The Zillow of Highway Work

If you are anything like me, you may have wondered what it would be like to move into a gorgeous home in a different part of the world or country. A couple of years ago, I had the pleasure of traveling to Santa Barbara, California for a long weekend. The hotel had an impeccable view of the Pacific Ocean, a lovely pool, and easy access to the beach.

Photo: Kayak

When visiting a place with which one is unfamiliar, it is easy to observe only the positives and overlook the potential drawbacks such as cost of living, taxes, and other attributes. So, what did I do? Of course, I opened the Zillow app to see what the local real estate market had to offer for lodging. I found a place that was worthy of being featured in a Peloton advertisement. It was modern, sleek, and had a breathtaking patio where lucky souls could watch the sun melt into the ocean at dusk while cozying up over a fire pit. The only slight drawback was the small issue of price that the brokers expected, which was shall we say in a different stratosphere of what a reasonable person should expect to cough up for an abode. My experiment ended there. The accessibility to house hunting fantasy provided by real estate applications was mocked in Saturday Night Live’s skit referring to Zillow as the new “real estate” pornography.

Photo: Today

Applications like Zillow enable people to explore possibility without making any real financial commitment other than their time. Shadow bidding on highway work accomplishes a like objective.

What is shadow bidding?

Shadow bidding is the practice of preparing an internal cost estimate and price for a project, often unbeknownst to folks outside the company, without actually submitting a price. Once the bid tabulations showing the prices of contractors who submitted bids are made available, the shadow bidder conducts an analysis to observe any major gaps between their shadow bid and the other contractors and see what it might have taken to win the job.

Why do contractors shadow bid?

It is a relatively risk-free way to conduct research and development as highlighted by the following examples:

1.     A contractor traditionally focused on asphalt work is considering adding concrete work to their scope of services. Shadow bidding enables the team to familiarize themselves with the new type of work and helps determine what expected profit/loss should be expected on the new venture.

2.     A contractor is pondering expansion to a new geography with a different competitive landscape. Shadow bidding helps familiarize the firm with different specifications/customs and get a better feel for the market.

Benefits to consider:

• Financial risk is low as this is akin to playing blackjack with $0 chips.
• It is a quick avenue to "No" on a poor strategy.  
• Learning is occurring.
• Working with a real bid deadline and simulated competitiveness naturally promotes some excitement.
• Data is introduced into decision-making processes.
• Contractors may find out where they need to be from a profitability standpoint to win similar work.

Drawbacks and mitigation strategies:

• If confidentiality matters, it may be wise not to solicit subcontractor and supplier pricing and consider using “plug” pricing based on historical quotations or weighted unit averages on subcontracted items of work instead. People talk.
• There is no substitute for a real bid and the lessons gleaned during the real bidding and construction life cycle.
• Simulation may not represent reality if a contractor does indeed decide to add a new work capability or enter a new market. Sometimes, expensive lessons are learned in unchartered territory when developing a new competency. Further, new geographic entrants are sometimes greeted by incumbents with the gift of rock bottom pricing for a period.
• While potentially beneficial for research and development, shadow bidding may become a drain on resources if overdone. Team members could become disillusioned if it becomes the norm and management does not make a move to add or expand in a reasonable timeframe based on some predefined parameters. Moderation, common sense, and clear communication of expectations prevail.

Shadow bidding is a method to help answer the question: What If? Like Zillow, it costs relatively little to conduct this practice. Still, it is not without organizational risk. When applied and managed appropriately, it can be a beneficial exploration tool for highway contractors looking to add or expand.

Thank you for reading our post. At Edgevanta, our proprietary SaaS platform enables highway contractors to track and forecast critical market dynamics and increase the predictability of the project acquisition process.

Sincerely,

Tristan Wilson

CEO and Founder

Edgevanta, LLC

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