The Low Bidder; Not Always a Bargain!
by Rachelle Goodness, Chairman Builders Association of Northern Nevada Sales & Marketing Council

 Today’s market is opening up more wounds in the bidding battle—and unlike wounds that can be covered with a bandage, these battle scars are likely to take a toll unless they are taken seriously.  Contractors with a long history of building homes and who have developed long term relationships with their subcontractors are now battling and bidding  against first time contractors, out-of town-contractors or contractors with a relatively short work history.  And too often, the winning bid and the award comes down to…the lowest bidder.  Yes, the winning bid might not have anything to do with experience, or a vast breadth of knowledge, service and loyalty.  Nope—it’s the money.
   The downturn in the market is creating stiffer competition among contractors.  With fewer building permits being pulled, competition is coming from all angles as owners and construction workers try to make ends meet.  Increased competition creates two problems for contractors: contractors begin to bid on work that they haven’t normally performed in the past, and often, the work that inexperienced contractors do is inferior to that of contractors established in the markets they serve.  Unfortunately in this instance, within the economic system in which we all must perform, competition usually leads to a decrease in price. 
Avoiding the low bids
   A reputation for knowing the requirements of a job and establishing your company in a market can take a contractor only so far in tough economic times.  The most challenging aspect of increased competition for established contractors are bids from new companies that come in unusually low.  When work dries up in one sector, contractors may become so desperate for work that they bid low on projects in other sectors just to get in the door.  
   So how do you avoid the low bids?  Tony Abreu, President of ASA Construction, says it’s tough to turn down work of any kind right now, but contractors need to understand that they need to make a profit on every job if they want to stay in business for the long term.  Doing a job at or below cost is doing a job for no profit, putting that contractor one step closer towards going out of business. 
   Trying to compete on price with unqualified, inexperienced, unprepared, unconnected, unlicensed, unbonded and uninsured contractors is always bad business.  Doing so compromises your own ethics and reputation, as well as the craftsmanship that you worked so hard to build, all of which will eventually catch up to you and result in even less work.  Chances are that these low bidding contractors may not have the financial resources, ethics or stamina to complete the project, and are working with subs that have the same problem. 
   The bottom line is that a good contractor knows what it takes to get the job done on every level, and if that job is under-valued, the contractor is going to lose money and may end up out of business if he does one too many unprofitable jobs.  “I would rather go broke by staying home and spending quality time with my family than by chasing and doing a lot of unprofitable jobs that will eventually take their toll on my company.” Abreu stated.   
   While it might be very difficult to turn down a job in the short term, Abreu says it may just save a contractor’s business in the long term.  “It’s just a matter of time before the low bidding contractors put themselves out of business (because nobody can work for free forever) at which time, I plan to be around to pick up the pieces," says Abreu.  "As difficult as it is, I’ll weather the storm.”
 Network through your employees and customers
   In economic conditions like today’s, many contractors find that they have to do more work themselves.  When the contractor is doing more of the work, it’s easy to lose sight of the overall business plan: creating/developing more business.   Look to your database of suppliers and subcontractors to provide new contacts and referrals.  Those companies want your business and when you are working, so are they.  Consult an ad agency to find new strategies to reach customers.  Networking and contacting old customers while asking for referrals can lead to new business.  Educate your old customers and remind them of your quality and your proven work history.
   Contractors naturally feel that increased competition threatens their business. Trying to match low bids in order to continue working is a risky practice. Experienced contractors need to consider the true cost of any job and the quality of the competition when submitting bids. Building a good reputation and a firm financial footing makes it easier for a contractor to lose a few low bids. A little patience can go a long way as other contractors who bid low or perform substandard work will eventually lose money or go out of business. Using new ways of connecting with customers, such as networking through employees or former customers, is key to surviving super-competitive markets.