A Different State of the Nation Address

Jan 28, 2021 | Newsletter

We all have our sounding boards. Mine is Bill Hughes, former president of Shawmut Construction. It was during a recent conversation where I got on a bit of a roll about South Coast and our clients. You could say it turned into my own state of the nation address.

It started with me mentioning how fortunate we were that we had some of the largest providers of senior living as longtime clients. From these relationships we are seeing a strong pipeline as we come out of this pandemic (albeit slowly).

Bill looked at me and said, “That’s because they are smart buyers”.

I countered that we had earned that over years of doing good work.

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Bill chuckled and said, “That’s a given, but by far the bigger reason is they want the best price at the end of the project”.

He went on to explain the biggest misconception in our industry is that for clients to get the best price, they need six or eight General Contractors or Construction Managers to bid. The thinking there is competition will drive the price down and, ultimately, the client will get the lowest, best price. Bill agreed that does happen but only for the start of the project.

What happens next?

Bill went on to discuss a few scenarios:

With six to eight bidders, one or two might be looking to add to their pipeline. So, they may take some cost risks in an effort to “win” the project. They may even see conflict in the plans or missing scope that will result in Change Orders (CO) for them. Yet rather than bring it up at time of bid, they may sit on them knowing the missing items can be included in the form of COs.

Now, I can remember dealing with a framer years ago who showed up on day one with Change Orders for what was missing in the plans. It became clear he knew about this well before the project started. His response when asked why he didn’t bring it up at time of bid?:

“I wanted to win the project.”

The next scenario involves subcontractors. I am always amazed at how many good sub-contractors there are out there. In some cases, we haven’t heard of a sub until a specific project. There are also some shady subs who will throw out a crazy number and you just know it is going to be a war with CO’s. That never makes for a good project for anyone.

A third scenario happens a lot with tricky, complex occupied renovations where the bid window is two weeks. That simply is not enough time to properly coordinate the plans, consider existing conditions, cross reference all the drawings to ensure scope for each trade is captured and thoroughly vet the sub bids. In many cases sub bids come in 24 hours before the bid is due.

This type of process—the hard bid–results in a “Beginning of Project Price” of “X”.

Now in negotiating with our clients, we are able to eliminate 95 percent of what was just discussed as the risk of hard bid. Yes, it takes time to meet with the design team and owners to really understand intent. It also allows for proper investigation of existing conditions. Finally, you are able to hand select a few subs in each trade and by thoroughly reviewing scopes, get the best, right number.

This process—Negotiating with Owner and Design Team—results in a “Beginning of Project Price of “X +”

Right now, someone reading this is saying “Hah!! See?!!? Hard Bid gets the lower price!”. Read the details—we are talking about the Beginning of Project Price! The End of Project Price is truly what matters.

Studies have shown that Hard Bid projects experience 30 percent more in Change Orders on new construction. For renovations, the number is north of 50 percent more COs in Hard Bid vs Negotiated!!

At this point in the discussion, Bill offered the following summary:

“Tom, yes you’ve done good work but the bigger reason by far that so many of your clients negotiate with you is that it is a better delivery method for the client. It is less expensive in the long run, quicker project schedules and an overall more satisfying client experience.”

Yes, my ego took a hit, but it all made sense.

We love it when clients and the design bring us in, and we can lay all the cards on the table. The client is clear on what they want, and we can work with the design team to deliver that vision in the most cost-effective, quickest way. That is why the sophisticated buyer of construction services will always look to negotiate with a qualified General Contractor/Construction Manager. It’s simple math:

Hard Bid= X + a larger Factor of CO

Negotiated = X + a smaller Factor of CO, Faster Schedule, better experience.

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