Not to Exceed Proposal
Not to Exceed Proposal
(OP)
I am fairly new to the consulting business. Was forced into the position due to a job loss a few months ago. As I go about trying to drum up new business I am constantly asked to do different things.
Yesterday I was visiting a potential new client, an architect, who has two projects that need structural engineering. We went over the projects and what he wanted in terms of a proposal. At the end he said that he wanted the work to be done hourly but he wants the proposal to state a guaranteed not to exceed price. Now most of the projects I have done have just been straight proposals. While I understand the concept, it almost seems like a loose-loose situation on my end. If I underestimate the time it takes to complete the project I take a bath. If I overestimate the project I loose out to my competition (which I am not really worried about) or I don't make up for the jobs I underestimated (I have taken baths on a few projects).
I have discussed this with a few peers and they suggested to slightly inflate the price and hourly rate to try and "cover" myself. The client was referral so they do have access to what my current hourly rate is, so this may be a little difficult. I'm also assuming that they are going to want to see a breakdown on my invoice in terms of hours and days. Since I am a one man shop, this is going to be more of an inconvenience than anything else. How do others handle this situation?
Yesterday I was visiting a potential new client, an architect, who has two projects that need structural engineering. We went over the projects and what he wanted in terms of a proposal. At the end he said that he wanted the work to be done hourly but he wants the proposal to state a guaranteed not to exceed price. Now most of the projects I have done have just been straight proposals. While I understand the concept, it almost seems like a loose-loose situation on my end. If I underestimate the time it takes to complete the project I take a bath. If I overestimate the project I loose out to my competition (which I am not really worried about) or I don't make up for the jobs I underestimated (I have taken baths on a few projects).
I have discussed this with a few peers and they suggested to slightly inflate the price and hourly rate to try and "cover" myself. The client was referral so they do have access to what my current hourly rate is, so this may be a little difficult. I'm also assuming that they are going to want to see a breakdown on my invoice in terms of hours and days. Since I am a one man shop, this is going to be more of an inconvenience than anything else. How do others handle this situation?





RE: Not to Exceed Proposal
RE: Not to Exceed Proposal
I think it's easier to manage a lump sum contract. You work the scope, and if it's not in the scope, you don't do it. The others are more subject to scope creep (not to exceed) or limited profits (cost plus or fee schedule). We used to shy away from lump sume contracts, but now try to get it whenever possible.
Adminstration is also easier for both you and the client. You give a percent complete and bill that. Once the client agrees, you get paid. There's no looking behind the curtain ("why did this guy work on the project?"; "why are you billing this mileage?") and your efficiency is rewarded.
RE: Not to Exceed Proposal
RE: Not to Exceed Proposal
If the client does not like the bid, then he can either redefine the scope, or seek another engineer. I am not licensed as a charity. What I am is a licensed, and seasoned, consulting structural engineer.
Mike McCann
MMC Engineering
http://mmcengineering.tripod.com
RE: Not to Exceed Proposal
On this particular project I think the architects engineer tweaked the owner in some way and the owner is ticked. I was referred to the owner (who I have never met or ever even spoken to) though one of my clients. So, I think the architect is not really on my side and is viewing me as more of an inconvenience.
Oh the joy.
RE: Not to Exceed Proposal
I have basically noted that invoices are to be submitted upon completion of each stage of the project (design, construction set and CA). I also noted that invoices are to be calculated based upon the number of hours worked multiplied by the hourly rated of $xxx/hour. Forgetting about overages and late payments (which are included) is there anything else that should be included?
RE: Not to Exceed Proposal
Aerospace and defense live on cost-plus, particularly for development contracts. You simply have to keep track of and document scope and requirements changes and make sure your customer is badgered into accepting the fact that he's induced baseline changes to the contract.
One thing that is supposed to help, which no one does, is to maintain detailed and accurate records of what was done on previous contracts, along with their costs. Hypothetically, given that historical information, you can estimate your scope and costs more accurately. This requires nearly superhuman discipline, but if you manage to do that, you'll have extremely accurate bids that include EVERYTHING.
One other thing to do, whether fixed or cost plus, is to increase granularity of your bids. This provides two benefits:
> The increased level of detail will ghost your competitors by creating doubt in the customer as to whether your competitors have adequately scoped and estimated their bids
> The increased level of detail makes it harder for customer to challenge your bid, e.g., a bid of 400 hrs for a nebulous set of tasks could be easily challenged for a 10% or 20% reduction, but a set of 20 tasks, each on the order of 20 hrs, is much harder to challenge for excessive padding.
TTFN
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RE: Not to Exceed Proposal
Mike McCann
MMC Engineering
http://mmcengineering.tripod.com
RE: Not to Exceed Proposal
http://www.apeg.bc.ca/ppractice/documents/ppguidel...
RE: Not to Exceed Proposal
Mike McCann
MMC Engineering
http://mmcengineering.tripod.com
RE: Not to Exceed Proposal
I don't like down payments. I have stayed away from them since I have started. I don't like having to "owe" other people besides. It helps keep my books straight to this point too. When my last company got in trouble, they started requesting down payments.... which is fine until you start using the down payment to pay vendors for jobs you have currently going.... which is what they did.... and down the drain they went.
RE: Not to Exceed Proposal
RE: Not to Exceed Proposal
Basically meant we could spend up to that amount but no more. It did not guarantee we would complete the project for that amount.
What is Engineering anyway: FAQ1088-1484: In layman terms, what is "engineering"?
RE: Not to Exceed Proposal
I have always used it to test two things:
1. The client's ability to pay quickly let alone pay, and
2. To test just how sewrious he is about the project.
If they balk at paying any money up front, so do I.
Mike McCann
MMC Engineering
http://mmcengineering.tripod.com
RE: Not to Exceed Proposal
RE: Not to Exceed Proposal
Cheers
Greg Locock
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RE: Not to Exceed Proposal
RE: Not to Exceed Proposal
Mike McCann
MMC Engineering
http://mmcengineering.tripod.com
RE: Not to Exceed Proposal
To that extent, cost plus isn't that different. I was working on a three-lettered program where change requests numbered into the HUNDREDS, and these where the ones coming directly from the prime. Sadly, that gravy train got axed after 3 yrs.
TTFN
FAQ731-376: Eng-Tips.com Forum Policies
RE: Not to Exceed Proposal
I'm not bidding.... I'm proposing (hahahahahahaha). I get your point. Out of all the calls I have fielded trying to drum up business from something that was not existent 10 months ago (probably 20-30 calls from different people) not one person has ever been receptive of just giving me work with no boundaries. How do they know I can even handle the task in a timely fashion? If I refused to work with people who wanted me to bid on projects I would have no work and be an unemployment statistic.
RE: Not to Exceed Proposal
RE: Not to Exceed Proposal
But, equally you, as the second member of that contract, need to be assured that "changes based on growth in scope, in changes in conditions or requirements not already explicitly stated in this contract, changes in other as-delivered supplies or suppliers, or in as-found conditions at the site not already described in this contract, will be accepted by both parties and be accepted as exception beyond the limits of the not-to-exceed amount ...."