7 - russ johnson_23 tocpa_usa_21-22 march 2016

8/18/2019 7 - Russ Johnson_23 TOCPA_USA_21-22 March 2016

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23rd International Conference of the

TOC Practitioners Alliance - TOCPAwww.tocpractice.com 21-22 March, 201, Tennessee, !"A

Transforming the CompetitiveBid Game:

A Sub-Contractors Mafia Offerto a General Contractor

Dr. Russ Johnson, Associate ProfessorEngineering and Technology ManagementWashington State UniversityUnites States

March, 2016


2/91

23rd International Conference of the TOC Practitioners Alliance - TOCPAwww.tocpractice.com

Dr !ussell "ohnson

Russ Johnson has been teaching and implementing

Theory of Constraints, Lean and Six-Sigma/Quality

Management tools and concepts in business and at

the university level since the mid-1980’s. His roles

as a business owner, university professor and

consultant have allowed him to blend common

sense approaches that bridge the gap between

theory and application. He became a CertifiedAssociate of the Avraham Y. Goldratt Institute in

1991. He served as an instructor with the Goldratt

Schools and as a TOC Application Expert and

Project Leader on some of the first Viable Vision

Projects in the US from 2004-2008. He holds

numerous TOCICO certifications and currently

serves on their board of Directors. He is the proud

Grandpa of 5, under 5, grandchildren.

Email:[email protected]

Phone: 970-581-0075


3/91


Original Scenario

for the Mafia Offer:Well established and respected millwork (high

end woodworking) company• Annual sales of $15mm-$17mm• uffered $!"5mm loss

• #ank line of credit maed out $1"%mm• $1"&mm 1!'days past due accounts payable• $1mm owed to bonding company

• etention being held $1mm• *nder contractor with broker to sell

controlling interest (obtain outside in+estor)


4/91


Challenges

• ,o cash

• ost suppliers who would supply were cash ./# or 0/

• ost work a+ailable to bid re2uired bonding

• 3ack of materials killed gains from #4 00 and full kit

• #$en if client won the %id with a &C, the &C still had to win

the o$erall %id for client to 'et (o%ositi+es

• 6ad one4 local contract that was big enough to co+er / for

at least & months ($&mm)• ome suppliers on another mafia offer tied to large

contract


5/91


#ormat of toda$%s

presentation• resent the offer as it was presented to the

prospecti+e 8eneral 0ontractor

• lide animation has been remo+ed by replacingwith multiple slides

• upporting slides that had been linked from otherslides ha+e been placed into presentation body

• .ollowed by9

• iscussion of 80 reactions during and after thepresentation

• : and A including suggestions or changes neededto use in other en+ironments


6/91

&

To build a thriving future

8eneral

0ontractor

)*+ &or'ing Together:

(everaging past success


7/91


Our shared frustration

• /ur hit rate on competiti+e bids is much lessthan wanted

• ;ncrease bid staff decrease bid staff

• ;t

• #id more =obs witch to negotiated

contracts• on


8/91


)uantif$ing the

value of a solution

ecalling battles lost

What was the approimate +alue of those lost

=obs?

What was the profit opportunity represented by

those lost =obs?

What would this ha+e represented to youpersonally?


9/91


The problem

o we ha+e agreement on the problem we wantto sol+e?

e want to win more wor

O%stacle /roppin' or price % an additional1-2 wold win more %ids %t,

e ha$e fond no consistent wa to do this

other than frther trimmin' or mar'ins and,That is not accepta%le or we wold alread%een doin' it


10/91


Brea'ing the barrier

What if we pro+ide the money?

AC Millwors offers a discont on or %ase%id sfficient to allow o to drop or total

%id, on selected pro(ects, % 1-2.


11/91


*+pected impact

#enefits to @B9

• #ring $!''mm or more new business to yourcompany per year

• o this without endangering your margins onthose additional =obs

• inimal effort and little if any additional cost

6ow?

• Creat the symptoms by treating the disease


12/91


Moving from s$mptoms

to a common cause

Diew A

Diew #

Cwo +iews of reality9E Diew FA<

E Diew F#


13/91


Diew A

Diew #Cwo +iews of reality9

E Diew FA<

E Diew F#

EWhat if +iew FA< actually resides within +iew F#


14/91


The bidding dilemma

ignificantly impro+e our bottom line through the competiti+e bid process

/ur current competiti+e bid GhitH rate is

much less than desired9

We are winning !-% =obs for e+ery 1' bid

We ha+e no desirable and reliable

strategy to significantly increase our

GhitH rate

/ur eistingbidding staff is

pushed hard to

submit more bids

We need to double

the number of =obs

we win


15/91








GhitH rate

/ur eisting biddingstaff is pushed

hard(er) to submit

more bids

/ur bidding capacity would

be 2uickly ehausted

Che number of =obs won

would go down significantly/ur bid hit rate would

actually go downI we

would be working

proportionately

harder for the work

we won

/ur bid 2uality goes down

The bidding dilemma

We need to double

the number of =obs

we win


16/91








GhitH rate

We need toimpro+e the /; on

our bidding staff

Chere is pressure to

reduce our bidding staff


pushed hard(er) to

submit more bids


be 2uickly ehausted


would go down significantly/ur bid hit rate would


would be working

proportionately

harder for the work

we won


The bidding dilemma

We need to double

the number of =obs

we win


17/91








GhitH rate


be 2uickly ehausted


would go down significantlyAny cost

sa+ings from

=ob cuts

would beeclipsed by

reductions in

sales

/ur bid hit rate would


would be working

proportionately

harder for the work

we won


The bidding dilemma


our bidding staff

We need to double

the number of =obs

we win


pushed hard(er) to

submit more bids

Chere is (more and

more) pressure to



18/91








GhitH rate


be 2uickly ehausted



sa+ings from

=ob cuts

would beeclipsed by

reductions in

sales



would be working

proportionately

harder for the work

we won


The bidding dilemma


our bidding staff

We need to double

the number of =obs

we win


pushed hard(er) to

submit more bids

Chere is (more and

more) pressure to



19/91


An in,ection into the

GC%s current realit$

We ha+e a desirable and reliable

strategy that doubles our GhitHrate without cutting our margin


20/91






e ha$e a desira%le and relia%le

strate' that do%les or 4hit5

rate withot cttin' or mar'in

Solving the bidding

dilemma


21/91






We would double

the number of =obs

we win




/ur current biddingstaff would win !@

more =obs

/ur bid 2uality goes up


be 2uickly epanded


would go up significantlyWe would be

working

proportionately

easier for thework we won

Solving the bidding

dilemma


22/91






Chere is less (and less)pressure to reduce

our operations costs




/ur current biddingstaff would win

!@() more =obs

/ur /; for ourbidding staff (more

than) doubles



be 2uickly epanded


would go up significantlyAny cost sa+ings

from =ob cuts would

be eclipsed byincreases in sales

We would be

working

proportionately

easier for thework we won

Solving the bidding

dilemma

We would (more than)

double the number of

=obs we win


23/91


Agenda(for the offer meeting with the GC)

• 0ome to a common understanding of the

problem• Co determine the +alue of such a solution to

your organiJation

• Co present the details of the proposedsolution

• Co determine how we can Gwork togetherHto make the proposal a reality"


24/91


Ma'ing the

missing lin'. a realit$

We ha+e a desirable and reliable strategy that

doubles our GhitH rate without cutting ourmargin

What does G/esira%leH ean?

What does G6elia%leH ean?6ow can we claim to Gdo%le or hit rate5?


25/91


&hat does desirable.

mean/

Co make use of the strategy the 80 doesn


26/91


&hat does reliable.

mean/

;n making use of the strategy4 the results are

redictable K we ha+e taken actions so weha+e a high le+el of confidence that the

results we want will be the results we get


27/91


The outcomes of

several bids

Lob 1 @ @ @ * @ @ @

3ow ' 6igh

* M our companyNs bids @ M 0ompetitor


28/91


Lob 1 @ @ @ * @ @ @Lob ! @ @ * @ @ @

3ow ' 6igh* M our companyNs bids @ M 0ompetitor


29/91


Lob 1 @ @ @ * @ @ @Lob ! @ @ * @ @ @

Lob O @ * @ @ @ @

3ow ' 6igh



30/91


Lob 1 @ @ @ * @ @ @Lob ! @ @ * @ @ @

Lob O @ * @ @ @ @

Lob % @ @ * @ @ @ @

3ow ' 6igh



31/91


Lob 1 @ @ @ * @ @ @Lob ! @ @ * @ @ @

Lob O @ * @ @ @ @

Lob % @ @ * @ @ @ @Lob 5 @ @ @ @ * @ @

3ow ' 6igh



32/91


Lob 1 @ @ @ * @ @ @

Lob ! @ @ * @ @ @

Lob O @ * @ @ @ @

Lob % @ @ * @ @ @ @Lob 5 @ @ @ @ * @ @

3ow ' 6igh



33/91


Lob 1 @ @ @ * @ @ @

Lob ! @ @ * @ @ @

Lob O @ * @ @ @ @

Lob % @ @ * @ @ @ @Lob 5 @ @ @ @ * @ @

3ow ' 6igh



34/91


The !ealit$ of the

bidding 0orld

"%mitted

id 6an'e

id too hi'h for consideration

id too low7 Owner is neas

idder wants to recall or

modif as the are concerned

somethin' was missed

)

))

)

)

)

)

The !ealit$ of the


35/91


ids within ran'e of

consideration. 8 spread is

sall no more than2-9 at the &C le$el

)

))

)

)

)

)

The !ealit$ of the

bidding 0orld

"%mitted

id 6an'e

id too hi'h for consideration

id too low7 Owner is neas

idder wants to recall or

modif as the are concerned

somethin' was missed

The !ealit$ of the


36/91


)

))

)

)

)

)

ids within ran'e of

consideration. 8 spreadis sall no more than

2-9 at the &C le$el

ids still too hi'h with little

chance of winnin' wor %ased on

%etter :alit, relationship, etc.

"%mitted

id 6an'e

The !ealit$ of the

bidding 0orld

The !ealit$ of the


37/91


ids in serios contention for (o%."econd place has chance of winnin'

wor %ased on %etter :alit,

relationship, etc., %t will liel %e

pressred to match low %id price

)

))

)

)

)

)

ids within ran'e of

consideration. 8 spreadis sall no more than

2-9 at the &C le$el

ids still too hi'h with little

chance of winnin' wor %ased on

%etter :alit, relationship, etc.

"%mitted

id 6an'e

The !ealit$ of the

bidding 0orld

The impact a small


38/91


The impact a small

change can ma'e

If %ids are within 2 of

each other, the a%ilit to

redce or total %id % (st 1 wold mo$e o

from

A to or C to /

ids in serios contention for (o%. "econd

place has chance of winnin' wor %ased on

%etter :alit, relationship, etc., %t will

liel %e pressred to match low %id price

ids still too hi'h with little chance of

winnin' wor %ased on %etter :alit,

relationship, etc.

)

))

)

)

)

)

A

C

/

"%mitted

id 6an'e

The impact a small


39/91


"%mitted

id 6an'e

ids in serios contention for (o%. "econd place has

chance of winnin' wor %ased on %etter :alit,

relationship, etc., %t will liel %e pressred to

match low %id price

ids still too hi'h with little chance of winnin' wor

%ased on %etter :alit, relationship, etc.

)

))

)

)

)

)

ids within

ran'e of

consideration.

A

C

/

#

;

&

If %ids are within 2 of each other

the a%ilit to redce or total %id

% (st 1 wold mo$e o from

A to or C to /

The impact a small

change can ma'e

If %ids are within 9 of eachother the a%ilit to redce or

%id % (st 1 wold mo$e o

from # to ; or ; to &


40/91


Doubling $our hit rate

;mpact of your resultsif you could ha+e lowered your bid by =ust 1>?

Lob 1 @ @ * * @ @ @Lob ! * @ * @ @ @

Lob O @ * * @ @ @ @Lob % @ * * @ @ @ @Lob 5 @ @ * @ * @ @

3ow ' 6igh* M our companyNs original bids @ M 0ompetitor


41/91


;mpact of your resultsif you could ha+e lowered your bid by =ust 1>?

Lob 1 @ @ * * @ @ @Lob ! * @ * @ @ @Lob O @ * * @ @ @ @Lob % @ * * @ @ @ @Lob 5 @ @ * @ * @ @

3ow ' 6igh

* M our companyNs original bids @ M 0ompetitor


42/91


;mpact of your results if you could ha+e lowered your bid by1>?

Lob 1 @ @ * * @ @ @Lob ! * @ * @ @ @Lob O @ * * @ @ @ @

Lob % @ * * @ @ @ @Lob 5 @ @ * @ * @ @

3ow ' 6igh

* M our companyNs original bids @ M 0ompetitor


43/91


Criteria for a good solution

"ol$es a ma(or partner pro%lem while9

– aking them their cstomer?s preferred spplier

– aking it +ery difficlt for their competition tocop

;mpacts a lar'e eno'h maret

e can 4sell5 it in the target market

st not create 4real ris5

st not e@hast the or'aniation?s resorces

Ma'ing the missing lin'


44/91


Ma'ing the missing lin'

a realit$

AC pro$ides the dollars needed to lower the total

%id % 1-2

Bow

A si'nificant price redction, p to 20, on the part

of our bid that is self performed#@cldes materials4 buyouts4 subcontracts4 shipping

and like elements that are pass through dollarsI

$ we collect for others

uts the 80


45/91


An e+ample of the

impact of the offer

:ualifying portion iscount applied

of A#0 bid 1'> 15> !'>

$%4'''4''' $%''4''' $&''4''' $P''4'''#ase 80 bid ;mpact of discount on total 80 =ob bid

$!54'''4''' -1"&'> -!"%'> -O"!'>

$5'4'''4''' -'"P'> -1"!'> -1"&'>$754'''4''' -'"5O> -'"P'> -1"'7>

$1''4'''4''' -'"%'> -'"&'> -'"P'>

$15'4'''4''' -'"!7> -'"%'> -'"5O>Che larger our portion of the =ob4 the larger the ability

of our discount to reduce the total =ob price

Are 0e meeting our


46/91


g

criteria.

• akes the 80 their cstomer?s preferredspplier

• 8ets your bid into the 4'reen one5

;s +ery difficlt for or competition to copQ

• 6ow much luck do you think your competitorswould ha+e con+incing a sub to drop their bid

by enough to lower the 80-!>?

QGifficult to copyH assumes an eclusi+e

arrangement with a partner 80

A bi h M ' t/


47/91


A big enough Mar'et/

/ffer is best le+eraged on =obs with high millwork tototal =ob content ratios9 the higher the better

iscount Winning =ob bid A#0>Aaaa 6D 81E0,000 8 39mm -.9


48/91


ABC program target

Add $1'-!'mm in e@tended hors self-performed wor

;f each =ob contains $!-%mm of self-performed millwork

then reaching our goal9• Would re2uire winning 5-1' =obs through the program

• ;f the program hit rate is &'-P'> then this would

re2uire bidding P-15 =obs (+ersus up to %5 =obs)

• ;f a+erage discountable millwork content was 1'> oftotal 80 =ob price this would e2uate to an additional

8100mm - 8200mmF to the &C?s annal %oo of%siness

0lick here for an eample of the financial opportunityS+alue of the offer

for the partner 80


49/91

"elf-performed millwor as of total (o% 8Galifin' portion 2 9 10 19

of AC %id 2ui+alent 80 total =ob price (A#0 $ S > millwork of total =ob $)

8900,000 $!54'''4''' $1'4'''4''' $54'''4''' $O4OOO4OOO

80 net profit T !> $5''4''' $!''4''' $1''4''' $&&4&&7

80 net profit T 5> $14!5'4''' $5''4''' $!5'4''' $1&&4&&7

81,000,000 $5'4'''4''' $!'4'''4''' $1'4'''4''' $&4&&&4&&7

80 net profit T !> $14'''4''' $%''4''' $!''4''' $1OO4OOO

80 net profit T 5> $!45''4''' $14'''4''' $5''4''' $OOO4OOO

$1,900,000 $754'''4''' $O'4'''4''' $154'''4''' $1'4'''4'''

80 net profit T !> $145''4''' $&''4''' $O''4''' $!''4'''80 net profit T 5> $O475'4''' $145''4''' $75'4''' $5''4'''

$2,000,000 $1''4'''4''' $%'4'''4''' $!'4'''4''' $1O4OOO4OOO

80 net profit T !> $!4'''4''' $P''4''' $%''4''' $!&&4&&7

80 net profit T 5> $54'''4''' $!4'''4''' $14'''4''' $&&&4&&7


50/91

"elf-performed millwor as of total (o% 8Galifin' portion 2 9 10 19

of AC %id 2ui+alent 80 total =ob price (A#0 $ S > millwork of total =ob $)

82,900,000 $1!54'''4''' $5'4'''4''' $!54'''4''' $1&4&&&4&&7

80 net profit T !> $!45''4''' $14'''4''' $5''4''' $OOO4OOO

80 net profit T 5> $&4!5'4''' $!45''4''' $14!5'4''' $POO4OOO

83,000,000 $15'4'''4''' $&'4'''4''' $O'4'''4''' $!'4'''4'''

80 net profit T !> $O4'''4''' $14!''4''' $&''4''' $%''4'''

80 net profit T 5> $745''4''' $O4'''4''' $145''4''' $14'''4'''

8 $%4'''4''' $14&''4''' $P''4''' $5OO4OOO80 net profit T 5> $1'4'''4''' $%4'''4''' $!4'''4''' $14OOO4OOO

89,000,000 $!5'4'''4''' $1''4'''4''' $5'4'''4''' $OO4OOO4OOO

80 net profit T !> $54'''4''' $!4'''4''' $14'''4''' $&&&4&&7

80 net profit T 5> $1!45''4''' $54'''4''' $!45''4''' $14&&&4&&7

Can 0e sell. it/


51/91


Can 0e sell it/

Carget markets

• 6igh millwork $ to total =ob $ (6otelSresort remodels)

• ,egotiated contract prospects

*se the offer9

artner 80 in+ited to bid

• Che partner 80 prepares their best bid as normal• A#0 prepares our best bid as normal

• A#0 prepares a separate sheet identifying the discount

a+ailable to be taken and any limitationsSconditions• Che partner 80 deducts the desired amount of the

offered discount from their total bid price and submitstheir bid (What if A#0


52/91


Thoughts so far

0ould work

8ood deal for the 80

till ha+e some 2uestions """

A#0 holds risk so9

Bow does it wor or mae sense for sH

What do we epect in return from the 80 making

use of the offer?

oes e+ery 80 ha+e access or is it eclusi+e to @B?

1o0 are 0e able to


53/91


offer this discount/

/ur offer assumes that9

Chis work will be performed during etended

hours9Weekends andSor !ndSOrd shifts

Chis work does not ha+e to support the fied

components of our monthly operating epenses9rent4 insurance4 loan payments4 etc"

Chere


54/91


discount

Con$ertin' fi@ed o$erhead to mar'inprofit ?s are conceptalD

1' 1' 1'

O' O' O'

O' O' O'

1' 1' 1'

15

5!'

1'

'

!'

%'

&'

P'

1''

1!' !'> discount on self

performed work

argin and profit

.ied o+erhead

roportional o+erhead

irect labor

aterials

ubsSbuyouts

#inancial source of the


55/91


discount


1' 1' 1'

O' O' O'

O' O' O'

1' 1' 1'

15

5!'

1'

'

!'

%'

&'

P'

1''


performed work

argin and profit

.ied o+erhead


irect labor

aterials

ubsSbuyouts

A#0

&C

#inancial source of the

di t


56/91


1' 1' 1'

O' O' O'

O' O' O'

1' 1' 1'

15

5!'

1'

'

!'

%'

&'

P'

1''


performed work

argin and profit

.ied o+erhead


irect labor

aterials

ubsSbuyouts

discount


A#0

&C

Minimi2ing real. ris'


57/91


Minimi2ing real ris'

6ow much discount does A#0 offer?

6ow much discount does 80 use?

aimum discount must still be profitable

0ash flow risk still eists9

etention

O'-R' days or more in+oice-payment gap

e are willin' to e@chan'e mar'in for cash flow

Thoughts so far


58/91


Thoughts so far

;t


59/91


g

If the &C ses the discont to 'et the (o%, AC also'ets the (o%

AC will not %e ased to frther lower their pricenless it is tied to a chan'e in scope or similar isses

AC will not %e s%(ect to retention

All paments for AC related materials, s%contracts,and %ots will %e $ia 4Joint Chec5 or 4/irectPament5 % partner &C and will %e in fll, noretention

Pament for AC?s portion of in$oices will %e madewithin 19 das of s%mittal, all others within 30 das

Details needing

l ti


60/91


resolution

laying games with pricing

Why partner 80 wants other millworkers to

pro+ide them with bids

Why partner 80 wants A#0 to submit bids to

other 80s bidding on the same =ob

3la$ing games 0ith the

pricing


61/91


pricing

Why wouldn


62/91


mill0or'ers to bid ,ob

ome other millwork company may submit a bid thatwould beat e+en A#0


63/91


to other GCs on the same ,ob

A#0


64/91


roposed solution9 A#0 submits its standard bid to all80s re2uesting a bid for a specific =ob and will submit thesame standard bid to our partner 80 if they are biddingthe same =ob" Che partner 80 will be the only 80 whohas the additional discount a+ailable" We do4 howe+er4recogniJe that our best odds of GwinningH the =ob will be

+ia our partner 80"Chis allows A#0 to stay in the running for the o+erall =ob

regardless of which general contractor wins the bid

educes the potential financial risk to A#0 which allowsus the ability to offer the deep discount on theetended hours work while maintaining someprofitability

to other GCs on the same ,ob

The bidding dilemma


65/91

23rd International Conference of the TOC Practitioners Alliance - TOCPAwww.tocpractice.comignificantly impro+e our bottom line through the competiti+e bid process






GhitH rate


be 2uickly ehausted



sa+ings from

=ob cuts

would be

eclipsed byreductions in

sales



would be working

proportionately

harder for the workwe won



our bidding staff

We need to doublethe number of =obs

we win

/ur eisting

bidding staff is

pushed hard(er) to

submit more bids

Chere is (more andmore) pressure to


Solving the bidding

dilemma


66/91





Chere is less (and less)pressure to reduce





/ur current bidding

staff would win

!@() more =obs

/ur /; for ourbidding staff (more

than) doubles



be 2uickly epanded

Che number of =obs wonwould go up significantly

Any cost sa+ings

from =ob cuts would

be eclipsed by

increases in sales

We would be

working

proportionately

easier for the

work we won

dilemma

We would (more than)double the number of

=obs we win

Offer summar$ so far


67/91


ol+e ma=or problem

Che solution

6ow solution works

6ow A#0 can offer it

What is epected of the 80

:uestions you ha+e to this point

o+ing on to clusi+ity

*+clusivit$ issues


68/91


easons why the 80 would want the offer to beeclusi+e to them

easons why A#0 wouldn


69/91


e+clusivit$

/ffer has no +alue to any one 80 if any other 80has same deal

Cwo or more 80s with the same offer bidding

the same =ob =ust lowers the price bar for

e+eryone

&h$ ABC doesn%t 0ant

e+clusivit$


70/91


e+clusivit$

Che more 80


71/91


All 80s bidding a specific =ob get the offer

tend the offer to a Gelect .ewH 80sake the GofferH eclusi+e to one4 and only one4

partner 809

• 8i+es 80 what they want

What +alue can the 80 offer in echange?

• itigate some of A#0


72/91


0ommon solution might be a commission4

'"!5 to '"5> of 80 total =ob bid price

for =obs won using the offer"

What would that look like?

*+ample commission

structure


73/91


elf-performed millwork as > of total =ob $

A#0 !'> :ualifying portion !> 5> 1'> 15>

discount of A#0 bid Cotal =ob price (A#0 $ S > millwork of total =ob $)

$1''4''' $5''4''' $!54'''4''' $1'4'''4''' $54'''4''' $O4OOO4OOOA#0 0omm T'"5> $1!54''' $5'4''' $!54''' $1&4&&7

A#0 0omm T'"!5> $&!45'' $!54''' $1!45'' $P4OOO

$!''4''' $14'''4''' $5'4'''4''' $!'4'''4''' $1'4'''4''' $&4&&&4&&7

A#0 bonus T'"5> $!5'4''' $1''4''' $5'4''' $OO4OOOA#0 bonus T'"!5> $1!54''' $5'4''' $!54''' $1&4&&7

$O''4''' $145''4''' $754'''4''' $O'4'''4''' $154'''4''' $1'4'''4'''

A#0 bonus T'"5> $O754''' $15'4''' $754''' $5'4'''

A#0 bonus T'"!5> $1P745'' $754''' $O745'' $!54'''$%''4''' $!4'''4''' $1''4'''4''' $%'4'''4''' $!'4'''4''' $1O4OOO4OOO

A#0 bonus T'"5> $5''4''' $!''4''' $1''4''' $&&4&&7

A#0 bonus T'"!5> $!5'4''' $1''4''' $5'4''' $OO4OOO

*+ample commission

structure


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elf-performed millwork as > of total =ob $

A#0 !'> :ualifying portion !> 5> 1'> 15>

discount of A#0 bid Cotal =ob price (A#0 $ S > millwork of total =ob $)

$5''4''' $!45''4''' $1!54'''4''' $5'4'''4''' $!54'''4''' $1&4&&&4&&7A#0 bonus T'"5> $&!54''' $!5'4''' $1!54''' $PO4OOO

A#0 bonus T'"!5> $O1!45'' $1!54''' $&!45'' $%14&&7

$&''4''' $O4'''4''' $15'4'''4''' $&'4'''4''' $O'4'''4''' $!'4'''4'''

A#0 bonus T'"5> $75'4''' $O''4''' $15'4''' $1''4'''A#0 bonus T'"!5> $O754''' $15'4''' $754''' $5'4'''

$P''4''' $%4'''4''' $!''4'''4''' $P'4'''4''' $%'4'''4''' $!&4&&&4&&7

A#0 bonus T'"5> $14'''4''' $%''4''' $!''4''' $1OO4OOO

A#0 bonus T'"!5> $5''4''' $!''4''' $1''4''' $&&4&&7$14'''4''' $54'''4''' $!5'4'''4''' $1''4'''4''' $5'4'''4''' $OO4OOO4OOO

A#0 bonus T'"5> $14!5'4''' $5''4''' $!5'4''' $1&&4&&7

A#0 bonus T'"!5> $&!54''' $!5'4''' $1!54''' $PO4OOO

A problem and an

opportunit$


75/91


pp $

A#0 has a significant obstacle that blocks us from

committing to the offer and no commission structure

alone would o+ercome this obstacle"

O"TACK# AC is profita%le L. 1st D %t de to

crrent de%t strctre, we are not %onda%le.

ust consolidate debt to be HbondableH"

e are willin' to trade or 4e@clsi$itcommission5 for remo$in' the o%stacle.

Balance sheet details


76/91

/e%t load

"enior %an de%tN 8 1,3L0,000

#:ipment financin'N 8 330,000

ondin' sret ad$anceN 8 L90,000Acconts paa%le past deN 8 1,00,000

"hareholder related de%t 8


77/91


ecuring funding through a traditional bank loan

is unlikely in our current financial condition

without outside financial support"

Without other financial support4 we will sell a

controlling interest in A#0 to an e2uitypartner"

• The pro%a%ilit is a new e:it partner will

prefer AC sees hi'h mar'in (o%s, and madiscora'e, and more liel i'nore, this offer.

3artner GC removes the

obstacle


78/91


/ur partner 80 can Gshare the riskH and

gain eclusi+ity of the offer by either

pro+iding the needed financing directly or

supporting a bank loan in echange for a

significant commission reduction"

Che more fa+orable the loan terms4 thelower the commission"

(oan directl$ or support

a loan/


79/91


We belie+e it is in the best interest of our partner

80 to pro+ide this loan directly as9

•Offer can?t %e %loced % third part

•#arns interest for their spport.

•Tie the e@clsi$it of the offer to the drationof the loan"

!educing ris' of loan


80/91


•Che partner 80 would be in a senior position forcollateral assets offered by A#0"

•Che partner 80 can re:ire dal checs andSorthird party payment control on all AC (o%s4 not

=ust those with the partner 80

•Creates an incenti$e for %oth parties

•The &C?s re$ene from these (o%s woldeclipse the loan amont

89-10mm new profit per earD

Ma+imum financing

needed


81/91

"enior %an de%tN 8 1,3L0,000

#:ipment financin'N 8 330,000

ondin' sret ad$anceN

8 L90,000Acconts paa%le past deN 8 1,00,000

Operatin' fndsNN 8 1,000,000

Other nonshareholder de%tNNN 8 290,000Total otstandin' de%ts 8 9,300,000

N ;rom /e%t side of %alance sheetNN 6eplaces line of credit for da-to-da operations

NNN l is contractal o%li'ation to finance %roer

Ma %e lowered thro'h ne'otiated paoffs

Solving the bidding

dilemma


82/91





Chere is less (and less)

pressure to reduce





/ur current bidding

staff would win!@() more =obs

/ur /; for our

bidding staff (more

than) doubles



be 2uickly epanded

Che number of =obs wonwould go up significantly

Any cost sa+ings

from =ob cuts would

be eclipsed by

increases in sales

We would be

working

proportionately

easier for the

work we won

We would (more than)double the number of

=obs we win

&or'ing Together:

(everaging past success


83/91


PO

To build a thriving future

)uestions(3ast slide of the offer presentation)


84/91


Chank you for your time and attention"

Are there any 2uestions?

0omments?

Where do we go from here?

*vents during

presentation


85/91


Che @B reps easily followed the concepts and agreed to

ha+ing a shared problem in terms of poor /; on bidding

process efforts4 confirmed they often lost =obs by small

percentage (1> or less)4 and that they were unwilling to

drop bid price any more resulting in hit rates of 1'>-!'>"

@B was intrigued by our super in=ection9 We would reduceour price enough (1'>-!'> ) to e2uate to 1>-!> of the

80


86/91


Che @B reps were gi+en time to digest slide O1 G80 using

the offer must U and

aised the predicted reser+ations (,#


87/91


Che @B reps9

Agreed they would want eclusi+e access to the offer andagreed that ha+ing that eclusi+ity re2uired some form of

+alue in echange for it"Agreed they were +ery interested4 understood and belie+ed thedetails of the offer"

Wanted to know if the offer could be applied to some =obs

currently being bid without resolution of the loan issue";dentified that they were not in an appro+alScommitment

capacity so needed and wanted to take concept up the ladderto the corporate management le+el that could appro+e and

would do so before week


88/91


Che re2uested documentation was pro+ided the net day(Cuesday) with an offer to assist with presenting the concept upthe ladder if neededSwanted" @B felt confident in taking the

message on"Che @B reps called that .riday with an update" *ppermanagement was +ery interested but had four ma=or concerns9

1" Chey were unsure what the ramifications would be on theirability to pursue specific =obs4 especially go+ernment work4 ifthe loan created the reality4 or e+en perception4 of themha+ing an e2uity interest in A#0

!" Chey are employee owned and needed to be sure the loanwas good for the company and that they could con+ey thisto the employees"

*vents follo0ing

presentation 5continued6


89/91


Che @B reps called that .riday with an update" *pper

management was +ery interested but had four ma=or

concerns9O" Chey didn


90/91


While the remaining obstacles were being o+ercome with

@B4 A#0 recei+ed an offer to purchase through its broker

that was accepted"Che buyer was able to negotiate a combined pay down with

the bank and bonding company to $5''4'''"

A#0 officially ceased to eist lea+ing the other creditors4 meincluded4 with no options but to eat the outstanding debt"

Che new owners were deeply imbedded in traditional cost

accounting thinking and had their own plans for thecapacity they had purchased so they werenNt e+en made

aware of the offer"

)uestions from this

TOC3A group/


91/91


Chank you for your time and attention"

Are there any 2uestions?

0omments?

Choughts on how to change the offer for

other similar en+ironments

7 - russ johnson_23 tocpa_usa_21-22 march 2016

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