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PART 1: Why the Vendor Bidding Process Is Broken (and What It’s Costing Property Managers)
Manage episode 456409306 series 3019380
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It’s been a long time since we put out an episode of The Property Management Show and today we’re excited to talk with RoDevia Brigham, the founder and CEO of Proposabid.
The vendor bidding process is an entire industry on its own, and this is a topic we have not covered before on the podcast.
Introducing RoDevia and Proposabid
Proposabid does bids and estimations for properties and repairs across US. Their niche client base is property management companies, real estate investors, and mom-and-pop investors. They work with people who do not know how to go about sourcing bids for work.
The idea for this company came from a shower moment. RoDevia’s background is in computer science and IT, specifically cyber security. She has an approach to her work that follows an “if this, then that” process. She’s always thinking about how to automate things. While in the shower, she asked her partner an important question: What could she automate if she could automate anything in her day as a property manager?
The answer was: bidding. She said if she could just get good bids that reflected apples for apples, and those bids came in on time, and vendors would pick up the phone and submit things relevant to the work that needs to be done, then she could submit those to her property owners who could make financially responsible decisions. That, she said, would be great.
RoDevia took all of that seriously, knowing it was an everyday problem for her partner’s clients. Four years later, Proposabid is doing the work that needs to be done.
Property Management’s Vendor Bidding Problem
The vendor bidding process in property management is essentially broken RoDevia believes. While it seems like most property managers know their vendors and have good relationships in place, why would bidding be necessary at all?
RoDevia and her company focus on projects that need three bids, minimum. The process at a high level looks like this:
- A property manager has to contact the three companies
- Three different prices are submitted
- Proposals have to be gathered
- The lowest bidder is selected
But in that process, there are some key items that a property management company’s staff might not be familiar with or cannot do.
The phone calls and the emails go back and forth. Then, there’s the hurry up and wait while those bids come in. This can be immediate, but usually it takes a couple of weeks. Sometimes, you won’t get the bids in at all.
When those do bids come in, you have to compare them:
- Are they apples for apples?
- Do they come with the right warranty?
- Are they offering considerations or concessions?
- Is scope of work correct for the price?
- Are the vendors even qualified?
- Are they in a database for licensing and insurance?
Then, you may need to make corrections to the bid, and that could include going back to the phone calls and the emails. Bids are re-submitted and reconsidered.
Once you have something everyone agrees on, a property manager will go ahead and submit those bids to your property owner or the landlord, and together you might decide on the vendor. That process alone can take a couple of weeks or months or in some cases, it may not even get done.
Someone has to be responsible for this process. It could be a director or an asset manager or an office manager. Maybe you have in-house maintenance folks who are taking all of these bids and working on the information. This can add up to 10 hours a week, which might cost 400 to 520 hours per year. All of that labor comes with no guarantee that those bids are even getting done, and those are hours that can be utilized elsewhere in your business.
Financially, the costs of a broken bidding process can be $30,000 to $40,000 lost purely on bid management. When you’re considering the roofers, the asphalt, the mold remediation, building codes, and things like that, you have to consider how the vendor bidding process looks across multiple owners. Property management staff is busy collecting rent and going to court and dealing with residents. They may not have the time to deal with this process across all the properties you manage.
Standardization is necessary but not always present when it comes to RFPs and bidding. If you don’t have a consistent and standard Request for Proposal (RFP), how do you attract the right vendors? You need to understand project requirements and have direct comparables, otherwise staff will have trouble closing on those bids.
There’s also the problem of limited reach. Vendors may not be responding to calls or emails, and time is wasted. Owners might find themselves facing fines and penalties because inspections and permits are expiring. You might choose the first bid that comes along out of desperation, which might not be the right one.
There’s sometimes a lack of transparency. If you don’t have the right vendors in place and the right RFPs in place, you don’t have the transparency you need. You’re getting the only bids that you can and that’s not the best thing to do.
Proposabid has two clients: the vendors and the property owners. The business is run anticipating what they each need.
That’s the part that’s broken, RoDevia says. Taking responsibility off the plates of the property managers and handing it over to a third party who can take the time to make this process work is the way to fix it. This is all they do at Proposabid; her team can allocate time and resources to some of the most important aspects of property management.
Project Management for the Bidding Process
The bidding process requires a lot of project management and knowledge.
Bidding happens for bigger ticket items. Maintenance coordinators within a property management company may be in charge of communicating with vendors over day-to-day preventative maintenance and immediate repairs that are needed at a rental property.
Larger projects are anything that requires three bids or more. These might be insurance claims or capital improvements. They’re often projects that will cost between $50,000 and several millions of dollars. If you have to lay asphalt or concrete or you need a new roof or you’re installing adjustable arms for your parking garage, you need to source out those bids. Property managers may have on-site staff that can do the sourcing, but it’s going to depend on the property and the project.
RoDevia offered a couple of statistics that show why time can be wasted and inefficiencies can be present in this part of the property management process.
- Thirty (30) percent of vendors will actually submit a proposal when asked. Why is it that when properties are calling vendors, they’re not responsive? Part of it has to do with there not being an RFP, or the RFP is too vague. If a vendor has no information to work with, they’re not going to submit bids. It may be resource constraints, and vendors don’t have time to respond to those bids. Or, they’re focused on other bids that have a higher dollar amount, or are found in better neighborhoods. Vendors also tend not to submit to properties with a poor reputation. Let’s say you had a roofing project you needed done two years ago and you sourced and collected bids but never awarded anyone a contract. Four years later you’re re-asking for bids from these same folks, but they’re not going to trust that you’re actually going to award a bid. There’s a lack of trust.
- Some bids may vary by as much as 150 percent. How can this be? It may have to do with contractor overhead, or it could be the market conditions or the bidding strategy. Insurance costs are going up, for example. There’s office space and labor to pay for. If a contractor has high administrative costs, their bid can be 30 to 50 percent higher than others. When we talk about market conditions impacting the bidding process, there might be a scarcity of materials and labor shortages. There’s inflation. Bidding is also seasonal. A roofing bid in Wisconsin during November will be much lower than it might be in the spring.
Bidding strategies depend on the company. Larger and established firms may have a 20 to 40 percent buffer while smaller and newer companies might be more competitive.
The Importance of the RFP and Scope of Work
Marie thought she had a roof issue, but it turned out to be a mold issue. Looking for roofers took time, and there were drastically different bids from two roofers. The mold problem had to be addressed immediately, so by working with Proposabid, seven or eight bids came in within a few days.
There was a discrepancy with pricing.
With RoDevia’s help, Marie could create a matrix to compare how much each company was actually charging for the inspection and all the add-ons and testing fees. After reviewing the matrix, it turned out that the vendor who seemed most expensive was actually cheaper because the quote was all-inclusive.
There was time and effort requirement for one home. For a property manager sourcing bids for an apartment complex, it can be difficult to understand what you’re looking at when you have all these bids with up to a 150 percent variance in pricing.
How do you choose?
RoDevia says it depends on who is spending the money and what that person values.
The RFP is the dog whistle that gets the clear information to attract the right vendors.
Maybe the client values expertise. Or certifications. Communication might be most important when choosing a vendor. Customer service.
By sourcing at least five to seven bids, there’s a better chance of finding a vendor that will provide what’s needed and valued. It requires the right RFP.
A strong RFP and the sequential cadence on contacting vendors and giving them what they need will make a big difference. Maybe it’s floor plans or drawings or blueprints or recommendations from state or city.
When you receive those bids, take your top four bids with the good pricing, the right warranties, appropriate itemization, and an understanding of what they do and won’t do.
It depends on what does the client value. If they’re just looking for lowest price, then it’s more about who is spending the money and what the end result is. Are you looking for long term quality over immediate need? Are you choosing based on aesthetic or for longevity?
The RFP is the request for work. The scope of work is how that work gets done.
With Marie’s mold example, Proposabid created an RFP based on the intake that was done and from the test results. That’s how the scope of work was created. The vendors knew what was needed and could respond to the RFP.
The scope of work has to be rock solid, and property management companies don’t always have the resources to come up with a detailed and specific scope of work.
The necessary components in a Scope of Work include:
- Executive Summary
- Project requirements
- Timeline and milestones
- Budget and cost constraints
- Evaluation criteria
- Submission instructions
- What is the time frame and date line?
- Vendor qualifications and experience
- Legal compliance requirements
You need to provide information on how to contact you, and you need to explain the Q and A protocols.
At Proposabid, the RFP is created with clarity. Apple to apple comparisons are made. Evaluation is easier because there are clearly defined project goals and expectations. This reduces misunderstandings.
Think of the RFP as a Handshake
The RFP builds trust. It’s Iike a handshake.
When a vendor receives the RFP, thy can say no right away. Or they can ask for more information. Maybe they’ll want to do a site visit. You’ll attract the right vendor with higher quality bids.
An RFP can also provide a foundation for the properties when team members move to another department or new team members come on board. So instead of starting all over, you can pull the RFP when someone new comes on. There’s a paper trail and extra transparency.
Some of the repercussions for skipping an RFP might be:
- Misalignment with expectations between vendors and owners
- Increased project delays
- Difficulty comparing bids
- Damaged relationships with vendors because of lack of structure
RoDevia said a good RFP helps with fraud detection, too.
Wait, did RoDevia say “Fraud”? Stay tuned for Part 2 where we continue this discussion. We’ll also talk about common issues with collecting and analyzing vendor bids, as well as future trends to watch out for.
Make sure you’re subscribed to our YT channel or the FAH newsletter to not miss the next episode!
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The post PART 1: Why the Vendor Bidding Process Is Broken (and What It’s Costing Property Managers) appeared first on Fourandhalf Marketing Agency for Property Managers.
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