Warning! Bids Gone Wild!
When the quote range on your job runs from $3,000 to $75,000 you’re in trouble. I actually got an email from an individual with that big of a spread for one, single job. He was using the spread to justify his amusement at how architects price jobs based on a percentage of the cost of construction.
He saw the spread of the bids he had received for his job as making his point. I saw something completely different in his example.
First, I saw a bid spread of 400%, which means total chaos. Either there were no construction documents what-so-ever, or they were little better than napkin drawings. Often the cause of such chaotic bidding is a complete lack of construction documents. The customer walks each bidder around the job site pointing here and there, explaining “exactly what they want.” Unfortunately, those explanations often vary wildly from one bidder to the next, so each bidder leaves with a different idea about the scope of work.
Second, I saw a customer who wanted to appear more knowledgeable about the building industry than they really were, which blinded them to the warning flags the bid spread should have sent up.
If all bidders are getting the exact same information about the scope of work, the normal spread in a group of bids should be around 25%. Most of this spread represents differences in each company’s overhead costs, and an assessment of risk involved in doing the job, which the estimator builds into the price. A smaller fraction will be made up of differences in the desired profit margin and crew efficiency. The actual underlying costs remain pretty much the same for all bidders. Pay scales run within the same range, and in most communities the bidders will all be buying their materials from the same suppliers.
So what do you do if you have your job bid and the results are wild? Take a good look at your job. Ask yourself these three questions and consider the solutions:
- Do you have as set of construction documents? If not, this may be a sign that you need to spend the extra money to have some drawn up by a professional. Depending on the size and complexity of the job, you might also consider hiring a professional to manage your job and advocate for you. A construction manager can sometimes save you far more than they cost.
- Did everyone get the same information? If you didn’t have a set of drawings and specifications to hand all your bidders, did you work off of an outline? Unstructured “walk around tours” are nice and all, but you have to make sure you show the same things, and make the same points, to each bidder.
- Did you use the bidding process as an opportunity to gain information about your job? This is a really common practice. And it’s a mistake! Collect information first. Decide exactly what you want done. Pay to have construction documents drawn up if need be. Then get bids on those documents.
Once you’ve identified and corrected the problem(s), you’ll have to go through another round of bidding. Responses from the first set of contractors is likely to be mixed. Working up a bid is a lot of work. It therefore costs money for the contractor to do each and every one. So some will happily come and re-bid the job, others will decline. Be prepared. (This is one instance where a construction manager can be a big help.)
But I can guarantee, if you utilize the tools above, the results will be well worth the time, effort, and money in the quality of bids you receive, and therefore in the quality of building professionals you end up working with.
Tags: bidding, bids, builders, construction, contractors
