Real Estate Articles

Reasons Not to Select the Low Bidder

Written by Brent Pace for Gaebler Ventures

As you bid out your next construction project, you may be tempted to simply select the contractor who submits the cheapest bid. Here are a few reasons to be wary.

Slogging through a construction process can be a real time consuming activity for an entrepreneur.

It's natural to want to focus on your core business, but often times building projects can make or break your business as the results travel to your bottom line. When you are bidding out a construction project to three qualified bidders it is natural to want to select the low bidder every time. There are, however, a few situations where you might not want to select the low bidder to perform the work. Here is a quick rundown of some of those situations.

1. Complicated Plans. If you are building a very complicated project, your construction plans could be several inches thick. There are special sheets with hundreds of notes that give the contractor instructions on everything from mechanical and electrical specifications to the dimensions of every single space in your building. In addition to the complexity of the plans, contractors are often given only a short time to work on preparing bids. After all, time is money and your project needs to get off the ground fast. If one of your three bidders comes in much lower than the other two, instead of being a sign of good pricing it may indicate that they simply missed something on the plans. You will want to review the low bid carefully to make sure they didn't miss something. Getting several months into a complicated project only to discover that the contractor missed some vital components will not help anyone meet their goals.

2. Long Back-Log. Many contractors are in high demand. The very best contractors could have up to hundreds of millions of dollars of jobs just waiting for them to get the time to construct it. If you are working with a contractor who has a long back-log of work, you may want to consider going with one of the other contractors. You may pay slightly more, but you want to be able to get your contractor's attention when things on your job get complicated. If they have hundreds of millions worth of work elsewhere it may be difficult to get the contractor to focus on your issues.

3. Project Manager / Superintendent. A contractor is only as good as the person they assign to your job to manage the on-site day-to-day affairs of the project. A contractor with hundreds of years of experience constructing quality class-A projects might not be very helpful to you, even if they are the low bidder, if they provide you with a wet behind the ears green horn project manager. Make sure you ask specifically who the contractor will assign to manage your project and look at their resume. You want to have a person with the appropriate amount of relevant experience handling your job.

4. Future Work. If you have a lot of future work coming down the pipeline, you don't want to pick the lowest bidder for this job and disregard what is coming. If a local contractor gives you the best price, but you need to build out 50 more versions of this project across the nations, you may want to select a slightly higher-priced national contractor. You need to consider selecting the best horse to get the job done, and that may include considerations for future jobs.

5. Personal Relationships. If you have worked with a given contractor in the past, and the experience was pleasant, that is definitely worth something. Like all industries, there are good and rotten folks in construction. If you know people you enjoy working with then you should consider giving them every opportunity to get your work even if their price is slightly higher than their competitors'.

Brent Pace is currently an MBA candidate at University of California at Berkeley. Originally from Salt Lake City, Brent's experience is in commercial real estate development and management. Brent will have tips for small business owners as they negotiate their real estate needs.

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