Same number of bids. More wins. (Part 2 of 6)

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For most of my time as a VP of Preconstruction & Sales for a specialty subcontractor, I never considered how a GC’s Agreement with the owner might change how we bid and win projects. In my mind, it didn’t matter! Build relationships, be low (or close to it) on bid day, and hope the GC isn’t a jerk. That’s what I knew. And it honestly worked well enough to win some great and profitable Contracts. But it always seemed like way too much work—a 10%-20% win rate just isn’t enough! 

Then, I learned that the GC’s agreement with the owner matters a lot, and in fact, subcontractors can gain a competitive advantage by being smart about it—especially because most subcontractors are like I was: clueless! After that, while other subs were out there bidding every job the same and treating every client the same, I started treating each project and client in a unique way depending on their agreement with the owner. It made everything about the bidding, sales, and preconstruction processes so much simpler. 

Over the next 6 weeks, I will give you a clear understanding of 6 common delivery methods used in the construction industry, and some really good tools to get smarter in how you approach each of them. Today is about Method #2: Private Lump Sum (Design-bid-build). 

In this series, I hope to help you subcontractors who want to increase your win rate. I also want to help general contractors understand what their subcontractors go through when pursuing a project.  

Please note that there is increasingly very little difference between the terms GC (General Contractor) and CM (Construction Manager). As a result, I use the terms interchangeably throughout the below. Let’s dive in. 

Method #2: Private Lump Sum (Design-Bid-Build) 

What it means:  

Design-bid-build means the same as in Method #1: the design phase and the bid phase happen independently. The key difference here is that in private lump sum projects, the construction is now being funded through private monies rather than public monies. This means that the owner can do whatever they want with their own monies (sometimes, even awarding not-low GCs!) 

How it works: 

Because of the private aspect, there are little rules in how the owner goes about awarding the project. Think about yourself. If you wanted to contract a roofer to put a new roof on your house, since it’s your money, you can do whatever you want with it! You could go with the low-bidder you don’t know at all, or you could go with your best friend’s roofing company that charges 25% more than the competition because they have a value-add system that makes construction feel like a dream for you, the owner.  

If you value cheap pricing, then you’ll go with the low-bidder. 

If you value relationship and value-add services, then you’ll go with your best friend. 

It all comes down to what you value as the owner. 

Why it’s used: 

Private lump sum is a relatively simple delivery method with little faff. In other words, the owner makes the award and can largely step away. Especially when they have tight GC relationships. Meanwhile, they still do expect to get good value for the price they’re paying. 

What you need to know: 

This can be a very lucrative award method—especially for GCs! If they are able to identify enough private owners who trust them to build their projects, then they will be able to negotiate lump sum pricing where profit is greater than the average GMP agreement (more on this in Method #4 and #5!). In turn, as a subcontractor, you may be able to achieve a similar strategy: one where you sell relationship-based, value-add construction services to GCs entering into private lump sum agreements. There’s a good chance you’ll be able win these projects at higher-than-average profits while keeping your client extremely happy. 

On the other hand, if you don’t have a relationship with the GC, then you will almost definitely need to be the low-bidder to win the project. Because, don’t forget: since this is a lump-sum agreement for the GC, they get to keep any monies under their original bid amount! So, again, if they win the Contract for $20M, and can build it for $13M, they’re keeping the other $7 as profit. So, the GCs are incentivized to buy out their subcontractors cheap to make themselves more money. 

IIn the best scenarios, these kinds of projects are awarded as a type of a larger “program”. For example, Starbucks may want to build 40 stores in the Mid-Atlantic in 2025. If you can get in with the GC who is building them, then you may be able to swing building each one with them. 

So, in general, if you’re going to chase these kinds of projects, you need to focus on building relationships with the GCs building them. And demonstrate real value that your business is worth paying extra for. Otherwise, you’re just like everyone else.  

And please note: private lump sum is not a super common method. If it’s used, it’s usually for projects under $25M. So while it may sound good to go build relationships with GCs who chase it—and it probably is good!—don’t expect these projects to fill your pipeline. 

Key questions to ask yourself: Do we add enough real value to justify a GC spending more on us? If not, what do we need to change about our sales and operations? Are we willing to invest the relationship development resources to make chasing these kinds of projects worthwhile? 

The Great Ones Have Coaches 

The owner of one of our general contractor clients once said to me (we are both huge Baltimore Ravens fans): “Lamar Jackson didn’t get a $250M Contract by going at it alone. He has coaches for almost every part of his game. That’s the same reason I wanted to hire you guys.” 

And he’s right! Hiring a coach or a consultant is something all the great athletes do to up their game, yet business owners are often hesitant to do the same! (Imagine trying to play tennis against Roger Federer without ever going to a coaching lesson) 

So, if you’re reading the above and wondering: 

• How do we become sophisticated like the top Contractors out there? 

• How do we set a strategy for the type of company we want to be? 

• How do we set a strategy for the type of work we want to chase? 

• How do we create a sales process that increases our hit rate? 

• How do we make our operations truly better and different? 

Then I hope you’ll reach out to us. Our consultants and coaches have hundreds of years of construction experience and are well-suited to help you make the kind of changes you are looking to make. If you’re ready to talk, then email me at mverderamo@wellbuiltconsulting.com 

Good luck, and happy growing. 

Spark Notes:

• Understanding a GC’s agreement with the owner can give subcontractors a competitive edge, as most subcontractors overlook how it impacts bidding and project awards.

• Private Lump Sum (Design-Bid-Build) projects are funded with private money, allowing owners to award contracts based on value and relationships rather than just low bids.

• To win these projects at higher profits, subcontractors must build strong GC relationships and demonstrate real value beyond just pricing.

• While private lump sum projects can be lucrative, they are not common for large-scale work, so they should be part of a broader business strategy.