The Myth of Bidding

Stephen Halonen Vercon News

Are you planning a construction project for a new or existing facility? If you are, you will be facing some demanding responsibilities.

Among them is the responsibility of choosing the contractor who will take care of all your needs for your project.

Unfortunately today, this decision is driven in large part by the bids contractors submit to construct your project. This drive results from the belief that bids are indeed the best way to assure you of the lowest possible initial cost of construction.

This belief is founded in myth.

Dispelling the myth begins with an understanding that the role you play requires that you make an informed and responsible decision for yourself and other stakeholders in your project. Part of a responsible and informed decision includes spending no less – and certainly not more – than is necessary to complete your DREAM, right?

The answer is obvious. As an owner you are entitled to a fair and competitive price for satisfying your needs and getting one is a part of making an informed and responsible decision. The real question is; how do you do that?

Bidding does not assure you of the lowest price for a solution to your needs and rarely, if ever, provides any assurance of the best price for a solution to your needs.

Study the following chart carefully. What you see down the left margin are items typically priced by general contractors from key sub-contractors and material suppliers. Across the top are four bidding general contractors. The data within the chart represents the component prices they use in tabulating their bid for your project.

Chart

Subcontract   Contractor 1   Contractor 2   Contractor 3   Contractor 4

Site Work       $155,000       $163,000        $146,000        $172,000

Concrete        $ 96,000        $ 80,000         $ 82,000         $ 90,000

Carpentry       $135,000       $116,000        $125,000        $104,000

HVAC             $305,000       $305,000        $290,000        $311,000

Plumbing        $ 30,000        $ 33,000         $ 30,000         $ 28,000

Electrical        $120,000       $105,000        $118,00          $120,000

Painting          $ 15,000       $ 11,000          $ 13,000         $ 14,000

Flooring          $ 21,000       $ 26,000          $ 27,000         $ 23,000

Total               $877,000      $839,000         $831,000        $862,000
By means of the traditional bid process, contractor three, with a price of $831,000 has the lowest bid and should, if the myth of bidding is believed, get the award for construction. Look carefully. The spread or range among bidders varies by 5.5% ($831,000 – $877,000).

The numbers shaded in the chart represent the lowest component price for each sub-contracted component of the total bid. The true lowest price for the project is $785,000 or an additional 5.5% below the lowest bidder!

Contractor three wins the award by having only two of the lowest component prices. Can you be certain that contractor three has the best price? The answer is no. How do you know for example, that contractor three’s site work sub-contractor will perform to acceptable standards? Do you take the contractor’s word and litigate in the event of a problem? The point is, this entire process is risky, cumbersome, and most importantly, avoidable from the start.

When you choose a contractor on the basis of the price they bid you are using the wrong standard. The responsible thing to do is choose your contractor on the basis of reliability, performance and quality of work before you begin the process of determining cost of construction. Unite together where you and the contractor can approach the sub-contracting and material supply communities as a team.

As an important member of the team, you participate in the process of determining the cost of constructing a solution to your needs. Your influence on the bottom line is direct. Collectively, you and the builder act together to select the best possible option for each price component of the project. In the event the best is not the lowest, you know exactly why because you are a part of the team and a part of the process. That’s what being informed is all about!

Abandon the myth of bidding and with it, the risk and inaccuracies of the traditional bid process. Choose your building contractor on the basis of the factors that truly measure their value; reliability, performance and quality. Join your contractor as a team member to enable him to help you achieve a practical and affordable solution to your need for general construction service.