Avoid the Tyranny of the Lowest Bidder

By Scott Sidler February 1, 2016

lowest bidderGetting multiple bids for your project is a good idea whether you are a homeowner or a government entity. And when you get multiple bids someone is bound to be the lowest bidder and someone is bound to be the highest bidder.

Our natural tendency is to dump the rest and go with the lowest priced company to save a few or a few thousand bucks, but this often has unintended consequences.

It’s been said that “The bitterness of poor quality remains long after the sweetness of low price is forgotten.” How true that statement is for so many things more than construction or old houses.

There are two parties that I want to talk to in regards to the tyranny of the low bidder because the methods to avoid the low bidder quagmire are completely different for each. Let’s start with homeowners.

 

Advice For Homeowners

Fortunately, homeowners have the easiest time avoiding the problems associated with the low bidder. Don’t get me wrong, being the low bidder does not always mean this company is the devil.

The low bidder could be the low bidder for a number of reasons and they should be considered before you move forward.

  1. They have a lower overhead
  2. They left some necessary items out of their bid
  3. They are better at getting bids from their subcontractors
  4. They are using cheap materials

Some of these aren’t an issue like having a lower overhead. If you can find an honest company that has kept their operation lean and doesn’t have to spend a lot of money to keep the lights on then you may have found a diamond in the rough.

However, if they left important items out of their bid (either by accident or on purpose) and then have to come back and ask for more money as the project continues to make up for their lack of estimating skill then are you really saving any money?

Even worse than that what if they start running low on cash and begin substituting cheap materials to save their financial butts that you’ll never know about until it’s too late.

Consider this quote from John Ruskin:

“It is unwise to pay too much, but it is worse to pay too little. When you pay too much, you lose a little money … that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the things it was bought to do.

The common law of business balance prohibits paying a little and getting a lot … it cannot be done. If you deal with the lowest bidder, it is well to add something for the risk you run. And if you do that, you will have enough to pay for something better.”

 

The Homeowner’s Solutions

The first thing you can do is get an apples to apples bid from each contractor. Make sure all parties are quoting the same scope of work with the same materials.

Next, do your research! Look into each bidder and see what kind of reviews they are getting on-line. Ask neighbors or former clients what their experience was like with the company.

Which company makes you feel the most at ease and has the best communication with you. Does one return phone calls or emails faster than the others? Chances are they will be the most attentive during the project too.

The bottom line: Use price as a guide, but not the final determination. Go with your gut because a renovation is a relationship.

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Advice for Professionals

I hate to tell what you already know, but you have a hard row to hoe. Local governments or anyone dealing with grant money is often required to take the lowest bidder regardless of the details.

Sadly, this is how things have been setup and trying to get them changed is no easy task, but some of you are in a position where you can make changes in your locality or have contacts with others who can make the changes.

On paper it makes sense that when spending taxpayer money we should always choose the lowest bidder. We have limited funds and don’t want to waste valuable tax dollars. But there is a big downside to going with the lowest bidder for commercial or public projects.

Admittedly, my experience in this is mostly related to historic restoration (duh!) but it applies to other projects as well.

The problem with lowest bidder contracts in a competitive environment is that they cause contractors to cut corners. I’m guilty of it myself. You look at a project and see what it will take to do the absolute minimum to get the job done even if you know the scope is wrong and the work won’t last. Your job is to be the lowest bidder and still eek out some profit.

Often safety is the first thing that gets cut. Minimal dust protection, cheap scaffolding, undocumented workers picked up on the street corner, poor lead paint practices. After all, the scope of work often just says how things are to be built and what materials are to be used. It doesn’t often tell us about safe, clean workspaces.

I’ve seen painters applying paint in 37° weather knowing full well that it won’t last when applied below 50°. I’ve seen general contractors who didn’t know the lead paint abatement was their job, destroy historic windows and almost kill their employees in a cloud of lead dust by using grinders and belt sanders.

The architect is not on site every day to make sure the scope is being followed and the GC is left to their own discretion to follow the rules if time and money permit.

 

The Professional’s Solutions

The remedies are a little harder for you than for homeowners. It requires systemic change. The only way to protect your project or town is by changing policy away from the lowest bidder wins to other bidding models like “Best Value Contracting” or “Responsible Contractor” methods.

There are a number of different models where the project can be put out to bid and then the bids are discussed based on criteria other than just price. They could include criteria like:

  1. OSHA records of injuries and site visits
  2. Loss Runs from the contractor’s insurance and worker’s comp companies
  3. Checking BBB complaints or other references

Any or all of these items can be required to be submitted with the bid package for perusal. Maybe the cheapest company has a sky-high rate of injuries, is that really who you want running your project?

References are another item rarely checked. What if a company has a terrible reputation for shoddy work, should we still accept them because they are the lowest bidder?

Local governments and commercial project managers need to bring the human element back into the decision process because you are stewards of taxpayer money and a person or group of people can always make a better decision than a policy will make.

 

Final Thoughts

Am I bitter about losing jobs to low bidders? Not really. I don’t like to lose out on projects we bid on, but we’ve got enough work.

What I don’t like are hacks destroying old buildings or putting up new buildings that fall apart. I have a high expectation of quality and these folks are giving the industry a bad name.

I strongly think the human element is lacking from selecting the right contractor and having people more involved rather than just going by the numbers can only help.

 

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2 thoughts on “Avoid the Tyranny of the Lowest Bidder”

  1. Scott,

    This is a great article about the issues of going with the lowest bidder. Here in Houston Texas we are dealing with this kind of issue a lot. Needless to say it is most frustrating. I did link my “Low Bid Estimate” blog directly to this helpful article. You will get more visitors from it as we want homeowners to be aware. Just thought that you would like to know.

    Greg Kapitan of Texas Home Exteriors.
    PS,
    Here is the link as it is about 3/4 of the way down. Thanks!

    //texashomeexteriors.com/low-bid-estimate/

  2. Do you have a workshop where I could learn oak floor restoration? The 75 year old oak floors of my homeplace are beautiful and need refinishing since they’ve been covered with carpet and kitchen linoleum, but all the floor “experts” in this town only know how to use polyurethane! I don’t want my floors covered in plastic. I want them natural snd rustic. In Europe I think they use oil and beeswax? How can I learn this to do this myself? Thank you!

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