When people think about taking on a construction project, they immediately think that either the design or the construction phase is the most critical phase of the project. They rarely consider the procurement phase as the most important phase of work. In fact, most people don’t even think of procurement as a unique phase of work.
It may be surprising to hear that Owners adversely affect their projects in more ways during procurement than any other phase of work. Here are 5 mistakes that I see most often when soliciting a construction bid.
Number One: Failing to solicit enough bids.
A small pool of bidders hampers your ability to negotiate. Ensure that you have enough bidders quoting to allow you to retain commercial advantage. I like to make sure that the pool of contractors is large enough that even if some opt out, I still have at least three viable quotes. The word “viable” means that you should be able to exclude outliers (bids that are significantly higher or lower than the majority of quotes) and still have three contractors to choose from. My goal is always to have a minimum of 4 quotes. Having 4 quotes allows me to exclude at least one. In order to ensure you have at least 4 quotes, you have to start with at least 6 to 8 contractors (in case some don’t respond with a quote). If you solicit quotes from less than 6 bidders you are likely to end up with less than 3 viable bids.
Number Two: Having a poorly defined scope of work.
Proper scope definition is probably the most important consideration when soliciting quotes. This is true for both design and for construction. Poor scope definition is the number one reason for change orders and for delays in the work. You might be thinking that scope definition is the responsibility of the Architect. This is true to a certain extent, but Owner’s have much more influence over scope definition than they think. I will be posting a separate blog to address “How an Owner can Influence Scope Definition”
Number Three: Failing to request information about the bidder’s qualifications.
When soliciting bids, most people focus their attention on the cost. Rarely are the qualifications of the bidder considered. Failing to ask the right qualifying questions or failing to confirm that the contractor is qualified (i.e. licensed and insured) to do the work is a recipe for a failed project. The contractor that offers the lowest price is not always the best contractor and the difference between a good contractor and a bad contractor is huge.
Number four: Not having a formal bidding process.
Another major mistake I see owners make is not having a formal structure for soliciting a contractors price. Having a formal structure for soliciting a price means that you start the bid at the same time and end at the same time. It also means you control the communication between yourself and the bidders to make sure that all of the bidders have the same information at the same time. This is important because if any one of the bidders has more time or different information that bidder may either have an advantage or a disadvantage over the others. If this happens, then you will be unable to compare the bids evenly.
Number Five: Failing to request pricing in a specific format.
When you request a construction quote, you have to think ahead to how you will compare the bids. Consider that you will be receiving three, four, maybe five bids from separate contractors. Each of them will have their own way of developing their price and each of them will want to give you their price in their format. In order for you to be able to compare the bids, you will have to review and interpret each bid in a common format. This can often be difficult because some contractors will give you more detail than others and you might not have enough information to compare all the numbers. This could lead to awarding the work to someone who has missed or underbid major portions of the scope.
So there you have it, these are the top 5 mistakes I see owners making when they solicit pricing from a contractor. Be careful not to make these mistakes and you will end up with more viable options and you will be better able to identify the best contractor for your project.
Tell me your bid stories. Did you have enough viable bidders? Were you able to compare the bids? How did you make your award decision?