Why lowest price isn't always best - suicide bidding

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There is no doubt we are in a bit of an economic mess currently, unemployment is high, job security is weak and the housing market is struggling. In general, the population is watching its pennies and spending as little as possible. This, along with recent news that the construction industry may be heading back into recession has created something of a catch-22 situation for building contractors, and what is often referred to as 'suicide bidding'.

Construction has had a rough few years since the economic downturn, in a boom and bust industry the 'boom' is certainly over for the immediate future. There is work out there to be had, but competition levels are high as companies fight to maintain turnover and reduce redundancies. Faced with a decision of trying to make a profit and failing to win any work at all, or just breaking even and trying to claw back as much as possible once the project is underway, well, there is no choice if you want to survive.

Suicide bidding is defined by submitting a tender for less than it costs to do the work, in order to win work, maintain turnover and skilled labour, and attempt to make money back during the contract on variations. When suicide bidding goes wrong, the results are usually poor quality, poor service, disputes, and contractor insolvency. Desperate contractors may take the gamble and bid too low - your lowest price tender may not look so good when the business goes bust part way through the process and you are left with a building site instead of that office you needed to be up and running last month!

Tender evaluation seems to only encourage this form of bidding, lowest price as apposed to best value is a lose-lose situation for both client and contractor. What if the contractor was so desperate to win the job that he not only cut out profit, but also failed to cover his overheads? No company can survive very long with negative cash flow, Rok, Connaught, and countless others have been caught out over the past few years.

A comprehensive pre-tender evaluation should be the first step to reducing risk. If you are expecting the project to be completed in an unrealistic time frame at a low price, quality is sure to suffer. If the bidder has missed something or excluded some items to provide a low tender price, the project is likely to end up over budget and over schedule in order to make the changes needed to meet your requirements during the construction phase.

When buying a new TV are you going to go for the cheap no-brand fuzzy picture poor quality model that you can only get a few channels on and you fear will blow up within the year or the high quality brand made sharp image extended warranty model that does everything you need it to and comes with 5 star reviews. It might cost you a bit more in the short term but it's going to last you 10 times longer and you know you will enjoy watching it, and, should anything go wrong, you know you have the back up to get it repaired. These are the thoughts that go through most peoples mind when making a decision on spending a few hundred pounds on a TV, so why should these decisions on quality not be used when spending a few thousand pounds on construction work?


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