Best Bid…How Is It Determined?
[SUM ((X) contractor + (Y) decision) = RESULT (Z) The Right/Wrong Choice?]
As a responsible community partner AJB General Contractor is providing this educational information to our prospective customers. It is our hope this booklet benefits those individuals responsible for selecting general contractors with a meaningful format to make the right choice. A few things to remember before reading on: price is very important but “it should be the last criteria used” after filtering out competitors based on experience, history, reputation and capacity. General contractors are not commodities.
All of us at AJB would very much like each prospective customer reading this booklet to choose our company and experience the customer experience developed after 31 years and many thousands of projects; however, the reality is that we will not be that lucky. Therefore, it is our wish that you are able to make an educated and informed decision after reading on. An educated approach, a good decision and the right choice create positive results. Please take a few minutes to read and understand…make the right choice.
How do I Determine the Best Bid?
- Experience – History – Reputation:
- Learn and know this about each prospective contractor (all contractors are not the same). Take the time to do the homework…you will glad you did.
- New and younger contracting firms:
- Statistically 90% of new business are out of business in less than 5 years
- Most new contractors evolve from someone having very good trade expertise. Do they have the business, management and leadership skills?
- Be careful of becoming the latest experiment on their never traveled path to learning what it takes to be a successful contractor.
- References from past customers:
- Each should be checked and compared
- Current and Past Legal Issues/Lawsuits:
- Do not get caught in fallout from legal issues. Again, do the homework.
- Ask for subcontractors/vendors references:
- Those treated well and paid on time give preferred pricing and perform better than those who are not. It makes the difference between getting a subcontractor’s “A” team or “C” team on your project.
- Communication is Mission Critical:
- Interview the Project Manager or Superintendent to determine compatibility. Good communication tends to simplify confusion and promote understanding giving rise to a much more enjoyable experience.
- Discuss your expectations, scheduling, job site safety, treatment of subcontractors and any other pertinent criteria. A good, old fashioned, conversation can help to gauge how much experience each contractor has with building projects similar to yours, especially if your project is fairly technical or complex.
- A great tool for providing “Ballpark Numbers’. The quality and accuracy of a budget is only as good as the initial information provided.
- The greater the generalities and less specifics proportionately increases the likelihood of being “Low-Balled” on a project.
- “Low-Balled” – intentional submission of a low price to gain the contract, increase price by change order and increase the original budgeted cost to a new and higher“True Cost”(see – “True Cost” of the “Low-Bid”)
- Be very cautious with reliance on budgeting based on vague information and generalities. The more detailed and specific the information the better the budget.
- Once you’ve narrowed your choices, it’s “NOW” time to compare costs.
- If all other criteria are fairly equal, you should feel comfortable choosing the low bidder at this point.
- It is critical to remember that a small upfront price difference does not justify selecting a less qualified contractor, so be sure to evaluate the company thoroughly before awarding a contract.
The “low bid concept” tends to reward those who make the most mistakes, cut the most corners, or who take the greatest financial risk. Reliance on vague information and ballpark budgets may lead to erroneous results. None of these are recipes for collaborative success. Instead of watching out for the customer’s best interests, some contractors are rewarded for producing a lowest cost interpretation of an imperfect set of documents. A “get the job first, figure out how to make money later” mentality prevails. Regrettably, for the customer, fat change orders and construction delays ensue. Under the “low bid model” the prevailing results may produce adversarial conflicts with each side having competing interests. Resolving these kinds of conflicts are often time consuming and costly; thus, creating surprising, unintended consequences and costs.
Please spend the time and do the homework. Be informed. Make a good choice. In the end – You will know if you did.
It is our very sincere wish this information provides value and a logical approach that can be applied and produce satisfying results. It is our hope that AJB becomes your contractor of choice; however, if not, we wish you the best and are hopeful that we may gain an opportunity to provide solutions to your future building and construction needs.
Contact the Better Business Bureau (BBB)
Phone: (702) 320-4500
Question: Are they a member in good standing. A member must maintain the BBB’s highest standards of excellence.
Contact the Nevada State Contractor Board
Phone: (702) 486-1100
Question: What is contractor’s history, length in business and license?
If you find the process to be overwhelming or undoable given time, AJB can recommend several outsourced expert and professional services to provide unbiased research, bid analysis and final recommendations to simplify the decision process.
The “True Cost” of the “Low-Bid”
When adding up the problems which usually accompany the “Low-Bid” and arrive at the “True Cost”, you may be surprised to see how much the low bid is actually costing in terms of dollars and “sense”. We often hear, “My company policy requires that each job must be awarded to the lowest bidder.” This may appear to be an effective selection method, it often fails to take into account the qualifications and reputation of the contractor. Low-bid strategies tend to be more costly in the long run in terms of project delays, conflicts or other issues. Sorrowfully, we have seen owner’s agents and representatives cast aside and replaced, time and time again, for following this policy; yet they are held responsible for the fallout relative to such a business practice.
Construction Bidding Ethics Creates Benefits
Competing Contractors need to be able to place faith in the competitive bidding system. They should be confident they will invest their estimating resources by submitting a proposal in a fair, organized and principled competition. Thus, owners, architects, brokers and agents who condone, conduct, or supervise ethical bidding procedure gain the respect of those in the construction industry and benefit by never running out of excellent, high caliber contractors to bid their work. Those that set up fair and principled bidding procedures will benefit by having access to the best. Good, long standing and professional Contractors give their best price the first time and include specific details about the proposed project. They provide a quality product, professional services, excellent customer experiences and happy customers.
ANOTHER PERSPECTIVE ON HOW DO I DETERMINE THE BEST BID – THAT DEPENDS!
Is the Bid Responsible? Are There Hidden Costly Errors?
What is the lowest responsible bidder?
The lowest responsible bidder is the contractor that submits the lowest bid that still includes all of the materials, labor, design and quality features desired and required as well as other needed expenses along with a reasonable earned profit for the contractor without cutting any corners or making any mistakes or omissions.
What is the difference between the lowest bidder and the lowest responsible bidder?
The low bidder is only the best choice if the bid is responsible, accurate, thorough and carefully reviewed and explained to you so that you know it includes all of your requirements requested, added, changed and discussed. NOW is the recommended time to choose the low bidder. If the low bid does not include all of these requirements you should move to the next lowest bid as best choice for your project.
Estimating – Art or Science?
Providing a complete and comprehensive bid requires reasonably good plans, local experience, a high level of understanding regarding construction means and methods, safety compliance, local inspection requirements and much more. Estimating is both, art and science with a heavy emphasis on science. Professional contractors use sophisticated estimating systems, software, digitizers and technology tapping into industry data, company historical data and the knowledge and experienced gained from many years of doing the kind of project you are anticipating. Be careful of contractors that unit price and rely on subcontractors to fill the void by turning the science into art.
How can you avoid choosing an irresponsible bid when they are so commonplace?
Be sure to carefully choose the contractors you ask to bid on your project. Monitor those contractors that work hard to respond to your concerns, provide questions and ideas with reasonable thoughts, suggestions, explanations and client friendly policies in support of customer satisfaction. A contractor that is responsive during the bidding process and provides a comprehensive and thorough proposal is a move in a winning direction. It is suggested to interview the lowest, most responsible and responsive contractors and allowing them to present and explain how they would approach the project and communicate their intentions to assist in the final decisions making process.
Timing is everything – It does affect price?
If a contractor is extremely busy and it is difficult for them to schedule time for additional work there is a tendency for the price to increase. This increased pricing compensates for the added effort and resource allocation when nearing productive capacity.
On the other hand, if a contractor is badly in need of work and the production schedule is very slow, the tendency is to bid lower to acquire work and backlog. When there is excessive production capacity and backlog is low pricing tends to reduce; however, contractors that are desperate for work to keep employees busy or their door open often provide desperate and very risky low desperation pricing.
The “True Cost” of the “Low-Bid”
When adding up the problems which usually accompany the “Low-Bid” and arrive at the“True Cost”, you may be surprised to see how much the low bid is actually costing in terms of dollars and “sense”. We often hear, “My company policy requires that each job must be awarded to the lowest bidder.” This may appear to be an effective selection method, it often fails to take into account the qualifications and reputation of the contractor. Low-bid strategies tend to be more costly in the long run in terms of project delays, conflicts or other issues. Sorrowfully, we have seen owner’s agents and representatives cast aside and replaced, time and time again, for following this policy; yet they are held responsible for the fallout relative to such a business practice.Download the “Best Bid…How Is It Determined?” Brochure.