Educate owners and construction managers about the value of your work.
Four years ago, a new restaurant chain came to St. Louis, Mo. Five area general contractors bid on the project, including my own company. The lowest bidder, a general contractor who had not built any restaurants, won the project. Later, I heard the project was not going well, and eventually, the restaurant opening was delayed—much to the construction manager’s dismay.
Six months later, the same construction manager approached my company about the project, and we built the next five restaurants around St. Louis. The construction manager originally cared only about saving money when the first restaurant was built. But he found out the hard way that the low bidder did not save money. In fact, he paid more due to delays and mistakes that had to be fixed later.
I see examples like this all the time: The low price bidder wins the job, and you find out later that the job costs closer to what the other higher bidders proposed. The low bid resulted in delays, change orders and a lot of frustration for everyone.
Not every low bid is a bad bid—a highly qualified contractor can be the lowest bidder at times. But when a construction manager sees a particularly low figure, several potential pitfalls should be considered. The same rule applies when contractors receive bids from subcontractors. Whether the bid is coming from a general contractor or a subcontractor, the bid recipient needs to carefully consider the bidder’s experience level. New contractors trying to break into the industry or experienced contractors trying to expand their business are often the culprits of low bidding. Their lack of experience in a particular area is reflected in a bid that may be incomplete and as a result, low.
On other occasions, low bidders have the intent of getting their foot in the door by being the cheapest option. They are willing to assume more risk just to get the work, but this can produce disastrous results when the project does not go as planned. These companies typically go out of business in a year or two due to unsustainable financial practices such as this. But in the meantime, they take away work from financially stable general contractors and subcontractors.
The worst low bidders, however, are those who purposely submit an incomplete bid because they rely on change orders. This causes great frustration with the construction industry and is also where a huge quandary for general contractors begins. At some point, every GC has to wrestle with how to handle the extra costs generated from an incomplete subcontractor bid. We all work with certain owners or construction managers who we would never hand a $100 change order for one small detail one of our subs did not include in the bid. While we never want to appear as though we are trying to squeeze every penny out of our clients, at what point does it become too much to continue absorbing all the little costs? It is a judgment call each contractor must make.
Besides the obvious pitfalls of the low bid game—poor planning and poor quality of work—it creates an endlessly frustrating cycle for contractors who make honest efforts to get jobs based on expertise and high-quality work. Contributing to the cycle is the notion that high-quality construction work is a commodity. Owners and developers must recognize that value is different from price.
Low Bid Joe may not be able to offer value. How do you know that he has the right qualifications, will be transparent and fair and can get the job done on time and on budget? Everything you do not know about Joe may cost you time and ultimately, money.
A contractor who offers value may not be the one offering the lowest price (initially), but the benefits stack up immediately when the project starts moving forward. The contractor who offers the best value is the one who has a complete and thorough bid, has not cut any corners and understands the full scope of the project from prior experience. Good contractors provide value in not only their quality of work and ability to meet deadlines, but also in the good relationships and peace of mind they provide their clients.
To move our industry in a direction where the most qualified bidder is always considered the best option, we must educate owners and construction managers. It is a critical issue that requires collaboration from everyone in the industry to change. An actual shift in priorities must take place to emphasize high quality over low price in construction bidding.
The best thing you can do right now is position your construction company correctly. When you have a strong reputation and good relationships, you can afford to lose a few projects to the low bidders. Position yourself as the best option—not always the cheapest, but the best.
Although you cannot always beat the low bid, you can build a solid reputation to serve you better in the long run.
Key Ways to Position Your Construction Business
- Consistency: Your work is always the best quality.
- Experienced expert: You have done this type of project before with great results.
- Trustworthy: You are fair and transparent.
- On time: You plan ahead properly to avoid unnecessary delays.
- On budget: You present a thorough and clear bid to avoid any surprise expenses.
Construction Business Owner, February 2011
