Low price isn’t always a good deal

August 29, 2022 | Author: Barbara Shuck

A little history and some logical ideas about low bid

General contractors and developers are driven by costs. In fact, the lower the better. No one wants to pay more than something is worth, and it seems logical that the low price option is actually what something is worth. Why would someone pay 10, 15 or 20 percent more than the lowest price? It sounds crazy, right?

Well, let’s look back at the low-bid history for general construction, and then we’ll provide some compelling reasons why low bid isn’t always the best answer when selecting a subcontractor.

The low bid concept dates back to 1847, according to “Historical Background – Low Bid Concept,” by Darrell W. Harp. The intent was to “curb corruption, inefficiency, and mismanagement by government officials.” In New York, for example, state laws were enacted, and are still being used today for many public sector agencies. These statutory requirements were in place to “protect the taxpayer from extravagance, corruption and other improper practices by public officials emerging in public works projects.”

Many companies still use low-bid practices for procurement, and others are seeing the value of selecting consultants and contractors on something other than price— qualifications that include experience, technical expertise, approach, team, etc. Most clients today want the “best value” solution for their project.

Best value is often the opposite of low price. Here’s why:

  1. No plan or spec is really 100% or perfect. No matter how complete the design, there are always holes and errors. Subcontractors who bid only what is on the plan know that there are gray areas, and they will find all kinds of opportunities to file change orders to fill in the gaps. So, what was a low bid, may not end up being the lowest cost project. Project value is that the contractor knows exactly what a scope of work will cost and will not have change orders that cause pesky overruns.

  2. Qualified pool of subcontractors. It’s tough to find contractors who have the financial stability to see a project through. Low-bid contractors may not cover their costs or allow enough profit to keep their companies running. Have you ever had a subcontractor disappear in the middle of a project or declare bankruptcy? Project value is a fair price for the correct scope of work. Your subcontractor is paid fairly for his work and has the financial resources that keep the company running smoothly, which means he’s reliable, completes the job as contracted, and can be a great team member for future projects.

  3. Technical expertise matters. Low cost providers have to hire their labor at the cheapest rate, which means their work product is lower quality, which can impact the schedule, especially if they constantly have to do rework. Project value is having skilled professionals on the team who consistently deliver excellent work the first time. In fact, skilled professionals can often identify efficiencies and create more effective solutions. 
And one last word: When you’re buying a personal car or truck, you’re looking for a good deal, right? Lowest price? Maybe not. As the saying used to go, “If everyone really bought the cheapest cars, we’d all be driving Yugos.”