On a recent assignment we prepared the independent estimate for the owner to use to evaluate prices on the bids. This estimate included the materials, equipment, and labor to perform the work. It included the indirect costs associated with the work – supervision, mobilization, utilities, etc. It also included profit. We provided the estimate, along with backup to the client. We advised the client that with current conditions the bids could be the amount we estimated less the cost of the construction equipment and overheads. When the bids came in, the two low bidders were at our estimated amount minus the construction equipment, overheads and profit. These two were bidding the project for the only cost of labor and material! A third bidder was reasonably close to our estimate and fourth bidder about twenty percent higher.

When a situation arises where the low bidders are bidding work below cost like this, it poses major risks to others involved with the project. The bonding company is now at risk for a default, as is the owner with a deadline for completion. The material and equipment vendors should start being concerned about being paid. The same can be said for any subcontractors and the employees. When equipment breaks down or wears out, there is no money for replacement parts or equipment.

The two low bidders have one thing in common with our estimate. They had to have a detailed estimate in order to know how much to eliminate from their bid. Unfortunately they are bad businessmen by making decisions to take work below a cost that may cost them their companies. They are also screwing up the market for the contractors putting in responsible bids – as I have written about on prior occasions.

Oh By The Way…When the owner has a detailed estimate and can make determinations such as this, they can judge their own exposure to the risk of a contractor failure. This way they have the knowledge of a potential problem.

The bid form doesn’t stop with the pricing of the 1,000+ items. Not only do the bidders have to price each line item, they have to develop the quantities to be priced!  And, to add a bit more complexity to the bid period, there are over 30 alternates identified by the owner for the contractor to price out with breakouts for cost, overhead, profit and contingencies. To add insult to injury the owner is also requesting voluntary alternates from each of the bidders.

There’s more but it is almost beyond belief!  Breakouts are being requested for the general conditions and indirect costs, prices for self performed and subcontracted work scope along with requests for any clarifications or exceptions to the project.  It will take two weeks to fill out the bid form information.

I wonder if the owner knows that the contractors will look at the bid requirements and fill in the blanks with less than meaningful information and pricing.  It is apparent this is an owner that does not know how to develop a project that encourages the best pricing from contractors.  It is apparent that the architect and engineer are not providing any meaningful input for a better bid form.  Little does the owner know they are setting themselves up for the job from hell and it is their own fault!

Oh By The Way… In better economic times it is likely there would be little to no contractor interest in bidding this project.  In these times there are seven major prime contractors pursuing this project.  It is a sad state of affairs in construction when bidding projects has come to this.

For the benefit of the construction industry either stick to what you are good at or go away!

The question I have after reading these recent articles is who will build these new plants?  After 30 years of basically no new plants, the knowledge and expertise has been lost to retirement and/or death.  The learning curve is going to be back at square one if several new construction projects start.  I have confidence that they will be able to build them, but the tips and tricks of the trade to increase productivity will be gone resulting in higher construction costs.  Even the few guys left will have to dig deep into their long term memory to remember what they had done.  I hope the answer does not involve bringing the expertise from other countries that have been building these plants.  I am looking forward to seeing new nuclear plants being built to help supply our nation’s energy needs.  I think it is about time the government starts promoting nuclear power again!

Now all we need is a reliable energy policy that is free of politics and interferences for the “renaissance” to continue.  This means the politicians and administrators involved in the process need to encourage and not hamper the development of these plants.  Once it is free of politics I believe we will see a surge of private money willing to back the building of more nuclear power plants.

Yes, ratepayers will foot the bills, but they are today for coal, oil and natural gas fired plants.  These same ratepayers, with federal and other subsidies, are paying a premium today for alternative sources such as solar and wind.  The costs to build the plants will come down as more are developed.

If the federal government is to encourage the development of nuclear power they must get off their anti-nuclear bias and develop a long term, sustainable plan that will not be revoked due to political changes.  These plans need to consider long term storage of wastes, processing of fuels and even the phasing out of the fossil fuels for power generation as the nuclear plants come on line.  Constructing more plants will benefit the construction industry and virtually all other sectors of the economy.

Oh By the Way… Think of how the cost s of home heating will go down if natural gas is phased out for power plants.  What about chemical feed stocks price declines with lower oil and natural gas consumption?  We will lose fewer raptors and desert tortoises without wind and solar farms.  It sounds like a winning program for the United States!

Architects and engineers have the second largest impact upon projects costs.  Their ability to determine the right materials and components to meet the client needs is paramount to have a cost effective design. 

 Regardless of the fee amount, the designers are being paid to design the project.  I believe being paid for design services then farming it out to suppliers and vendors to do the design for free is at best unethical.  When they don’t know enough to develop the design details and go out to the suppliers for it, it also lessens their value on the project.  While there can be cases made for sole source suppliers and vendors, having a sole source vendor will drive the costs up.  I have seen this on project after project for my entire career.

  To be an equal opportunity blog and point out some practices by contractors that increase project costs, here are some pointers to watch out for.

• Contractors that cannot schedule and manage their work will cost the owner more money.
• Contractors than cannot evaluate the responsible low bidder at bid time will cost the owner time and money.
•  The contractor that inflates costs on change orders and allows subcontractors the same opportunity will cost the owner more money.
•  The contractor that shows a profit margin of 2% on cost plus work is hiding profit in other areas and defining it as cost.

 By this count I am being unfair to contractors since I have pointed out four areas of contactor operations that increase costs on projects.

 Oh By the Way… While an owner may be able to spot these problems, it is more difficult for them to spot a problem with the architects and engineers developing sole source specifications by using suppliers as “free” consultants to develop the specifications.

He asked how to figure out who was divulging his numbers.  One of the easy ways is to start asking around.  This can have mixed results.  Another method is to determine the reputation of the firms you quote.  A common practice is to quote each of the firms on bid day a different number to see which one gets released to the competition.  This can result in more than one number released.

Once the source is known, how to prevent the bid shopping is the next question.  The only sure way to do this is to not bid the unethical bidders.  Keep bidding only to the ones that do not shop your bid.  An alternate method is to give out higher numbers to those that shop your number.  However, in mind the federal government and many private owners do not think bid shopping is unethical or illegal.  Also keep in mind the feds may want to prosecute you for bidding the inflated number!

Of course the follow up question was, “What if I do not have anyone to submit a bid to on bid day?”  While unlikely, it is still possible.  In a case like this my recommendation is to pass on bidding the project.  It may hurt in the near term but it can payoff big in the long run.  Word will get out that you don’t participate in the bid shopping game and you will attract a higher class of contractors to bid to on bid day – those that respect honorable and ethical bidding practices and procedures.  They also treat their clients better!

Oh by the Way… Too bad the feds don’t know the difference between setting the price on a refrigerator or a car is far different from setting a price on a construction contract!  Once they figure this out bid shopping may get declared illegal.

There are several advantages to attend the meeting.  First, you have the ability to see who else is interested in the project including your competition, subcontractors and prime contractors. 

More importantly, you can see actual site conditions.  Drawings and even pictures can show only so much detail and they never depict actual site conditions.  Having to work in a tunnel can be very labor intensive or I have seen some that are better to work in than most hallways.  Also, going through the site investigation can help determine what type of productivity you should use in the estimate.   

This time also allows you to ask questions about the project which you would have to spend the time anyways submitting in RFI for the estimate, might as well kill two birds with one stone.  

Even though anything said in a pre-bid is not considered part of the project unless it has been issued in an addendum, there is still valuable information that can save you time or money.  Such as finding out the architect is completely changing the design and the plans are going to be completely reissued in an addendum next week.

The knowledge gained at a pre-bid can help you determine if you should pursue bidding the project.  Sometimes it is better to pass on a project so you can bid on another that is more favorable to your company.

So if projects don’t make it, just who does kill the project?  Presuming it is a necessary project, many methods exist to kill projects.  Primary methods of killing projects include: 

• Poorly defined project scope
• Constant scope changes
• Initial budget prepared incorrectly
• Scope changes priced incorrectly
• Optimism or pessimism in preparing costs
• Misleading or misrepresented budget information

 These six areas are just the beginning of methods to kill a project. The first two can be attributable to poor end user or designer scope definition.  The next three can largely be attributed to untrained or biased personnel preparing the budgets.    The last one is oftentimes someone with a vested interest.

 While an estimator may be thought as the one to “deliver the killing blow” to a project, the death or delay of a project is usually started by others before an estimator becomes involved.  Most of the methods presented above can be overcome by using experienced estimators.  The right numbers from the beginning rarely kill projects that are viable.

 Saving a project doesn’t mean keeping the estimated cost low to make sure it is approved.  Nor does it mean keeping the estimated cost on the high side so there is money to build it.  Saving a project means developing the right cost for the right project scope.  This is how estimators save projects.

 Oh By the Way…  If a project is “killed” as being unviable at the very beginning, it will save the end user a substantial sum of money.  Get the estimator involved!