The world of construction is very competitive. Most jobs are awarded to the lowest bidder, regardless of any other considerations. Since contractors need work in order for their businesses to survive, they can become somewhat desperate, doing a number of things to lower the apparent cost of their bids; not all of which are totally ethical.
The contractors who utilize these tactics are able to bid lower, because they are aware that they can make up for the difference after the contract is signed. More than anything, they are depending upon the idea that once the job is started, the customer will need pretty serious grounds to break the contact. So, they can find ways of increasing the contract price, without making the owner angry enough to cancel their contract and award it to somebody else.
So, what are some of these “tricks” which contractors use?
Providing Inadequate Allowances – There are a number of items which need to be paid for as part of the project, which the contractor needs to include in his bid. These include such things as utility hookups, building permits and liability insurance for the job site. By lowering the allowances, then “discovering” that these items cost more than expected, the contractor has a somewhat legitimate excuse to pass that change through to the owner. Another way that inadequate allowances are included is when decorative items must be selected by the owner. A $1,000 lighting allowance may be included in the bid, meaning that the cost includes $1,000 worth of lighting fixtures, to be selected by the owner. However, in a 5,000 square foot home, that may not be enough. Anything over that allowance would be legitimately charged to the owner.
Locating Cheaper Material – While everyone is trying to save a buck, there is a line that shouldn’t be crossed. When buying cheaper materials means accepting lower quality, the customer ultimately ends up paying for repairs and replacement down the road. The problem is that materials specifications generally aren’t sufficiently specific to prevent this. To try and create them that specific can be a monumental task. So, the contractor can often legitimately lower their cost and still complete the project. One way that this might be done is to buy green lumber. While this isn’t in agreement with industry norms, it is not all that uncommon in tract home construction. Generally speaking, green lumber is cheaper. However, due to its high moisture content, it will warp much more. That puts extra stress on the completed building structure, possibly causing problems such as walls that eventually start to bulge.
Excluding Parts of the Project Scope – Many plans and specifications leave wiggle room for the contractor to “miss” seeing something that needs to be done, such as removal of a dilapidated structure that is on the property. If it isn’t noted as a requirement, then the contractor can say that they didn’t know they needed to remove it, even though it’s in the way of the new construction. This allows them the opportunity to create a change order, charging the customer for this “extra” work.
Using Unqualified Labor or Sub-Contractors – Just as the client is putting the project out for bid, so does the general contractor. General contractors generally award the contract to whoever provides them with the lowest bid. While sometimes this works out fine, there are other times when it doesn’t work out well, especially if the sub-contractor really isn’t qualified or has a reputation for low quality. By accepting their bid, the contractor is giving away the customer’s quality.
As you can see, all of these appear somewhat legitimate. That’s what the contractor is counting on. They expect the owner to see those extra costs or lower quality materials as something that is totally acceptable. As such, they receive payment for a job that’s not so well done.
This is one of the places where a project manager, acting as the owner’s representative, can protect the owner from problems. Having the experience of many projects behind them, owner representatives know what to look for and where to find these sorts of loopholes. When a contractor presents a bid that is too low, they know where to look and what questions to ask, to ensure that everything which should be included, is included in the cost. Owner Representatives also know what they’re looking at, when they look at the raw materials brought onto the construction site, so they can tell if a contractor is cutting corners on the materials they are using.
Your goal, as the owner is to get your project done at a reasonable cost. The contractor’s goal is to make money. Unfortunately, they’ve got an advantage over you; they know tricks that you don’t. Having an owner representative protect your interest will help ensure your project gets completed in a way that’s fair.