Austin 00:02:30 And sometimes that meant starting off with a cost per square meter kind of feasibility model and taking on management of the design through to construction phase. And other times, the client would already come to us with a completed design and a budget in mind, and we would then just negotiate the contract to complete the work. And the contract where I encountered my issue was one where the client had already developed their design, and quite a comprehensive brief for the work already, and historically, they'd been a local authority that fully designed and competitively tended their work. So he had a lot of in-house capability to be able to do that. And this project was to replace boilers that serviced a really popular swimming pool, which was out in a remote part of the county. So we'd received this design and it quite clearly designed and specified the overwhelming majority of the work. And that was replacement boilers, what the original boiler looked like, how much of the existing pipework and the likes to take out the new products to install, along with replacement tanks and replacement pumps.
Jacob Austin 00:03:36 They'd done everything properly as regards defining the scope, so we had things like the asbestos refurbishment and demolition survey locations of all of the existing services which we needed to avoid, and a really detailed pricing document. So it really was a case of beyond appointing us, their work was pretty much done barring one item, and it was that one item that caused me the issue, and that happened to be about an air handling unit, which was situated on a roof plant zone, and the line and the scope and the pricing document said something to the effect of replacement heating coil to existing air handling unit. And then it gave the spec and the manufacturers details of that air handling unit. And I remember this really vividly when it came to reviewing the internal price before submitting it to the client. This is a typical part of company sign off procedure. I had to get my directors to buy into the bid that I'd prepared and get their permission, in effect, to submit it to the client. And because of the awkward situation of this air handling unit, we had to take down some temporary handrails.
Jacob Austin 00:04:40 We had to construct a large scaffold which acted as a loading bay, and then we had to hire in lifting equipment just for one piece of equipment and do the reverse of all of that, reinstating the handrail at the end. And this was all to replace one of the heating elements of this air handling unit, which was costing somewhere in the region of 2500 pounds, whereas all of the access work for that was coming in at more like £10,000, which seemed completely bonkers, but it was just a symptom of how awkward that place of work was to access, because the alternate route was basically a one foot wide crawler board, which went through a trust roof up and down a couple of access ladders, and dodging around ducting and pipe runs that were run through the roof space. And it was so dusty up there that I remember trying to squeeze my nostrils together in case any of that dust contained asbestos. Having, of course, recently done the company's asbestos awareness training. So in a nutshell, I thought I'd done a really thorough job of considering how tight the logistics were to make sure that we were submitting a price that we could actually get the work done for.
Jacob Austin 00:05:48 And now for the awkward part, because all of that got signed off. We entered into the contract and we started the job and the majority of the work unfolded really, really easily. The old boiler came out, the new boilers went in, the pipework got amended, the pumps got replaced, the cylinders exchanged, and the actual replacement of the air handling coil that we'd priced for went pretty straightforward as well. But when it came to recommissioning the air handling unit, it was clear that that wasn't enough because basically more than one coil needed replacing. But when I flagged this up as a compensation event to our client, they told me that no, they told us to replace the coil and recondition it, and that meant replace the coils plural and do what it needed to get it working again. And this essentially turned into a humongous argument with them saying that they'd bought one thing and was saying that we'd only price to do a different thing. Now, quite why they expected such a large scope of works to be completed for the measly sum of the two and a half grand that we got in for that item was completely beyond me, and I was pushing and pushing and pushing for an instruction to carry out anything else that we needed to do.
Jacob Austin 00:06:58 But eventually, because of a pre-existing relationship with the client and higher up members of our business, a decision was taken out of my hands to do the rest of the work, and we ended up not getting paid for it. And I was absolutely outraged by that because it just wasn't right. We'd even gone to the trouble of sourcing a report from a specialist media consultant to state that the scope that we'd carried out was a reasonable assessment based on the description of the work in the spec and, crucially, that the price that we were being paid for that scope was in line with the market rate for completing it. So it wasn't as if we'd priced for an exorbitant sum of money. And then we're trying to make some money by limiting what we actually did. The client was basically getting what they were paying for, and this basically ended up being the only job that I ever priced that lost my company money. And I took some important learning from that. And if I rewind a little bit to two putting that price together and having the internal adjudication, all of the focus was in the wrong areas.
Jacob Austin 00:07:59 So I'd got four prices in for the piece of work, and one of the prices had got quite a large sum against that item, and another two prices had got provisional sums against it. And at the time my boss's answer to this was, well, this guy's priced it quite keenly, and he's been able to accurately quantify what he needs to do. And when we rang that subcontractor to clarify what it included for, he was able to talk about it really confidently. So we had confidence in what we were doing. But what I could have improved on in this process was clarifying exactly what he had priced, and enshrining that same detail into my bid, and then ensuring that the same detail went from the bid into the contract. Because ultimately, when it came down to it, there was nothing written in the black and white that limited what the client had written down to what we'd priced for. And we hadn't knowingly priced a lesser scope than what they'd asked for. But the vague description that they'd put against that item is what created the uncertainty and what ultimately led to the fallout.
Jacob Austin 00:08:58 The next thing that I could have done was introduce a provisional sum into the equation. Now, because provisional sums aren't a definition under the standard NEC contract, this would have been quite complicated, and it would have required adding definitions into the contract itself, and then adding provisions for how to expend those provisional sums at a later date. And all that might have been complicated, but had we done that at an earlier stage, we could have a very least discussed and agreed a way around it that would have been mutually understood by both parties. And the third and final thing, which would have been the simplest and probably the most effective thing, would have been to communicate more about it, because a lot of this stuff was being done at sort of arm's length. And in my experience, that was generally how it went with that particular county council. And I don't know from their end whether it was a bit of a try on to try and get something for nothing, or whether they genuinely thought they could have quite a large scope of works for quite a little sum of money, but in hindsight, I hadn't done an awful lot to try and ascertain what the scope of that particular item was.
Jacob Austin 00:10:02 And sometimes within a bid there are these unknown items. Sometimes they can be fairly minor, but sometimes they can turn into big, hairy beasts of an item that, in one brutish swipe, can bring the whole project down for you. And this wasn't the biggest project in the world, but it meant eroding away all of our project margin and costing the thousands of pounds into the red that we ended up. It ended up spoiling a relationship with a subcontractor who, other than that, did a cracking job for us. And whilst I had not really used them before up until that point, they were definitely somebody that I'd happily use again. And so how can you avoid falling into the same trap? Because you're more than likely to be entering into lump sum arrangements with contractors up and down the country, and within those arrangements, there will doubtless be items here and there that you just can't quantify properly or that aren't very well described, and they could be something quite nominal or something unbelievably onerous. And I suppose for me the learning on this came quite early in my quantity surveying career.
Jacob Austin 00:11:03 So I've never found myself in a situation again where I've committed the same crime, so to speak. But item number one for me would be to pick up the phone and have a good, detailed conversation about exactly what that means in terms of a scope item and what the contractor is expecting you to provide for it. And if they give you a steer and that information then limits what you've been asked to do, then when you submit your quotation, you need to make sure you reference that information so that your bid is qualified to incorporate the understanding that you've discussed with the contractor, because it isn't just enough for them to say one thing. When the scope then says something slightly different, the scope should ideally be amended to reflect the full description of what you're going to do. And there is a danger that the contractor is if he's not fully engaged in the conversation that is not telling you the same things as he might have told everybody else, and that might cause your tender to be more or less expensive than somebody else's.
Jacob Austin 00:11:58 So by recording what you've said, either on an email back to them, or as part of your tender submission, when you're giving them a bit of a prompt as to what they've told you to you hopefully giving them the information that they need to be able to vet the prices properly. So if they've told something to you and then they've clarified it a bit further themselves another day before talking to somebody else, then that might result in their price being less than yours, say, then they'll hopefully pick up on your qualification against that item and either adjust it or plug it or ask you to readdress it. So hopefully it won't affect your tender. So step number one has always got to be speak to the people and try and get further clarity on it. And version one A of that would be using a tender kind of RFP process. So you might generate a quick request for tender information to help get that written clarity from your contractor about what is needed And the reason why that would be better is because it will prompt them to respond in writing to you.
Jacob Austin 00:12:54 And ideally, you may ring them and tell them that that's what you're going to do and talk them through it so that they've got an understanding of why it's an issue. But by getting a response in writing from them, what you're hopefully doing is making sure that information gets then issued out to all of the other tendering subcontractors, because once they're responding to you in writing, they're going to be quite able to forward that out to all of their other tendering contractors. And that will prompt a situation where all of the prices come back aligned anyway. I have heard people saying to me in the past, well, I don't want the contractor to tell everybody else about it, because what if that then reduces everybody else's price and then takes away my competitive advantage? And to that I say it's not really a competitive advantage. It's a risk because if the contractor interprets the scope in a different way to what you have, and you've submitted a low price for something, thinking that you are right, you might be committing yourself to a value of work that is several times what you end up putting in for it.
Jacob Austin 00:13:51 So it's not worth taking that risk. Clarify it and protect yourself. And a good contractor will be digging into each of these areas where there are discrepancies between what people are pricing and investigating what's been allowed for, to try and get everybody aligned. But not everybody will do that. I've heard of some people getting a low price in knowing that it probably doesn't allow for everything, and then asking that subcontractor to commit to a lump sum so that the subcontractor takes all of the quantity risk and it then bakes in that tender error. But putting it the subcontractors cost. The next thing that you can do is to be really clear about what you're pricing. So if you're unable to get any further clarity, provide the clarity yourself about what you're allowing for and remembering that some contractors will be seduced by the bottom line number. You don't want to go in pricing for everything in the kitchen sink. You want to find a way to price that item that is as cost effective as you can make it. But then descriptively tell them exactly what that allows for, and if there's any ambiguity over what is necessary, then you might actually consider giving a couple of options so that you're clear on what you've priced for.
Jacob Austin 00:14:58 And also, if that doesn't satisfy the contractor's need, then it gives them the scope to adjust what you've priced for in line with your other options. But it also gives them an accurate way to adjust anybody else's tenders, which might then help you to secure the job. And then finally, if you absolutely can't get any more information on it and there just isn't enough to go on to submit a firm price, then you want to either include a provisional sum or exclude the item altogether. And I would always urge you to do the latter, because some contractors may overlook the fact that it's a provisional sum. They may have a way of comparing their quotes, which just lifts the rates out of your submission and then inserts it into a comparison. Without logging your qualifications and comments against items, they might end up thinking that you've priced something if they're not doing their due diligence and then baking that into your order. Now, of course, it's up to you to pick that up before you sign the order, but by that point, you might be under pressure to sign it because you need a payment and all the rest of it, and it might slip your mind.
Jacob Austin 00:15:59 So the easiest thing for you to do to protect yourself is to write a big fat excluded in both your right and your total for that item, because it absolutely excludes all ambiguity, because it's ambiguity in the situation that is making this a problem to start with. And it's absolutely the ambiguity. If it continues to be present, that will turn this into a problem in the longer term. And what you're trying to achieve is absolute clarity over what you've priced and what the contractor is going to get for that price. And it's only when you can get that clarity that the risk becomes cleared up, and you can move forward with a clear conscience, having protected yourself and your business. My mission with this podcast is to help the million SME contractors working out there in our industry. If you've taken some value away from today's episode, I'd love it if you'd share the show and pass that value on to somebody else who'd benefit from hearing it. And of course, subscribe yourself if you haven't already. And thanks for tuning in.
Jacob Austin 00:17:00 If you like what you've heard and you want to learn more, then please do find us at www.QS.Zone where you can subscribe to our training and support system for like minded subcontractors. In there you'll find templates, how to videos, interviews, and more. It's less than the price of your cup of coffee per day, and you can cancel any time. We're also on all your favourite socials at @QS.Zone. Feel free to reach out, ask me any questions, give me some abuse or give me your feedback on today's show. And thanks again! I've been Jacob Austin and you've been awesome.
