Sub-Economic Tendering Is Simply Unsustainable...
In today's hard-pressed, cut-throat and highly volatile construction market, many contractors are playing Russian Roulette by submitting bids below the value that they will actually cost.
The English language doesn't have a word for this practice. It does have a fairly unique word for estimating something's value at zero or nothing.
Floccinaucinihilipilification.
Ironically its the longest word in the English dictionary!
I however do have a word that can be used to describe this practice of sub-economic tendering. In fact I have many, some unprintable. The word I would use is SUICIDAL.
Bearing in mind that non-labour costs are showing recent rises of 20% which when coupled with the pressures of getting monies in on time, if at all, it is hardly surprising the number of contractors going to the wall.
Having spoken with numerous contractors on the subject, the logic and answers I am offered to justify the practice are quite frightening. These include:
• “We really need the work”.
• “We will make it up on variations and extra works”.
• “What else can I do?”
The cold, hard reality is this is simply not possible.
I am not about to apologise for being so down on this. Morbid? Yes, but it's a very serious issue that needs to be addressed.
Sub-economic tendering is unsustainable for all parties. Contractors who choose to go down this road will suffer and go bust. Any projects they are working on will suffer and it will probably end up costing the employer more money in the long run.
Some Contractors may be off-setting it with other works, if they are of a decent size and have deep pockets. However in my experience contractors such as these are thin on the ground at the moment and regardless, cash flow is cash flow. All it takes is a few events to come together for even a big contractor to topple.
Let's look at that logic from above. What are the answers I hear you ask?
1. “We really need the work”.
This is not work, this is Charity. You don't need it, its heartache, stress, sleepless nights, disputes, fall outs at work and home.
2. “We will make it up on variations and extra works”.
No you will not. Standard QS practice is to value works in accordance with the estimate. Contractors who fail to grasp the critical difference between rate and quantity, will not have a leg to stand on when it comes to a dispute.
3. “What else can I do?”
My view is simple, price to make a profit. If you do not get work at these prices, see if you can adjust your target profit margin.
Whilst I accept that the world has changed and people need to look at new business tactics in order to survive and thrive, I will never agree with anybody who chooses to submit tenders at less than cost.
In these challenging times, having a robust process for assessing the attractiveness of tenders coupled with an estimating system which factors in all of our direct and indirect costs has never been more business critical. How does yours measure up?
