Soliciting Bids During The Recession
Back a couple of years ago, during the housing bubble, I heard a lot of complaints about how hard it was to get a contractor to even return a phone call, never mind scheduling the work. And, with that much work around, there were also lots of complaints about the high prices.
During the boom, understanding the difference between (self) employment and running a business was optional. If you knew how to estimate materials correctly and had an idea of what “everyone else” was charging for “similar jobs”, you were golden. That’s really all it took. Demand kept prices high, so even the least business savvy contractor was almost guaranteed to make money.
And believe it or not, that helped you, the customer. The contractor was making enough money to pay all the bills associated with the job. So even if the contractor you hired was a terrible business person, the chance that you’d get slapped with a mechanics lien by some subcontractor or supplier because your contractor didn’t pay them was reasonably low.
Not so today. Now that the bubble has burst, jobs are not so plentiful. Competition for those that remain is much higher. And while you may think that’s a good thing because it means you’ll get your job done cheaper, keep in mind that beyond a certain point, “cheaper” also means riskier. Sometimes, much riskier.
Back in February I told the story of a career carpenter, now self-employed, who was working for the same hourly wage he’d been paid as an employee.
Now you might think: “Wow! I can get this job done really cheap with this guy.” And, if all goes well, you might be right. Or, you might find out the hard way just how expensive this guy really is — not because he doesn’t know his trade, and not because he’s dishonest. Rather, because not being a business person, and therefore not knowing how to correctly price himself and his job, he leaves both himself and you vulnerable.
For an example, let’s suppose Mr. Carpenter here owes some back child support he hasn’t been able to pay (probably because he’s not really making any money on these jobs he’s doing). So, while he’s working for you the State decides to exercise its right to drain his bank account to collect. Well, Mr. Carpenter owes the Home Depot money for the materials he’s bought for your job. And the State just took the money and gave it to his ex-wife! They not only took that money, they also took the money he needs to live for the next month.
So now he has no money to pay for installed materials, no money to by food, no money to put gas in his truck to get to work (your job), and no money to fix any of his tools that might break on the job.
But all of that’s his problem, right? Yup — until it becomes yours!
Because in most states, Home Depot has the legal right to place a mechanics lien on your house for the materials Mr. Carpenter bought and installed in your home — whether he was a licensed contractor or not; whether the job was finished or not.
Now, I’ll admit that this is an extreme example. But in this economic climate, as contractors (and their former employees) get more and more desperate for work, you’re going to see more and more bid that are not just low-ball, they’re down right ridiculous.
In my article on how to choose a remodeling bid I provide some common sense ideas on how to at least winnow down the bids to those that make sense. Those same techniques will also eliminate individuals and contractors like Mr. Carpenter. Because this information is so important, especially now, let me repeat it here:
- If you have a bid that’s disproportionately low, throw it out. “Low balling” is a bidding tactic that some contractors use to get jobs that is, in my opinion, dishonest. Basically the contractor deliberately under bids the real price of the job in the hope of being the lowest bidder. Then, after s/he’s gotten the job and the work has started, s/he finds reasons to get you to sign Change Orders that progressively raise the price up to what the bid should have been in the first place. In some states, I understand a contractor can be disciplined for using this type of bidding tactic.
Another reason a contractor might submit a low ball bid is because they have no intention of doing the work! They take your money and disappear with it. This year was a particularly nasty one for transient operators.
In either case, this isn’t the kind of person you want to hire.
- If you have a bid that’s disproportionately high, throw it out unless you can find a darned good reason for the high bid — or you and this person just really hit it off.
- That leaves you with a pile of middle bids that are all worth your consideration. All other factor’s being equal, I recommend picking the contractor you get along with best, not the lowest bidder — though the two may be the same. Because remember, this individual and his or her crew is going to be around five or six days a week for months on end! You don’t want the industrial version of your mother-in-law!
Good luck evaluating the bids for your project!
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