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Wednesday, July 25, 2012

Construction marketing: Why does "low bid win"? Surely there is a better way

Michael Stone hits the nail on the head with his blog posting:  "Being the lowest bidder:  Is it really what you want?" when he asks why anyone would built their business on the "lowest bid wins" model.

Of course he is speaking for residential contractors.  In the fixed bid, public tender world in the ICI market, especially for government jobs -- not design build, pure construction -- the "low bid wins" concept seems to be the norm.  Yet, as far as I can tell, this is really among the stupidest business models around in the world, which goes like this:

"Look for publicly bid jobs -- perhaps by paying for leads services. Rush to read the documentation, and then spend time estimating the work.  Find shortcuts and savings, and then bid, low as possible."  

Sheesh.  This is for anyone more familiar with a marketing mentality a really crazy way to do business.

"But that's the way it is?" you may say, and to some point, you are right.  Contractors who survive in this low bid space either retain viability by (a) bidding more complex projects where creative execution can allow them to be profitable , (b) planning "games" with change orders to make up for the losses on the low bid or (c) pushing the price pressure down onto suppliers and sub trades, perhaps through bid peddling/shopping.

Of course, only the (a) option is ethical, and I have had the privilege of knowing some really bright general contractors who do just that.

Is there a better way to do business?  Energies spent on marketing and developing business development (sales) skills will undoubtedly generate far better returns than continuing the "low bid wins" game.  You will still have to compete, but who is better off:

(a) the general contractor or sub-trade chasing the public opportunity and bidding low or

(b) the contractor who has built a solid enough relationship and sales orientation with the client so that the project is "designed" so his business will have the edge, even in an open and fair competition because he knows where the hidden buttons are, and where the savings and variations are possible.

If you are a residential contractor, spend some money on Michael Stone's book.  If you are non-residential (heck, even if you are residential), buy mine.  The cost is a pittance compared to the waste you encounter when you take money-losing jobs just because the low bid wins.

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