Exactly what is it that you look for in selecting a contractor to perform your construction services? What process do you follow to make certain you are choosing the right contractor for your project?
Choosing a contractor is a complex activity because regardless of what contracting method you decide to use, and regardless of what the finished product looks like, there are many considerations along the way that affect the overall value of your selection.
Let us compare the process of choosing a contractor to some other purchases we make in our personal lives. No matter which store you buy it from, a bottle of Heinz ketchup will have the same taste and same quality. We can say the same about electronics; a specific model of television is the same whether you order it from Amazon or purchase it from Best Buy. Even buying a new car is seemingly straightforward (although it can be incredibly frustrating at times). A Ford Explorer at one dealer is the same as the identically equipped Ford Explorer at a different dealer. No matter which dealer you decide to buy from, it was likely made at the same factory, has the same quality and performance standards, the same paint, same engine, and was probably assembled by the same workers. Based on that standardization, it is probably reasonable to purchase it from the dealer with the lowest price. The same can be said for most purchases where the product purchased is built to the same set of specifications regardless of where, or from whom, you make the final purchase. The commonality here is that the actual manufacturing of the product is likely completed at the same place, following the same process, regardless of the vendor from which you select to buy it.
Now let us look at a more complex purchase, such as a home. A 3,000 square foot house might cost $100 per square foot or it may cost $200 or even $300 per square foot. Hopefully you will be able to see the difference when it is complete; however, there are many hidden cost deltas people may not notice when they take prices. It is those little things that an experienced and quality contractor may include that the cheapest person does not (even in the $100 per square foot house) that may make a significant difference in your experience as you live in the house. The difference between ¾-inch pipe and ½-inch pipe running to your master bath costs virtually nothing during construction, but if you are the one in the shower when someone flushes the toilet, it makes a big difference in your experience! A person can visually see the difference between linoleum flooring and hardwood, but the difference between the thicknesses of the wear surface on the hardwood flooring goes virtually unnoticed by most homebuyers unless you find yourself needing to refinish it a few years later and realize it cannot be refinished, but instead, must be completely replaced. You may notice the adequacy and quality of the air conditioning equipment in its ability to properly cool the house, or it may show up only when it needs replaced in 5 years instead of 10 or 15 years. Note here that the manufacturer of your house and your vendor are the same entity, the contractor. Their decisions and how much they spend on the process will affect the quality of the finished product much like altering the percentage of tomatoes in that bottle of ketchup would affect the taste and quality of the final product, although it would still be red. If you agree on a price without specifications and during manufacturing of the product, they reduce the tomato content, the price stays the same and their profit goes up while the value of your product goes down.
Heavy Mechanical and Industrial construction projects are typically much larger and more complex than constructing a house or making a bottle of ketchup. They often involve procurement and installation of specialized materials and equipment, assembly of complex components, and the organization and planning of hundreds or even tens of thousands of man-hours of effort.
A few of our clients essentially have no detailed specifications for acceptable materials, assembly procedures, or any detailed requirements for acting safely. Over the years, they have relied on us to ensure that the quality of construction materials and methods remains at an acceptable level in their facility and that all regulations and codes are complied with. This method works only if the relationship between the client and contractor is such that there is a level of trust and a clear expectation as to what is and is not acceptable. Taking bids from multiple contractors when no specific material or installation specifications exist is a recipe for disaster. It is almost assured that the lowest price will be based on the lowest quality, very likely to the point of being unacceptable. Alternatively, you may find yourself with a project that is in violation of a safety standard or building code, or you may find yourself with a product that fails in a natural disaster and causes harm to your business or even worse, harm to your employees.
In an attempt to standardize the final product so that the procurement process can be more cost based, like buying that new car or bottle of ketchup, many clients have developed detailed specifications. Created either in-house or through the use of third party engineering firms, these specifications contain thousands of pages including in-depth descriptions and possibly even a list of acceptable manufacturers with specific model numbers for every component that is acceptable for inclusion in their projects. The intent with these specifications is to establish a minimum level of quality of installed materials, ensure that installation methods used are acceptable, and meet the construction requirements. Often there are detailed plans developed that attempt to include an indication of every component to be included in the pricing effort. Additionally, many of our clients have rigorous detailed safety standards and expectations that are included as a part of the request for proposal. All of these detailed plans and specifications are prepared in an attempt to allow the construction services buyer to make the selection of the contractor based on the lowest price submitted in response to a detailed Request for Proposal.
While this low bid system of procuring construction services has been around for a long time, both contractors and owners alike have long realized that it is not a great system. What you will likely end up with is a contractor with not enough money in the project to do a great job for you. As a result, they spend a significant part of their effort doing the minimum amount of work needed to get the job built as cheaply as possible, meeting their very tight budget while still meeting your minimum contractual requirements and specifications. Do you really want a contractor to do the minimum that is acceptable, or, is a contractor who will do what is best for your project what you really need?
A few years back I met with the construction procurement executive of an international company who was attempting to improve their construction procurement process. It is not that they had not put a great deal of effort and money into their current process, as over the years they had developed thousands of pages of detailed specifications. In addition to a large in-house staff dedicated to the process, they frequently used a third party CM firm to solicit bids from multiple contractors, to make the selection based on price and to manage the construction process. They still were not happy with the results. Why? First, they were still spending more than necessary to get the job done and they knew it. The cost of their staff plus the cost of the third party CM firm made the total project expensive. Often, those costs far exceeded any savings that may have been realized by the perceived competitive process of low bidding. The low bid system is simply not the best way, not even a good way, in my opinion, to buy construction services. Even the federal Government has recognized that there is more to value than just low price and has established initiatives for Best Value construction procurement strategies.
Think for just a minute about what you really want and need. What you need is for someone to come in to your plant and take care of your problem so you can focus on making widgets, or whatever it is that you manufacture/process. You need someone to come in and fix that leak, install that new pipe, set that new piece of equipment, remove the old one, or add on to your existing facility. You need that accomplished quickly and efficiently with little or no disruption to your ongoing operations. You need to maintain your staff’s focus and your personal efforts on making widgets; after all, that is what pays the bills
When that client asked me what I suggested as the best way to procure construction services, I responded, “Pick a contractor that you trust and partner with them.” I truly meant that. They also asked me what made our 20- and 30-year relationships with many of our clients work. The answer is simple. The relationship has to be beneficial for both parties. You need to work together as a team. Your contractor has to do a great job, not simply the minimum expected, and accomplish it for a fair price. Your contractor has to know exactly what you expect, which requires great communication. They must know what is most important to you; cost, schedule, quality, minimal disruption to operations? You have to understand that many of your decisions during the process will affect each of those items. You have to know that you can trust your contractor to provide the level of quality and service that you need for a fair price. You have to allow the contractor to make a fair profit.
Contrary to what many believe, contractors operate on razor thin margins. The average profit margin in a good construction market is about 2.7 percent. Believe me, if you get prices from two different contractors that vary by 10 or 15 percent, there IS a scope difference between the two, or one of them does not understand what is expected.
As a contractor who focuses on safety, quality, and client satisfaction, we strive to select clients that value what we have to offer. Just as we do when we hire a new employee, we try to select clients that share our culture. You should have the same consideration when you select your contractor. If you value safety, quality, and an attitude of cooperation and teamwork, we are likely a good selection. If your goal is to get every job constructed as cheaply as possible at the expense of safety or quality or if you think that you have only done your job as a procurement manager if the contractor loses money so you get something for nothing, then we are likely not the right contractor for you.
We understand that there are markets where we just do not belong and that there are clients that are not a good fit for us.
By the way, I took one price on the last new car I bought. I trusted the dealer to do the best that he could for me. I hope you can arrive at that same level of trust with your contractor, whomever you chose.