In the age of rising design and construction costs, it can be tempting to select the lowest bidder for your project every time. But, is it smart to entrust your development to the lowest bidder?
Consider the following statement from Victorian era thinker John Ruskin:
“It is unwise to pay too much, but it is worse to pay too little. When you pay too much, you lose a little money… that is all. When you pay too little, you sometimes lose everything, because what you bought was incapable of doing what it was bought to do.“
This statement holds true today. While it is important not to overpay, it’s worse to let your investment completely go to waste.
Is it Worth It?
Is it worth paying less for a design if it doesn’t solve your problem or meet your needs? Is it worth saving a few grand if you don’t even end up leasing or selling your property? If you aren’t going to get the result you want, wouldn’t you be better off not spending a dime?
Is it worth having a construction contract that isn’t going to cover the cost of your project? Are you okay with paying extra for the impending change orders and dealing with time and budget overruns? If the construction process is going to be that painful, why not hang on to your money?
Don’t Get Burned
When it comes to hiring designers and construction contractors, there’s a few common mistakes that lead to painful consequences for developers.
A common mistake developers make is to continue working with the same consultants or contractors while expecting different results. Instead, try finding those who share your vision and can rise to the occasion. They may cost more, but it will be worth the investment.
Another mistake is overthinking cost while forgetting about your other goals. Consider the purpose of your project. What is it that you are trying to accomplish? If you are trying to outshine your competition or raise the bar on your own projects, you will have to invest more money than you are used to.
Unfortunately not all proposals are clear. Cheaper options often don’t include key components of the design scope or leave out major items in the bid for construction. Both can come back to bite you in the end if you are caught unawares. Make sure you are getting what you think you are by asking lots of clarifying questions to the low bidders. You may find that there are glaring reasons why they are less expensive.
The good news is you can avoid these problems. Instead of blindly choosing the low bid, you can establish other metrics to evaluate your options. Try the following tips:
- Pick firms that provide great service so you know you’ll have a clear path of communication and an overall better working relationship.
- Look for evidence that they can produce the caliber of project you are hoping for.
- Find out exactly what you are paying for so you don’t end up missing out.
The Common Law of Business
By selecting the cheapest option, you are choosing more risk. Yet, the more you pay your designers and contractors, the more risk they take on. That is the balance of doing business.
Ruskin continues, “The common law of business balance prohibits paying a little and getting a lot… it can’t be done. If you deal with the lowest bidder it is well to add something for the risk you run. And if you do that, you will have enough to pay for the something better.”
Once you factor in the dangers of dealing with the lowest bidder, you’ll find that it will end up costing you as much, or even more to work with them. And if that’s a total disaster, you’ll end up paying twice because you will need to hire someone else to do it right.
Now, every once and awhile you may get excellent service and flawless results from a cheaper firm. Maybe they are just starting out and building their portfolio and that is why they are cheaper. Or perhaps you have them working outside their regional market where prices are typically higher. Whatever the reason, it can be a good move to go with the lowest bidder.
Just remember: This is the exception, not the rule.
If a number sounds too good to be true, it probably is. The firms that consistently undervalue their services struggle to provide good service. That’s the common law of business.
Do Yourself a Favor
There’s a lot at stake when you set out to design and build your project. You will be investing large amounts of money, time, and effort. Don’t make your job harder for yourself by taking on too much risk. Do yourself a favor and invest wisely in design and construction services. You won’t regret it.