The Sole Bidder Dilemma
Here’s a simple quiz:
You are a contractor. A well-respected developer asks you for a bid to do some work within your area of expertise. The project scope is well defined. You suspect the developer doesn’t want to be bothered soliciting bids; in other words, you will most likely be the only bidder. You:
A. Give him your bare-bones, most competitive bid. You want him to really be impressed with your low price so he thinks of you again next time.
B. Give him a fair, competitive bid, with your standard markup for profit and overhead.
C. Give him an inflated bid because this is a golden opportunity to reap some extra profit.
I pose this question because it just happened to me (as the developer), twice.
Near-Ripoff One. I hired a surveying firm to prepare a topographic map for an 85 lot subdivision I’m involved with. We decided an aerial survey would be the best way to collect raw data (as opposed to a whole lot of ground surveying). The survey firm recommended subcontracting to an aerial mapping company. I told them fine, but I wanted a bid from their aerial mapper even if they were the only bidder. The bid came in at $9,500, which did not include a new flight — they had recently flown the property and could prepare a data map from that. The bid seemed high, so I asked the surveyors about it. They said no, it was a good number. I said I wanted another bid anyway. They got one and it came in where I expected, at $5,500, which included a new flight.
Now the surveying company had egg on its face. They could tell I was supremely chafed at nearly giving away $4,000 to a company they not only recommended, but further suggested not taking another bid against.
Near-Ripoff Two. I have a short list of specialty contractors I use for small jobs (under $20,000). I like to spread the work around, so I alternate among them as much as possible. Frequently, especially on messy, hard-to-quantify jobs, I don’t ask for more than one bid. Recently I asked one of these companies if they were interested in bidding some road and culvert work. They said sure. I told the owner I really wanted him to do the job, but to please break his bid down so I could be sure I knew I was getting a fair price. He said no problem. When I got the bid, I was surprised at the lack of detail; it was a few line items with lump sums in the right column. I knew the quantities involved, so ran my own numbers and was angry to find his prices were two to three times what they should have been.
Now to answer the quiz question. The best answer is “B” — submit a fair bid with normal markups.
Answer “A” (submit a razor-sharp bid) is not normally a good idea unless you’re desperate to get your foot in the door with a particular client. Razor-sharp bids usually lead to:
- Losing money because stuff invariably crops up you didn’t anticipate
- Change orders, which hack off owners
- A hastily-done job, which leads to poor quality, call-backs and a black mark against your reputation
Answer “B” (submit a regular bid with normal profit and overhead markups) is nearly always the best answer because:
- You should have ample time to do a good job, which is what your client will remember most in the end.
- Good customers don’t mind paying a fair price for a job well done. They understand the concept of “profit” and expect you to make a little; otherwise you may not be there next time around. Bad customers (the ones who don’t pay) don’t understand this concept and are always looking for rock-bottom prices. Let your competition wrangle with these calls.
- You don’t run the risk of the owner finding out you’re greedy. Greed is one of the biggest killers of construction companies and deserves an entire column by itself, which I shall someday write. Clients get very angry when they find out they’ve been had by a greedy contractor. In the two scenarios above, neither of those companies will get a second chance with me, and I will go out of my way to warn others about them.
Answer “C” (submit an inflated bid) is never a good idea. I used to think it was okay in situations where you’re busy enough that you don’t need the work, or where you’re trying not to get a job because the client is suspect. It’s wiser simply not to bid. You live or die by your reputation; the last thing you need is to be known as too high-priced.
In summary, the most successful contractors and consultants I can think of are the Answer “B” types. They always submit fair bids, though not always the cheapest, but their client base is large and fiercely loyal. They understand that good clients want quality and speedy completion, and they are willing to pay a fair price to get it.
Tim Garrison of ConstructionCalc.com, is a professional engineer, author and software producer for the building industry. Send e-mail to email@example.com. Tim reads every one.
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