In the photo on the left, an elderly woman was left with an unfinished deck and railing from a low-bid contractor that abandoned the job. Furthermore, the contractor had used Douglas Fir – which is not rot resistant – and paracord rather than stainless steel cable for the railing. Therefore, the railing, specifically intended to make the deck safe, was dramatically out of safety code compliance. Gennaro Contracting had to come in and re-do the railing to bring it up to code compliance. They also built a ramp for the owner’s safe accessibility. The photo on the right shows the new work completed by Gennaro.
By Hilary Gennaro
It makes sense that a low bid on a construction project would be attractive – everyone likes to save money where possible. However, a low bid often ends up costing you far more in the long run. What are some of the reasons behind low bids, and how do you determine if a bid is coming from a qualified contractor who can deliver what they promise, or if it has the potential to lead to serious issues down the road?
What drives the price down? Some contractors may submit low bids to “win the job at any cost.” If an accountant were to look at such a low bid and consider it against the company’s expenses, they would likely point out that the company would make little profit – or even take a loss – on the job. So, why would a contractor do this if it means they won’t make any money? The secret lies in what comes after you sign on the dotted line. The contractor will find a way to recoup losses or gain additional profit through change orders.
What is a change order, and how does it function? Legitimate change-orders happen all the time in the construction industry. An example of a legitimate change-order would be if a contractor uses a particular brand of tile to estimate a job’s cost, only to find once the job starts that the supplier – who before had plenty of the product – is now out of stock, and the tile is no longer being manufactured. In this case, the change order for different tile could increase OR decrease the overall cost of the project, depending on client choice and availability.
However, contractors who use low bids to leverage profit would claim that the adjustments they need to make are high margin or high overhead for them, and charge a larger markup than necessary. They might try to justify a significantly higher price by claiming increased administrative cost, or claiming site conditions are higher-risk than anticipated. Because change-orders occur when the project is already underway, clients are left with a sense of urgency to pay whatever is necessary to keep the project going. Furthermore, a contractor who is banking on change order to profit on a project will often hide costs in other ways as well.
A contractor might also hand you a low bid because the plans for the project are incomplete and do not include all anticipated costs. For example, maybe a breaker necessary for HVAC wasn’t specified in the bid, and now the contractor will charge for scheduling and personnel changes, upgraded equipment, and other issues. Some contractors might be attempting to keep up with competitors who offer low pricing, or make sure they can keep their workers employed, but no one benefits if a job hasn’t been correctly estimated from the outset.
Finally, some contractors simply lack the experience and expertise necessary to know all of the complexities that go into bidding a job. When this happens, there is a greater risk than simply paying more for the project to be completed. The contractor’s lack of experience might also mean they don’t have the skills and resources to even complete the job. They may walk away from an unfinished project, and disappear. Experienced and skilled contractors then must come in to tear out the poorly done work and re-do it – meaning you’ve essentially paid twice for your project.
The challenge is helping clients understand that a higher – but more stable – bid will be friendlier to their budget in the long run. When vetting a contractor, look for a history of completed projects that are similar in scope to the services you want. Take a look at how booked the company is; while a company that has plentiful work might seem like a good choice, contractors who have too many jobs going at once may not be able to provide the level of supervision and attention your project requires. Check that they carry the necessary licenses, and look into their references and client testimonials. Look for patterns of opening and closing multiple LLCs, or having several bankruptcies, as these are red flags.
In conclusion, performing due diligence before a project begins is far more cost-effective than addressing problems after they arise. A low bid shouldn’t be the only – or even the main – reason for your choice of contractor, no matter how appealing. You may end up paying more in the long run than you would have if you’d gone with a higher, but well-prepared and transparent, bid.
