Bidding Effectively

Before making that bid, figure out what the job will really cost you.

Put a dozen or more snow-plowing contractors into a room, mix them well, and you will get “snowed” with a blizzard of opinions—usually very strong opinions—on everything there is to know about equipment, plowing techniques, pricing, employees, clients, tricks of the trade and everything in between.

I have participated in and also witnessed many a spirited “discussion” with many good—and, perhaps, some not-so-good—“contractors” on all of these subjects. I have learned a great deal from all of these meetings, as is usually the case when contractors get together. But the most important thing I’ve learned is that there is really no one right way to do things. There are, in fact, many right ways, as long as the contractor and client agree on terms and the agreement is to their mutual satisfaction.

Cost methodology

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Initially, almost all prospects or clients will have certain unrealistic expectations. All of the clients, large or small, would like premier service but rarely, if ever, have any idea of what the cost of that service includes. Many of them do not believe in sharing risk or are reluctant to pay for something they perceive as not receiving. To counter the latter, I usually draw an analogy to fire insurance: while no one would be without it, no one really wants a fire to burn down his or her facilities. The same goes for snow services. No one wants to pay too much, but no one wants to be at the mercy of a blizzard, either.

As for costs to include in the bid, remember that snow services are significantly different than other exterior service. Grass mowing or shrub pruning can be postponed for a few days without any adverse effects, but contractors must respond immediately when it snows and must remain on the job until it is completed. To do so, contractors must be in a constant state of readiness. Employees must be retained and equipment must be dedicated whether it snows or not. These two factors alone can involve a great deal of expense, especially if a contractor has rented additional vehicles or equipment for the season in order to beef up his fleet. Therefore, try to sell your clients on the idea of sharing risks and costs with you through paying reasonable minimums and by granting multi-year contracts.

Usually, once your clients become used to receiving “premier” service on a timely basis, they will not accept anything less. Not only that, their price resistance, while always a concern, will be less of a determining factor. Most contractors with good reputations will fulfill their commitments in a responsible manner. Unfortunately, there are some who stretch their capacity too far and overbook work. This is usually a recipe for a disaster. Vehicles and equipment can break down or become disabled, and some employees may not show up for a job or may become too fatigued to continue working safely. If you use and depend on subcontractors, they can have similar problems. Mix in a generous portion of unpredictable or stalled weather patterns, and you can most assuredly expect the unexpected. Never stretch your capacity to the point where there is no room for error—it’s better to be prudent than greedy. If you are a contractor who can perform your services reliably and effectively, not only will you retain your clients, you will be able to command premium prices for your services and probably have more opportunities for new work than you can possibly handle. When that occurs, you can be more selective.

Price methodology

In many areas of the country and also within certain segments of the client’s universe, customs or traditions have established the prevalent methodology of pricing. Competition will establish the price environment. If you decide to work outside this environment, you must be able to differentiate yourself and sell the client on the difference.

The most common methods of pricing and payment for snow services are:

  1. Traditional time and equipment rates
  2. Per-inch charges
  3. Per-push charges
  4. Per-season charges

Obviously, you can create and negotiate any hybrid or combination method of pricing that is compatible with you (the contractor) and your clients. It makes little difference as to what method you use, as long as you can recover all of your direct costs, your contribution to overhead and maintain a healthy margin of profit. Your profit should also compensate for an especially risky and stressful service function, because snow services occur in inclement or harsh weather, often at inconvenient times like holidays or weekends and at all times of the day or night, often over extended periods of time involving overtime pay. The work can be stressful because of fatigue, unrealistic expectations or exceptionally demanding clients. Wet, heavy snow or bitterly cold weather is a burden that can be especially hard on equipment and vehicles. Snow and ice create dangerous driving conditions and, when people are stressed out or fatigued, the chances for accidents or damage are multiplied many-fold.

Traditional time and equipment rates. Using traditional labor and equipment charges, the contractor establishes rates for each class of vehicle and piece of equipment. The client is charged for the hours used (operator and driver included). You may require monthly or seasonal minimums in an effort to cover “stand-by” or dedication costs. Contractors sometimes negotiate slightly lower hourly rates if clients agree to pay minimums. Make sure that you establish whether your rates are charged portal to portal or for on-the-job-site times only.

Per-inch charges. Contractors who charge by the inch normally establish brackets and charge for each snow occurrence based upon the total accumulation during any one occurrence. There also are contractors who establish a maximum allowable accumulation for the season, and add either an additional surcharge or pre-determined labor and equipment charges when accumulations exceed the maximum. Common brackets are 0 to 3 inches, 3 to 6 inches and in excess of 6 inches, but these are arbitrary. The contractor is expected to do a timely and complete job at a pre-determined price when snow accumulations fall within the brackets. Salting operations are usually not included in the per-inch price, and are billed on a time-and-material basis, as is clean-up after a storm or hauling.

Per-push charges. Another method of billing is a pre-determined dollar amount per push. Each time the contractor appears on site and makes a push on the property, there is a separate charge. For smaller storms, the contractor normally will wait until the storm is over; for heavier storms, there will probably be more than a single push.

Per-season charges. Condominium and homeowner associations like nothing better than a guaranteed price for the season. However, they are often reluctant to grant multi-year contracts—expecting the contractor to assume most of the risk. And they are usually quick to complain about costs for service not received during a mild winter. To safeguard your interests when using per-season charges, you need a multi-year contract with liquidated damages for cancellation (except for non-performance) to average out the seasons, or surcharges when total accumulations exceed an average year.

Deciding the best pricing method for your business

Each different method of billing has certain inherent advantages and disadvantages, skewed either in favor of the contractor or client, and it is not the purpose of this article to promote one over the other. That’s a decision best left up to you. Many contractors, ourselves included, offer all four types of pricing in any one season. As the old saying goes, “A fair price is one agreed to by the buyer (client) and seller (vendor) without coercion.” But, while it is true that we all want to maximize our profits, I do not believe healthy profits should be the result of gouging or cheating. We all know there are already enough blatant violators in the marketplace—those who charge for services not performed or materials not applied. They make things difficult for everyone, and many clients are reluctant to place their trust in other contractors after a bad experience.

Your pricing should depend on production standards as well as rates, just as it does in any service operation. In snow-service operations, it is not only useful, but almost mandatory to have a database of many years of snowfalls. Knowing the average accumulation of snow per season is obviously important. Knowing what made up the total is more important. For example, a 50-inch average annual snowfall over two years could be 50 inches each year, or it could be 30 inches and 70 inches, 40 inches and 60 inches or even 10 inches and 90 inches. Hence the need for a multi-year contract. To make averages work, you need to know how many snowfalls occurred over a four- or five-year period, the number of initial plowing and salting operations, and the number of call-backs due to thaw-freeze cycles, drifting and blowing clean-ups. Using this database coupled with your production standards can give you a reasonable estimate of time required per occurrence. The only “crystal balling” will be next season’s accumulation. Having a multi-year contract for season billing (I recommend a minimum of three years) is the only way you can protect yourself to any degree.

Equipment influences rates

Establishing your vehicle and equipment rates, whether you use them externally for direct billing or internally when estimating per-inch or per-push charges, should include many different factors. Vehicle charges should obviously vary by the vehicle size, the width and possibly the weight of the blade. Plow widths may vary from 6 to 12 feet on trucks. Some plows convert from a straight “V” to an inverted “V”, and there are now plows designed like “pushers” with adjustable “wings” on the outside. Some clients may also require special plow edges to prevent damage to certain surfaces, and pickup trucks are often equipped with back blades to facilitate cleaning out driveways. All have different cost factors (initial expense, life expectancy, estimated repairs, etc.).

Skid-steer loaders are extremely versatile and effective snow fighters. Besides the various sizes of skid loaders, they may be equipped with either buckets, blades, brooms or blowers which can be readily changed from one to another. Again, depending on costs and attachments, units should be priced separately.

Industrial, agricultural or utility tractors can also be equipped with buckets, brooms or blades and they are excellent as on-site units. Large 4WD units have tremendous capacity to push snow and do double-duty when hauling or clearing is required; but, unless they are used for loading when removing snow, wheel loaders are now usually equipped with extra-wide blades (up to 20 feet in some cases) or with large “pushers” instead of buckets.

Referring to all of the above variations, it should be obvious that a wide range of rates may be in order. You are essentially being paid for time no matter which methodology is employed; however, once again, it is imperative to recover your costs, the contribution to overhead needed and make a healthy profit based on the anticipated use of any unit.

How your equipment is set up and used also influences rates. Clearing snow with a skid-steer loader equipped with an extra-wide blade or “pusher” is more productive than using one with a material bucket and, therefore, should command a higher hourly rate. Likewise, a Class-6 truck with automatic transmission and an 11-foot power angling blade is significantly more productive than a Class-4 vehicle with a standard transmission and an 8-foot blade. Price your equipment accordingly. Even an extra $10 to $15 per hour on similar units can make a big difference in production and pricing throughout the season. Most of our snow services are performed for our existing landscape-management contracts. We have tried to structure our proposals to meet the objectives of both service and price, and in a manner where we both share risk and benefit by having a stable and secure win-win relationship.

Writing up the bid

Your own snow plowing proposals and contracts with clients should be specific. Establish the following conditions, at minimum:

  • The identification of both parties to the agreement.
  • The term of the contract and the beginning and ending dates of services.
  • Objectives and scope of duties, plus the specific responsibilities of both parties. In addition to spelling out the basic services to be performed, address any other pertinent issues including, but not limited to, various salting operations; whether salt, sand or other materials are to be used; the moving or removal of snow; the recalls for subsequent clean-up for blowing and drifting; salting after thaw-freeze cycles; and detailing.
  • Terms of payment, including any retainers or minimums, retainage by the client, finance charges, etc. A word of caution here: invoice promptly. It’s easy for the client to forget how severe a storm was or how excellent the service was if invoices are late, the snow has melted and the sun is shining!
  • Specific definitions should include such items as starting times, boundaries, priority expectations and site or property damage.
  • Insurance to be provided plus any limits on liabilities.
  • A list of contacts in proper sequence, together with phone numbers (office, pager, mobile, cell) for both parties.
  • Conditions for termination and liquidated damages available to contractor upon cancellation without cause.

Providing snow service can be viewed as either a necessary evil or as an excellent opportunity for enhancing your profit line. From our perspective, in an average year, providing snow services can change a good year into a very good year; and when there is an above-average snowfall, we have a great year. However, there is a great deal of preparation needed in addition to a great deal of work during any storm. Our actual planning for snow begins immediately after the final snowfall when we get commitments from clients and subcontractors for the next season (if we haven’t signed multi-year contracts). It resumes again after the spring and early summer rush and continues until we are once again plowing.

Ron Kujawa is a green-industry consultant and president of Kujawa Enterprises, Inc. (Cudahy, Wis.).

CONTRACT ESSENTIALS FOR SUBCONTRACTING

If you use subcontractors, make sure you pre-qualify them. Check their references and examine their equipment. We use a contract to legally bind both parties for our mutual protection and benefit. At minimum, your contract should include the following:

  • The formal identification of both parties, indicating if they are a sole proprietorship, a partnership or a corporation.
  • The term of the contract (begins when, ends when). The reason for the contract, including the specific responsibilities of both parties and the scope of work. Scope must be clearly defined.
  • How you will be billed and terms of payment (including any deadlines for submitting timesheets or invoices). Spell it out clearly!
  • Specific definitions for starting time, travel times, break times and down time, and how these could affect billings.
  • Complete descriptions of your subcontractor’s equipment and the subcontractor’s commitment to the exclusive dedication of designated units.
  • A complete listing of all applicable rates, including any minimums.
  • Your insurance requirements and liability limits. The subcontractor’s certificate of insurance must be on file.
  • A non-compete clause. Some unscrupulous subcontractors may try to solicit your clients directly. A definite no-no.
  • An established line of communication including some minimum requirement for cell phones, pagers or radios.
  • Any reasons for termination, and provisions for damages for the termination.
  • A statement that you, as the prime contractor, will not be responsible for any legal obligations of the subcontractor, including withholding or other payroll taxes.
  • An established line of authority and the role of your supervisors.
  • Identify authorized and non-authorized charges.
  • Recently, we added a clause for surcharges to address excessive increases in fuel prices.
  • An agreement as to who is responsible for any damages to the client’s property.

Add any other items or qualifications you feel might be necessary, and make sure the contracts are signed, witnessed and on file long before the snow season begins. Meet regularly before the season, after any problem arises and after the season for next year’s commitment.

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© 2014 Penton Media Inc.

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