Imagine you’re building a house.
You’ve purchased the perfect parcel of land, and now you’re ready to construct your dream home. The first thing you do is find the architect. You will be working closely with them over the next several months or years to help you with the design so you want to select someone who understands you and what you want to accomplish.
Once you find the perfect architect, they start designing. After some back and forth on the plans, the blueprints are completed. Next, they give you an estimate on how much it will cost to build. Now you’re ready to hire someone else for construction.
However, the quotes received from the construction companies are all different price points and none of them match what your architect estimated. Why is that?
At COMANCO, we often see this within environmental construction, often within a municipality project. For example, an owner partners with an engineer to create a new landfill cell, but the bid results the owner receives are not what they expected. There are several factors that help explain these results, such as:
How many general contractors are bidding?
The more companies bidding on a project means more competition, which encourages competitive pricing. Depending on the current bidding environment, you may see a fluctuation in those numbers. For example, in 2020, we are experiencing a global pandemic. This has wildly changed the bidding environment from what it was a year ago. Whereas before, companies were able to focus in on a more niche market, such as coal ash or solid waste landfills, now there is an increase in competition to get work, even if it’s not the company’s specialty.
However, just because more bids lead to more competitive pricing, that doesn’t mean you want to attract as many companies as possible. If your end goal is to execute a successful project, focus on quality, not quantity. You can encourage this by offering a pre-bid qualification on your project. This eliminates less qualified candidates, which reduces the risk of selecting a company whose work would have to be later corrected and helps gauge the number of contractors who are interested in bidding on the project.
Owner and engineer reputation.
People are naturally more inclined to work with others they get along with. If a GC approaches a project and knows the owner and/or engineer is challenging to work with, they will offer higher pricing or not bid at all. On the contrary, if they build a strong relationship with an owner, they will be quick to work with them again. When evaluating a project, your general contractors are not just analyzing the scope of work, but also the team they would be working with. No matter the industry, your reputation matters and can dictate your future professional partners. If you want to see great GC’s bid on your projects, follow these quick tips:
- Keep a good attitude at the pre-bid meeting. This meeting can determine who does or does not want to bid on the project. So, answer their questions. Take the time to make connections with the people in the room. This will prove to support your project as a whole.
- Treat your GC like they are part of the team. Often times, GC’s are treated like the unwanted third wheel on a date. When you go out of your way to make them feel supported and welcomed, you are setting up your project for better success.
Project specifics or lack thereof.
Certain requirements placed on a project can drive higher pricing, such as:
- Disadvantaged business requirements (DBE/MBE/WBE) – This often eliminates a portion of the competition, which leads to fewer contractors bidding; therefore, driving up pricing. This factor is often not reflected in an engineer’s estimate.
- Bid forms – If you’re hiring a general contractor and ask for lump sum pricing, you’re likely to see higher pricing. Contractors want to cover any additional costs that could potentially come their way. However, if you agree on unit pricing, both you and your GC walk away with a fair deal.
- Liquidated damages – If you give your GC a timeline of 8 months to complete a project, but they know it’s really going to take 10, they may add that extra cost into their bid to avoid losing income. Project timelines are an important factor to cost. As a general contractor, we suggest that owners and engineers consult with contractors, if possible, to establish a realistic timeline for construction.
- Time of year/weather – We encounter this issue frequently here in the Sunshine State. Projects that begin or last through the rainy season aren’t attractive options for bidding. The rain often halts the work or requires it to be done over again and again. This leads to additional costs for the contractors, which means additional costs for the owners. Multiphase projects are preferable, as they allow the opportunity to avoid the worst of the rainy season.
On the other side of the coin, a lack of specifics can also drive up costs. It is important to be clear and open with your GC in order to eliminate any uncertainties. Uncertainty equals risk and risk equals higher pricing.
Walking into a bid solicitation with a few of these factors in mind can help prepare you for what you are more likely to see in pricing.
Have a project in the planning and design phase? Contact COMANCO for insights from a seasoned general contractor.