Bid shopping or scope of work -- two sides of the coin

PCL Constructors' Poole's Rules, developed by founder Ernie Poole, codify simple ethical and business practice principals which have helped the employee-owned business to thrive and grow.

When can right and wrong be two sides of the same coin? When you discuss ethics and effective marketing principals in construction, you sometimes find opposite interpretations.

Yesterday, for example, I had a fascinating conversation with Ron Barrie, a retired senior project manager with PCL Constructors Canada Ltd., who recently received the Integrity and Ethics Award from the General Contractors Association of Ottawa (GCAO).

We discussed one of the major bones of contention between subs and general contractors, and general contractors and owners -- bid shopping, and when what could be perceived as bid shopping is actually the opposite: A genuine discussion about the scope of work.

Barrie said he frequently called subs after closing to confirm they had their scope of work correct. This would apply to subs whose bids seemed too low, and slightly higher bidding subs who he knew could do the job well.

Often, he says, the low bid sub, on realizing they had made a scope of work error, would withdraw from the competition. Sometimes the higher bidder would modify the bid recognizing that had overstated their work scope.

Barrie says most of his work before retirement had been on construction management rather than fixed price projects, allowing him to manage things more effectively and ensure a fair resolution for everyone. In this context, only qualified sub trades could get on the short list in the first place.

He added another point to this story, however. Sometimes, he said, a sub would run into problems on the job, often for reasons outside of the individual project. Technically, the GC and owner could throw the book at the sub, replace the trade and sometimes call on the bond.

But Barrie says the better solution, in consultation with the owner and other trades, often involved biting the bullet and providing extra financial support or resources to the sub to help out. The question, from a practical point, is whether the job would move forward better and at lower cost if a reasonable arrangement is made on site, rather than resorting to litigation, delays, and disputes.

Barrie says in great jobs the teamwork builds naturally and effectively. This leads to much happier working relationships -- and really satisfied clients. With the right team of like-minded sub trades and suppliers, in concert with the general contractor and owner, solutions are uncovered quickly and the project moves forward to a satisfactory conclusion.

Rouge elements still exist in the industry, he acknowledges, and some of them find their way into fixed price government-bid projects where the bidding authority is constrained by rules and therefore cannot easily weed them out. But they are few and far between.

Obviously, Barrie's award is well-earned, and the company he worked for has earned a reputation as one of the most successful general contractors in North America. PCL's Poole's Rules, to me, represent a solid model for business practices and processes for not only the construction industry, but any organization, and I believe the company's employee ownership model is well designed to encourage excellence and business sustainability.

The challenge for everyone in the industry when it comes to marketing is to remember that 80 per cent of your success arises from the work you do and the relationships you build on the job site with your associates and suppliers, and your clients. Nothing is stronger in building referrals and repeat business, and I know of no better source of leads than your network and connections built as you are working on projects.

In this environment, when someone tells you about future work, continuing maintenance opportunities, or other areas you could expand your business, you don't need to strain, struggle, or develop new strategies or systems -- your marketing flows naturally. As well, once your work is completed, your references are strong and your relationships are solid.

(Of course, it is wise -- in fact essential -- to develop methods to keep in touch with your clients and colleagues from earlier projects. Here, resources such as annual parties, seasonal or Christmas greeting cards, monthly newsletters, or friendly calls and emails are always helpful -- and will pay off in valuable leads and future business opportunities.)

Playing favorites (the right way)

This image isn't reallly related to the story -- but my Google search for appropriate artwork brought me to http://www.rfp-templates.com/, an intriguing online source of draft letters, resources, and documentation for RFP/bid preparation and response.

Take a few minutes to review this remark posted a few days ago by a general contractor who plays by the rules regarding bid shopping/peddling.

GC's invite bids on an upcoming tender. Both invited and unsolicited prices are received. The preferred trade may not be low. It may even be extremely close pricing. The prime wants to continue to work with and support the preferred trade and continue to build this relationship. But is this fair to the lower bidder? Many issues come into play in this circumstance with no clear win/win situation. Depending on the final decision some one will be unhappy.

Here, we see a very real example of the practical issues involved in our business -- and the challenging interface between relationships, pricing, and integrity.

Almost everyone I know is ready to pay premium the security of knowing the work will be completed on time, schedule, and with maximum working harmony. And almost everyone I know also realizes that the lowest price at the outset is not usually the best value in the long term. So, of course, I constantly advocate that your best marketing investment is to maintain and enhance your relationships with your current clients. Then you are most likely to be included on preferred bidding lists and (without cheating but with your special inside knowledge of the client and upcoming projects), know the right price to bid to win future work.

But the question arises: How do you win new work and clients? Should you be willing to submit an unsolicited bid for a proposed project, and if you are low and win it, should you get the job?

Here, as the general contractor above notes, things get really murky. Lets say you are relatively new to the business (on your own) but have much relevant experience, solid personal relationships, a proven track-record working elsewhere, and you are simply willing to work for less than the competition to gain a foothold. Does this story sound familiar?

The general contractor receiving your unsolicited bid, of course, is quite within his rights to decline it -- he didn't ask for it, and assuming it isn't a public project where bidding is totally open, he doesn't have a legal obligation to accept it.

Probably the ethical thing to do in this situation is for the GC to thank you for your bid, and (if it is good), say it is good enough that he will be happy to include you on the list for future projects. From a marketing perspective, then, you'll achieve your objective in gaining attention and business opportunity -- but of course, if you are like most start-up businesses, cash flow now is more important than future opportunities.

A second choice is for the GC to dump the low invited bid, and take yours. If I were the the low invited bidder, of course, I would cry "fowl", with good reason. Perhaps the low bidder though is on the borderline of quality -- and margins are tight, and the new guy is really good.

The third option is for the GC to contact the low invited bidder, and tell him about the low unsolicited bid. This is probably not unethical if this information is provided after the original bid is accepted and the job starts -- the incumbent would want to know someone is out there pushing prices down, and maybe out of respect the successful incumbent sub contractor would be extra careful about client service/value going forward. But of course, as a general contractor you use the information to push the price down of your invited sub trade, you enter bid shopping hell (and get a lower price, I suppose.)

You can quickly see how all of this can get really messy and complex, and this explains in part why marketing has such a challenging and unique place within the construction industry.

The two faces of bid shopping/peddling

I've enjoyed correspondence with a general contractor (who insists on anonymity) with a solid reputation for integrity. In a recent email to me, he wrote:

You are on a touchy subject. As you know two people can read the same thing and draw different conclusions.

We feel very strongly that when a price is give to us it is confidential and must remain that way at all times. It is the way we expect to be treated by the owners so it simply has to be reciprocal.

I believe we are more competitive and respected by doing business this way.

Fishing for information happens all the time. Offers to cut prices after the tender closes and the successful GC is identified is common. These offers are usually from the same group of trades and suppliers. Obviously they have a twisted view of what a tender is. I suspect that they would be the first to howl that a GC "shopped" them out when beaten at their own game by another trade with the same views.

Interesting . . . of course this stuff reflects the construction industry's murky underbelly. People will indeed speak with two faces; and not everyone practices what they preach -- clearly a real issue when competition is fierce and, in a down market, the need for any work to keep the business alive encourages desperate behaviour. Another issue, however, is the fact that decisions are made often in the spur of the moment by individuals not always acting in their company's best interests (perhaps because of their own internal desperation or problems), and the company's oversight is not strong enough to catch the errors (a very real challenge for multi-office firms, with high levels of local autonomy.)

Bid shopping or relationship marketing

Last night, I emailed readers who had reviewed our emailed invitation to participate in a survey about bid shopping/peddling the copy of the story that we are publishing in Canada.

You can download the story Bid Shopping and Peddling: The Construction Industry's Ethical challenge, here.

I received several interesting replies, including the following two observations:

Sebastian Lessard from newhomeassociation.ca wrote:

I wanted to give you my opinion on bid shopping and peddling. I am not a general contractor, builder or sub-trade. I have however been in the business for many years servicing New Home Builders as a Sales and Marketing Consultant.

My experience with one particular home builder came to mind when looking over the results of your survey. This particular builder (Alary Construction) in Gatineau, Qc managed to steer away from those types of problem.

His motto was: "get to know the companies and the people that manage them, make sure they get to know you and your business values and you'll succeed in creating strong, trust worthy relationships. These relationships will lead you to success. they will generate the highest quality work, thus bringing YOU, recognition and appreciation from your clients." or something like that!

I fully agree with this principle, where if you show your partners(sub-trade) your intents of establishing a long term relationship they will bend over backwards to ensure the preserve your trust enabling them to grow and succeed.

Business is not about short term objectives but rather longevity and prosperity. In the case of Alary Construction, they made the choice of investing time to get to know companies and their leaders and selected companies that met their business values and beliefs. 6 years later they are still working with 90 per cent of the same trades, producing high quality work and ultimate customer satisfaction.

It goes to show that Bid Shopping and Peddling is a practice done by choice. Home builders and general contractors should not sacrifice quality, integrity and a potential relationship on prices they receive. They should spend more time evaluating, meeting and understanding the value of business relationships and how they are worth a lot more than the few thousands saved on one particular job.

I know that money talks but I've always found that actions and trustworthy relationships create an unmeasurable wealth for all of those who decide to abide by these principles.

Once again this is a simple man's opinion many would say.

When I posted this observation in the latest Construction Marketing Ideas Newsletter, a contractor unrelated to the above posting responded.

Mark

This is an interesting position and a great way to do business.

I think it is reasonably present in the ICI market as well. The opportunities to build these relationships are readily available in development, design/build and construction management contracting.

However competitive bidding changes that. Depending on one's definition of "bid shopping" preference buying combined with competitive bidding is difficult.

Is bid shopping post tender only? Is disclosure of a competitors bid prior to closing considered bid shopping?

For example:

Accepting that all is correct and above board with all involved.

GC's invite bids on an upcoming tender. Both invited and unsolicited prices are received. The preferred trade may not be low. It may even be extremely close pricing. The prime wants to continue to work with and support the preferred trade and continue to build this relationship. But is this fair to the lower bidder? Many issues come into play in this circumstance with no clear win/win situation. Depending on the final decision some one will be unhappy.

These observations reflect the dynamic but very real conflict between the traditional "low bid wins the job" business model, and the more advanced, marketing-focused relationship approach to the industry. I suppose purists concerned about bid shopping/peddling will argue that game playing based on relationships is unfair and unethical, but the fact remains that this business is made of human beings, with initiative, energy, and distinctive personalities and values. Great business is rarely achieved by relying on a job-by-job "low bid wins" approach -- I sense I wouldn't be in business with my publications or writing this blog if that was the case.

The construction industry, as well as owners and purchasers, run into problems when relationships are tied to game-playing to reduce costs in a win-lose approach to business, or (from the other perspective), things are played with superficial openness but tricks and manipulation cover the real picture. Maybe it is time for us to stop speaking from both sides of the mouth and reflect on our goals, objectives and values. If you really want "low price wins the job" then live by these rules; if you put priority on relationships and teamwork, then don't play games just to get a lower price. I expect there will always be businesses which try to play by their own (unfair) rules. But the businesses who respect both relationships and bidding integrity, I expect, come out ahead in the long term.

Connecting the dots

This image is from the California Subcontractor Listing Law page from the Carlin Law Group in San Diego. The law, about 50 years old, is intended to prevent bid shopping and peddling. But is it truly effective? In researching my story on bid shopping and peddling, people said legislative measures often result in greater corruption and manipulation as owners, contractors and suppliers manipulate the rules to protect favored relationships (good marketing) or reduce prices.

Yesterday, a group of seemingly unrelated calls and emails brightened my day. In one, a source elaborated on observations in a pre-publication draft of my story about bid shopping/peddling. In the second, we worked on implementing a good deed to a previous client (and a group of strangers) that correlates with the apparent demise of a once-formidable competitor. And I had intriguing conversations and invitations from people I hadn't known previously, who have read this Construction Marketing Ideas blog.

The experiences in the final sentence of the previous paragraph can (and later will) be turned into public blog postings. The other events need to remain confidential. The reason for the confidentiality is not the events themselves, but the circumstances that lead to the events. They result from connecting dots and being in the right places at the right times -- and disclosure of part of the story would lead to unintended consequences and possibly the violation of real, meaningful confidences.

So, as I write this posting, I am tangling with my desire to communicate a vital marketing message -- with some wonderful real-life examples that I cannot share. Frustrating, I suppose (but I know well that under the contradictions are an increasing number of respectful, warm relationships with individuals and businesses in a diversity of circumstances and trades).

If you would like an advance draft of my stories about bid shopping and peddling, please email me at buckshon@cnrgp.com. There's no cost -- and I've made sure that confidences shared in researching the story have been observed in the final written words.

Bid shopping and peddling -- stories beneath the story

An image from the "about" page of the Mechanical Contractors Association of Canada. The association's history says: "In 1952, an assistant to the Secretary Manager was hired and an increasing number of issues were addressed such as bid-peddling, public relations and contract forms, and in 1956 the Association participated in a Royal Commission on Canada's Economic Program. A Bid Depository was established in Toronto in 1956 which subsequently led to similar depositories being adopted across the country."

Because I own the publishing business, I can break some of the conventional rules of journalism. One of these rules is "never show the story to the people you interview before publication". This is supposed to protect the independence of the writer from outside influences. It also creates challenges for accuracy and completeness because, I find, writing is best as a collaboration -- and the people who know the most what is really happening are, rightfully, part of the story.

I felt ready (and realized the deadline required it) to write a first draft of my feature about bid shopping and peddling yesterday morning. Then I sent it to a group of people -- some named in the story; others reflecting key associations and groups who might have an opinion and perspective on the topic.

By the end of the day, I had a very different story, or should I say, stories. Much of what I learned will never get to print -- it is always risky and rarely wise to publish negative stories about individuals or corporations unless you want to spend a lot of money on lawyers. I certainly can appreciate the complexity of the issue, more than ever.

An intriguing issue, relevant to this blog, is the observation that it take two to tango -- and where "bid peddling" fits into the marketing picture. One of my sources described the reality of the sub trade or supplier, desperate for work, needing the sale, and going back to the GC after the bid close, to find if there is some way to sharpen pencils and get the job. When does downright unethical behaviour become a valid business necessity -- or is there never an excuse for this sort of thing?

The bid peddling/shopping survey (2)

I am receiving intriguing -- and shocking -- feedback to my bid peddling and shopping survey. This issue is touching a nerve, especially among estimators and some trade associations who have asked permission to forward the survey to their members. (I am of course agreeing). If you wish, you can take the survey and view the live results here. But the most interesting stuff is in the comments and emails I've been receiving. I am reviewing these observations for the first story to be used for our printed Canadian publications (also need to ensure that identity of respondents is disguised, or I have permission to use the comments, before publishing them).

Please feel free to take the survey and/or respond to the poll question. Responses from these links are confidential; I won't know who you are unless you let me know!

You can take the survey by clicking here.

You can view the live results (without comments, of course) here.

Ethics and marketing -- some thoughts

If you are looking for a clear and obvious answer to the ethical issues in our industry, I won't be able to provide them (I am not that brilliant!) This image from an academic paper suggests some of the variables here -- but if you read the whole thing, you'll see how downright complex your choices really are.

In the previous post, one of our readers describes how, to ensure a successful low bid a co-operating vendor and purchasing agent (and some friendly 'competitors'), arrange higher competing bids to ensure compliance with multiple bid requirements and still ensure a profitable job. Similarly, if you read my "Seven tips for construction marketing success" (by request on the blog sidebar) you can read about a general contractor who conspires with a local hospital to "come in low" all the time -- with the mutual understanding that the scope of work is deliberately left vague enough to allow for profitable change orders. Both practices, of course, are blatantly unfair to competing bidders and could well be in violation of the law, especially anti-combines (or in Canada, Competition Act) laws.

Last November, the late Sonny Lykos addressed these issues in a blog comment:

In my opinion, deceptive practices can never be justified any more than when an employee steals from his employer, justifying the act by telling himself that he deserved the raise he didn’t receive.

And that’s the problem with far too many people, their cavalier attitude of rationalizing unethical acts to get what they want. We know what the GC wanted, being awarded the project. We don't know what the hospital administrators wanted, and obviously got. Either way, the agreed upon tactic is tacky!

Of course, we don't live in a perfect world and ideals of fair business practice are challenged every day by the competing demands of expediency, personal relationships, and (on a more positive ethical note) job quality/satisfaction. We all know that the low bid is not always -- or even often, the best -- except in purely commodity transactions where quality standards can be highly specified. So, arrangements to get around the bidding rules sometimes serve a higher ethical purpose. (Should you take the low bid and get a crappy job that will cost more in the long run, or work with a trusted supplier who does things properly, without question, and will fix problems without complaint or manipulative change orders.) But we are playing with fire here and the ground rules are shaky, indeed.

I'm facing many of these contradictory ethical issues in my writing, for example, on the bid shopping/peddling issue. I cannot disclose the intellectual foundation of the story, for example, in part because it would divulge or interfere with sensitive and important business relationships. And I know that I cannot attribute or publicly identify in any way the many people who are contributing to its substance -- including the people who have graciously responded to my survey, and my own network of personal contacts who have shared insights that usually don't find their way into the media. (No one issues a press release saying they are about to bid shop or peddle, of course!)

Here, I cannot wave a magic wand and tell you what is right, and what you should do. But I am certain that successful marketing is very much intertwined with ethical and sometimes legal dilemmas. We should, I think, strive to build our marketing/branding advantage, but equally, strive to be fair in our practices. Done right, I suppose, this has advantages in business practice and sustainability. In the real world community -- not that of public relations experts and photo opportunities -- people get to know who is who, and what is what, and behave and respond accordingly. Your (real) reputation for integrity I think, with some common-sense shrewdness and talent, will ensure your business survival no matter the economic environment or ethical practices (or mispractices) of your competitors.

The bid peddling/shopping survey

The American Subcontractors Association, Inc. and its local chapters in several U.S. cities, speaks up for sub contractors facing bid shopping and bid peddling challenges. Our business belongs to the ASA in North Carolina -- I wish there was a counterpart in Canada.

Early responses are arriving from our survey on bid shopping/peddling, and not surprisingly the majority of people who have answered so far say the problem is serious, and growing.

But one person responded in a way that shows the challenges of ethics, good client service and effective construction industry marketing. The practice described here might be more accurately described as something other than bid shopping/peddling but I think you will see how good branding/relationships (and thus effective marketing) can clash with what would commonly be thought as proper business practices. Obviously I will not say who provided this response.

Sometimes a company wants to buy only from you but can't because his purchasing agent requires bids. We will send purchasing our quote and contact other vendors we know out of our territory that sell our product to quote higher than us. They don't want the job anyways and we return favors back to them. I don't know if this is what you are talking about. I'm not sure if this is illegal but it helps everyone and makes the customer happy.

Of course, your survey responses are welcome -- and will be totally anonymous if you answer though the link off this blog.

To see the survey (and complete it if you wish) just go to the link here.

Bid shopping and construction marketing

Miller Grading Company, Inc. in Atlanta, has published some concise definitions of bid shopping and bid peddling, and explains why these are unethical.

If there is ever an issue that tears at the soul -- and challenges the fundamental practices -- of the construction industry, it is bid shopping. The practice of using confidential bid information to play one supplier against the other is deemed by industry lore -- and ethical standards -- to be wrong. But anyone who knows anything about this industry knows it happens, all of the time.

How much? And can/should anything be done about it? And what does bid shopping have to do with marketing, after all?

Well, if you think at it at the most elemental level, bid shopping's corollary -- bid peddling -- is all about marketing. You aren't the lowest bidder, but want the job, so you offer to come down and match the lowest bid, or (perhaps on a slightly higher ethical plane) suggest variations to the project/scope of work that allow you to be 'lower' than the others -- and still win the job (presumably by helping your GC come in lower, hopefully -- from the GC's perspective -- on a fixed bid contract where the owner doesn't engage in bid shopping or reverse auction practices.)

I'd love to catch first hand evidence of the bid shopping/peddling practices within this industry, but sense only a fool will let me anywhere near the action, especially if I am equipped with a digital tape recorder and camera. But occasionally, people let their guards down and (knowing I would never identify them publicly) give me a peek into the real world, at least real to the participants.

The mayhem (and bid shopping/peddling) I suspect is greatest around the fixed bid deadline as the general contractor is wrapping up the process of closing for the fixed bid deadline. Faxes, emails, phone calls, and other mechanisms bring in the sub-trade prices at the last possible moment. But maybe there is a little room for haggling, a little nudge, a little wink, and the invitation to just lower that bid a little (or a hint that if the original bid is too high, an adjustment can be made.) And so the deal is sealed, or is it, on close.

Bid depositories supposedly solved this problem, as (especially in the U.S.) procurement regulations requiring all sub trades to be named and prices quoted on completed projects. But of course these ideals have been lost in the era of Public Private Partnerships, construction management, and design-build contracts, where transparency is often lost in the name of efficiency and flexibility (and bid shopping).

So how do you win the war here? I would argue you want to get in a position where you can command a higher price -- and a higher ethical standard -- by achieving a brand reputation for integrity and fair value. If your business practices are above reproach (and your internal costs and efficiencies are strong enough), you should be able to win enough business without resorting to the bid-shopping/peddling game.

But maybe I'm dreaming in technicolor. Maybe there is no solution to this problem. I will seek out some insights and invite your response to an upcoming survey. You can also communicate with me by phone or email (and I promise not to disclose your identity to anyone, without your consent.)