Subcontractors Under Pressure Should Defend Their Prices

An interesting development occurred recently after we had submitted pricing for the renovation of one floor of a major medical facility. Our firm was one of three painting contractors selected by the general contractor to provide pricing on the project.

Several weeks after pricing, we were contacted by the general contractor and told that their client had instructed them to contact the two low bidders for each trade, offering the possibility of expanding the scope of work by adding another floor to the project in exchange for a reduction in the price each sub had submitted.

My son and I discussed this offer at some length, reviewed our take-offs and pricing and decided to decline this offer. We offered no reduction in price. We put a lot of effort and thought into making our take-off and pricing the project, as we do on all projects we work on, and we try to arrive at as accurate an analysis of the cost of the project as we possibly can. That being said, if for whatever reason, one is approached with some kind of enticement to cut the price, one doesn't have too many options. You can make an arbitrary cut to get down to where you think you need to be, which is not too smart, or you can opt to try to get it out of your production, or you can opt to try to shortchange the job by using lesser-quality materials than what was specified, or you can possibly try to get by with a lesser number of coats than is specified. Actually, none of these options are very smart, and you are gambling with your pocketbook and very probably your reputation. In reality, no matter how you rationalize the issue, you are jeopardizing your bottom line.

The point I'm trying to make is that if you have done everything right, that is, made a good take-off and carefully analyzed your production factors and your material costs, then there is no place for any reduction to be made, except from profit.

There are situations, and since most of our work is negotiated we are involved in this process quite often, where the subs are called in either as a group or individually to discuss possible ways of reducing the cost of a project. This is a different animal. No one is asking or suggesting that arbitrary cuts be made. Rather, we are exploring ways and means to fit the project into a preset budget. This is called Value Engineering. It is not unusual that during the pricing process the subs may be asked to offer recommendations and deductions for cost reduction purposes. Sometimes, based on the project and the specifications, we may have something to offer, sometimes not.

The main point here is that you are not being asked to take an arbitrary cut, but rather that your profit figure will not be impacted, except proportionally to the coats reduction.

A very sore point relative to the construction industry is that there are general contractors who routinely shop subcontractors prices, in effect playing one sub off against another in order to get a lower price than that with which they bid the project, thereby maximizing their profits at the subcontractor's expense. This is grossly unfair to subcontractors, who bear the cost of the bidding process, but unfortunately, it is a fact of life in the construction industry. The worst aspect is that the subs themselves are letting this happen by being a party to bid shopping.

I took part in a seminar once in which the major focus was on setting up take-offs, production factors and pricing structures, and generally the exercise of estimating (cost analysis). I made what I thought was an incisive comment, something to the effect that if you have made a good take-off, you have a good pricing system and in general you have done things right, then your pricing sheet should reflect your cost sheet in reverse. Think about it.