Measure Twice, Cut Once

The Risk of Lowball Bids
Written by Robert Hoshowsky

While all of us are familiar with the old saying ‘you get what you pay for,’ when it comes to construction projects, the words of legendary American business magnate and philanthropist Warren Buffett ring especially true: “Price is what you pay. Value is what you get.”
On any construction project, from something as modest as a small addition to a house to work as challenging as creating a downtown skyscraper involving hundreds of workers and suppliers, submitting a tender is a must.

A tender contains a break-down of estimated costs – such as design and materials expenses – and is created with input from a project estimator. This stage is crucial to ensure success weeks, months, or even years later. Some project estimators study the profession in school, while others learn on the job. In either case, it is imperative the client’s wishes are properly communicated, otherwise a job can easily go off track from the onset.

Properly-executed blueprints, as opposed to mere conceptual drawings, are necessary for precise project estimating. In some cases, conceptual or concept drawings are just that: quick freehand illustrations that help to communicate a project’s artistic concepts and design. These drawings can literally be as simple as a thumbnail sketch on the back of a cocktail napkin, and while they might be the inspiration for a magnificent building, they are not blueprints.

Blueprints are highly-detailed reproductions of architectural or technical drawings specifying rooms, locations, sizes, elevation, measurements of beams and spaces between joists, and more. Failing to provide accurate drawings affects the ability of the builder to purchase exact amounts of materials such as wood, drywall, wiring, piping or flooring and more. This makes buying too little product – or too much – an issue. And of course, ‘guesstimating’ makes it impossible to determine the time and manpower needed to successfully complete the project.

In the construction industry, companies require sufficient information to provide true estimates. After all, they are in business and must budget and pay for materials as well as compensate the workers and subcontractors who are entrusted with completing projects to the satisfaction of the client.

And while going with the lowest bidder for a new build, addition, renovation, or historic renovation project is not necessarily a negative, a company willing to work with little or no specific information and still commit to a job needs to be evaluated.

Reputable construction firms often have repeat business and are fully booked months in advance. As a business, they operate to make a profit, not work at a loss. Construction firms offering very low prices (usually fifteen percent less compared to other companies) or claims of massive savings should also be viewed cautiously.

If a construction company offers an estimate that is significantly lower than others, one needs to ask questions. Will the labor pool produce work of the same quality, or will corners be cut when it comes to experience? Is the lowest bidder accredited, licensed, and insured? And will materials used be of good quality, properly manufactured, and able to withstand years of wear and tear, or will they be cheap knock-offs?

Those working in the U.S. construction and renovation industry in the early to late 2000s will remember the Chinese drywall controversy. Builders were hit with a shortage of quality, American-made drywall when several hurricanes swept through the Gulf Coast, particularly 2005’s Hurricane Katrina, and building firms imported millions of pounds of drywall manufactured in China. To the horror of homeowners, issues arose after the product was installed.

Much of the drywall was contaminated, corroding electric copper wiring, affecting gas piping, and worst of all, producing harmful off-gases with a rotten egg smell. Fumes from the drywall triggered a host of health issues, including chronic coughs and headaches. Most of the damaged homes and rebuilt structures were in humid parts of the U.S. such as Florida, which accelerated the decay, affecting by some estimates up to 100,000 houses.

The tainted drywall resulted in lawsuits filed against a Chinese drywall manufacturer, suppliers and home building companies, controversial insurance claims, amendments being passed in the U.S. House of Representatives, and other federal inquires. The incident remains a black mark against the construction sector for its use of a dangerous, substandard product.

Considering the wealth of information readily available on the Internet, particularly about construction companies, it seems natural every potential client would diligently research reviews. While some well-established review sites like the Better Business Review come to mind, there are many others which help shape the decision-making process, including a simple Google search, Yelp, Facebook, and Angie’s List, which specifically focuses on home services.

There are risks that come with using the lowest bidder ranging from improperly done work and poor quality materials to contractors simply ‘disappearing,’ never returning phone calls after taking a hefty deposit (often in cash), or their numbers mysteriously going out of service. And while some materials may appear to be well-made at first – including furnaces, air conditioners, cabinetry, windows, and even paint – cheap products soon reveal themselves to be inferior when hinges break, windows refuse to open, and a heating, ventilation, and air conditioning (HVAC) system quits when it is needed most. From inadequate home renovation projects to large-scale works such as condominium complexes and office buildings, shoddy workmanship and poor-quality products can prove disastrous.

While not every low bid is necessarily a bad bid – occasionally companies will submit a lower bid to get their foot in a client’s door – potential customers need to be wary of firms that are overly eager to get a job, as this may mean they are in financial difficulty and desperate to secure work of any kind, even if it is beyond their abilities. All of us, from homeowners to government, are at risk when construction companies submit bids that drastically undercut others, resulting in work made using substandard materials, inexperienced labor, missing deadlines, or in some cases, leaving the project half-finished.

Not even governments are immune from poorly-run construction companies. In Singapore, one firm was awarded a $29 million contract to widen a road from three lanes to five in 2012. Although scheduled to be completed by late 2015, the project was at a standstill, despite the original company being hand-selected from six competing firms.

In other countries, large-scale projects have also stopped abruptly for a number of reasons, including the contracted company becoming bankrupt. In many cases, the firms awarded the projects were the lowest bidders, sometimes by tens of millions of dollars. This type of mismanagement is disastrous. Clients are out of pocket, over-budget and forced to go through the whole bidding process again as they scramble to find another company to complete the job, or in some cases, demolish and re-do poor-quality work started but unfinished by another firm.

While going with the lowest bid does not necessarily equate to the highest risk, it is imperative that customers’ review all bids carefully, check references, and ask pertinent questions of all construction companies submitting bids. If some critical information is missing and the company is unable or unwilling to come up with answers, or if specifics are incomplete, it may be in the client’s best interests to look elsewhere. After all, time is money, and reputable firms are often busy for a reason, namely because they produce quality work.



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