The Price is Right

Last month we were bidding a large, multi-year project in Washington DC when our proposals started to come in for our subcontractor bids. It isn’t uncommon to have a wide variance in bid price for various bid packages, but this project had incredibly large swings in prices. This made me think about why this phenomenon occurs during the bidding process, what it means, and how to make the best sense of it. It is our goal in the construction industry to select the lowest possible price for qualified bids that best meet the scope of work, encompass the desired level of quality, and meet the schedule. Unfortunately, wide variances during bid date can be a red flag that one or more of these goals will not be met. How does one determine whether an abnormally low price is real?

It isn’t uncommon to have price variations in the American economy. Just run a simple Google search on a basic retail commodity you are interested in purchasing and you will find prices that fluctuate by as much as 20%. In the city limits of Kansas City alone you will find gasoline prices varying from $1.74 to $1.99. Purchasing the construction of an office building or the restoration of a historic landmark, however, is slightly more complicated than filling a tank of gas. When we get a low bid for a project, we call on our internal Spanish Inquisition to determine the proposal’s validity.

A loose specification will open the door for lowball pricing. If the construction documents fail to define materials, means, and methods with precision, the opportunity for interpretation can create unhealthy deviations. Failing to specify explicit materials by listed manufacturers, including performance criteria, is critical. It is also important to have a substitution process to be approved by the architect rather than allowing unapproved equals. If we get a low bid on a scope of work, we will drill the bidder on all of the details to be certain he has included all the important components. It is often discovered during this interrogation that non-complying materials have been submitted, or that the bidder missed quantities. We often uncover bidders who disregard serious elements of a proposal because they didn’t spend the time to review the specifications and assemble a meaningful bid. In some cases we have found unscrupulous bidders attempting to manipulate the specification in their quest for a low price.

Low prices are often a result of misinterpretation of the desired level of quality for a project. Although the owner, design team, and contractor have a clear understanding of the quality intent, subcontractors might not invest in understanding the critical factors of their bid. After they are awarded a contract, they might deviate in ways that can go unnoticed by the construction team. For example, using different primers might result in paint failure, changing sources for aggregate can alter masonry performance, and abbreviating labor processes can adversely affect installations. There are numerous examples of construction travesties out there that were a result of a subcontractor substituting an inferior material such as an altered installation clip. A thorough post-bid interrogation as well as ongoing quality control checks and balances throughout the construction of the building can prevent this from happening.

Finally, a low bid can be an indicator that the schedule will be at risk. Low bidders often arrive at their price because they have missed something. That something is often the project schedule. We include scheduling as part of the post-bid interview. We ask in detail, how the subcontractor intends to meet the schedule. We want to know the total labor hours, broken down by month, and broken down further by individual dedicated to the project. If it is a complicated discipline, we might ask for backgrounds of the people dedicated to the job. We also want to know about other projects the subcontractor will be working on at the same time to identify capacity conflicts. If the subcontractor has weak answers to any of these questions, the schedule will be in jeopardy.

The bidding process doesn’t need to be a game of Russian roulette. I am amused by the cartoon of the astronauts on the space shuttle talking prior to takeoff saying, “Do you realize we are about to take off in a rocket that was built by the low bidder?” If you want your project to take off and land smoothly, you might want to invest the time upfront asking the tough questions before you get into bed with an unqualified subcontractor.