Winning the Low Bid

Neil and Shane talk about what's broken in the low bid process and some of the ways a contractor who wins the low bid can survive the project financially.

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Shane 0:01

Today we're going to talk about the challenging aspects of low bid and how to navigate through this process. I'm Shane Crosby. I'm Neil Tastad. Welcome to the dirt. Good or bad, you can like it or not, most contractors struggle with this challenge because low bid gets the job. You could have 10 comprehensible bids and one low bid that comes in several hundred thousand dollars, sometimes million dollars lower than the most comprehensible bid next to them, and they get the job. So how do we get through that?

Neil 0:32

I think there's there's several key items. One is defining scope. Low bid's not necessarily bad as long as you can define the scope and accurately cost that scope. I think the problem is guys are just trying to get a job. They gotta be low to get the job. You know, maybe maybe they've got a laundry list of exclusions that the owner doesn't pick up on. That translates into change orders throughout the project.

Shane 0:59

The change orders brings up another fact. The hidden some of the hidden cost in this low bid process is that generally, low bidder, that cost will be 30% higher at the end. Let's just say that you had an engineer's estimate for $1.5 million. It's still going to cost that $1.5 million. It'll still cost 30% more than that based off of what was missed on the plans. This costs the developer, it costs the contractor. These hidden costs never get anybody up front because everybody looks at the last page of a bid. They don't look at what's what's the meat of the sandwich, so to speak. So it usually catches them somewhere along the way, right, Neil?

Neil 1:38

Yeah, absolutely. It's going to catch up on them during the course of the project for sure. Another thing that's the low bid going to navigate through that contract. Uh one way is by cutting corners, poor quality of work. Another way is is maybe they're not hiring skilled labor, which also contributes to poor craftsmanship of the work. So this translates into schedule delays for the owner, carrying costs if the if the project's delayed. It just goes on and on. The the whole low bid, and and I I keep saying this, the bid build system is is broken.

Shane 2:15

Yeah, it's it's definitely flawed. And I know talking to other industry leaders and contractors and municipalities, they're dealing with the same issues that we've seen time and time again. Public works, for example, one of my big issues is it doesn't matter if the contractor has done five bad jobs, as long as they're a little bidder going into the project, they get the job and they fail miserably. Any experienced contractors can overrun a job by as much as 46% caused by delays in the project. If you don't have good management and you're the low bidder, they'll miss stuff like long lead items. These huge items generally aren't seen from the developer at the very beginning. They aren't usually caught until the middle of the project trying to get an end date.

Neil 2:53

Yeah, that's really true with the type of construction we're in, right? In the dirt and the underground utilities. Some of these vaults are two to four weeks just to get a submittal from the manufacturer, and then that has to go to the general contractor or owner who then sends it out to an architect that may take two weeks. You get the approved submittal back, or maybe it has markups on it, and then that vault's six to eight weeks out. Those vaults have to be the first thing that go in the ground, and you build up off of that.

Shane 3:22

Yeah, that does definitely build your schedule. And and with that, when and again, going back to this little bitter thing with unskilled help, unskilled labor, unskilled installers, poor installation happens, repairs are always done. And sometimes that stuff's not seen up front. Sometimes stuff that stuff doesn't come back to bite you till the completion of the job. And a lot of these public works jobs are a phase or one or two or the first phase or the last phase of project, and you're now going to connect to whatever somebody else left you. And if the job that was done previously was done incorrectly, you're now going back and redoing that. Usually with an inexperienced contractor, they have a high turnover rate with their people just because the jobs they're doing. Not to mention a developer, a city, a state, whoever's taking this low better, that really reflects on their reputation. And I know as civilians, and I say civilians, people that aren't in the business, they drive around, they say, why do these jobs take so long? Well, this is part of the reason.

Neil 4:18

But low bid's not always bad, is it? No, absolutely not. So, so what we're seeing is again, if you can define the scope of the project and it's more of a the design build side of things, if you could work through all the costs and have, I shouldn't say low bid, but the best value, that's that's what we're looking to do is clearly just define the scope of the project, accurately cost for everything that we can see, and provide the best value to the customer, to the owner.

Shane 4:49

What's the positive thing about hiring a company like Alpine Civil Consulting, even in a low bid process?

Neil 4:55

Well, I think we're still out there pushing dirt. So not only do we have accurate costing on on what's going on in the industry as far as pipe, dirt, prevailing wage rates, items like that, but we're also able to sit down and clearly define the scope.

Shane 5:12

Yeah, so basically if you were hired or we were hired by a developer who's looking for the low bid, we can help them navigate through these to make sure that they're getting the most comprehensible bid, not necessarily the low bid.

Neil 5:24

Yeah, not necessarily the lowest number, but hey, here's here's the lowest, most comprehensive bid.

Shane 5:31

Yes, I we're dealing with a client right now in a smaller scale project, and he took the low bid and is now struggling to get a job that was going to take a very short time. It's now quadrupled the time, and the the quality of the project's not good, which is gonna have a direct uh reflection on the owner. And he's now seeing that oh, cow, wow, I shouldn't have done this. I should have had somebody look at my details before I just grab somebody.

Neil 5:55

Yeah, not only is he losing revenue on that store not being open, but also part of that store is is not being able to function with the construction going on.

Shane 6:07

Absolutely. One of my other issues is in the low bid process. Every contractor that we know in the Pewters Sound area and across the country is trying to get a job. Funny thing is, is our industry, our costs can't go up as material continues to grow and go up every month by huge percentages. Struggling to get a job today is even harder than it was 10 years ago or even a year ago. Isn't that right, Neil?

Neil 6:30

Yeah, it's it's definitely getting tougher. Wages are increasing, benefits are increasing, cost material continues to go up, insurance, fuel, yeah, fuel, the whole gamut. That's why it's so important again to clearly define the scope of work and make sure you're covered.

Shane 6:49

We've talked about the little bid gets the job. What does that entail? Can you explain to me a little bit about scope? What's missed?

Neil 6:55

Give me some details on how that works. Well, that's I mean, that's pretty broad statement, Shane. I mean, what's what's missed is different on every project, but I think a lot what's missed on civil work is you know, take the erosion control plan. So you got your silt fence, construction entrance, inlet protection, straw wattles, whatever you have on there. You're as as a contractor trying to be low bid and get a job. What else goes along with erosion control? You got maintenance, which if you put maintenance in there of any kind, you're not going to get it. Uh, street sweeping. And as you and as you get farther along into the fall and winter time months, now you're you're putting plastic on all your piles. Everything you're digging out of the ground is around here, usually is moisture sensitive, so you have to cover it whether it's required or not. And a lot of times those soils become over optimum in moisture. So typically in the geotech reports, I think it says between you know, around here two and five percent above or below moisture content makes that material become unsuitable. So it's not necessarily that it's getting too wet, but sometimes in the summertime it's too dry and you gotta wet it. So little things like that need to be addressed up front, and the the whole low bid scheme doesn't fare well for those costs.

Shane 8:18

No, I I totally agree with you, Neil. As a as a contractor who is out bidding jobs every day, what is the feeling you get today when you get a job?

Neil 8:26

When I when we get a low bid job, my first thing is okay, what I miss. Because right right now, especially in today's climate, guys are are so low, like you were talking about you bet a half million dollar job and someone comes in at half, or you know, we we spoke to a gentleman the other day who the swing was what 19 million to 30 million and someone came in five million dollars low on that. Like, how do you how do you navigate that as a business owner? How do you survive that as a contractor?

Shane 8:57

And what does that do to our industry when these things happen? You get less guys bidding these jobs because they can't withstand this this type of volatility in these bidding jobs. You just can't, you know, and and you mentioned in this state of Washington, a lot of things that are people try to cut back on to get low bid is a lot of the erosion control stuff, discharge in the wintertime, the cost of exporting in the wintertime goes up. All that stuff you generally eat if scheduling is not done, management not done right, and you're trying to do anything and everything you can do to get the job.

Neil 9:26

Yeah, you start cutting corners, especially in the wintertime on erosion control. And we both know that. So you cut corners on erosion control, and what happens to your job? You get red tagged, right? City comes out, you got mud on the street, uh, you got muddy water running into the the lake or the stream. It's and could shut the whole job down.

Shane 9:45

Yeah, and that's that's one of those things going into winter. Winter works a whole different podcast, I think. And that's probably something we can we can hit on later. But you're right, those are just added costs that nine times out of ten, the contractor bidding a job is gonna lighten it up on that price. That's one of the areas you can kind of help maybe avoid doing if you can get the job done quick, and then if things aren't managed correctly, if the other long lead items catch you, all that stum comes back around to bite you. If you don't thoroughly go through the plans, you could miss rocks under rock underneath footing, which could be a $70,000 add-on that you that you didn't see because you didn't do a really good job bidding the plans, right?

Neil 10:23

Yeah, I've done that before.

Shane 10:24

Who hasn't done that?

Neil 10:25

Nobody, nobody's above that. It's just just part of the process. Okay, so now you're a contractor and you're low bid and you reward the job. What's what's a first order business?

Shane 10:34

Well, do I panic? No. Yeah, you you go back and see what you miss. Yeah, first we panic. Well, then then generally, if it's Neil and I doing a job, the first thing we do is we panic, and then we put together a comprehensible schedule that we're hoping we can meet, look at any lead, long lead items like we talked about before, and then I then have to navigate the job to see where I can capture the lost revenue that we are now low bid. And that's not necessarily a change order or whatever, but how can I tighten the ship so that we're profitable still? Because we already know we're a little better, we already know where we are in the picking order. We've got to find some way to level it out for our company and make the most money possible without doing it wrong.

Neil 11:20

Yeah, I I guess I hear low bid, and there's there's a couple ways to be low, and and again, one's the best value, which isn't bad when you can work with the general contractor, let's say who has a relationship with the owner, and you work through all these issues, and then you become the best value and get the job, versus oh geez, what did I miss? And I probably missed something, and now we got to figure out how to manage that cost, and that includes on all our on all our projects, schedule is very important, but really make sure we have the correct manpower out there, equipment, make sure we're on top of our submittals, have all the material out there when we need it.

Shane 12:02

So basically, we just blow and go, just blow and go, and then hopefully in the bidding process, we've discussed any alternatives that could save us money that could be discussed with the developer, the owner to save money, save time that's still applicable to the job. That always helps. And you know, the last thing I'd like to do is is change orders and TNM work. And unfortunately, that's become the norm in our business, especially when you're the low bidder. Guess what, Neil? What's that, Shane? We've got a guest next week. Who's that? It's gonna be Josh Drummond, who's head of District 90 King County Water District, who's got a lot to talk about. So please tune in for that episode. And we love to hear back from you guys. I'm Shane Crosby. I'm Neil Tastad. This is the dirt. Keep digging.