Several months ago, I wrote a column entitled “Stupid
Prices.” The theme of the column was the inevitable price dropping in
recessionary times, sometimes to ridiculous levels. The bid prices can be so
low, it is simply “stupid” low. This becomes most apparent on public works
projects where a prevailing wage rate is set and mandated by law. How can
bidders bid so low on a project where the government has mandated a wage?
Contractors know the established wage that must be paid, and materials are not
that difficult to calculate for a project, so prices should be all in the same
ballpark. Superior supervision and lower overhead can save money in the bid
process, but some of these bids are so low that the bidder is either completely
unqualified or must be planning to cheat to bring the project in at this
extreme low number.
Everybody Knows It
I got a resounding thumbs-up from the subcontracting community on the column
and even several requests the editorial be re-printed in other trade
publications. I had a subcontractor call me to share a story about a client who
was typically loyal, but was entertaining a ridiculously low bid. The general
contractor called his subcontractor and informed him he felt compelled to use
this low bid, “I just can’t pass it up” he told his subcontractor. The
subcontractor gave the general contractor the “Stupid Prices” column to read
and asked him consider all the ramifications of using this super-low bid.
Consider he did, and after a few days he called his loyal subcontractor and
decided to throw out the stupid low bid and stay with his qualified
subcontractor. That phone call marked a good day for me, for him and his
customer-he just may never know just how good.
The disasters that are typically left in the wake of these stupid prices are
unpaid bills, construction defects and a mountain of unpaid debt and paper work
to fix the mistakes. General contractors, building owners and even suppliers
may believe they are not affected by the stupid price, but we all pay for it in
the long run. I recently read a news story that illustrated the full
ramifications of a stupid low bid and the parties who pretend they do not know
or “can’t pass it up” and now probably wish they did.
You’ll Pay Eventually
A framing contractor in California has been ordered to pay $1.3 million and
fined $200,000 stemming from a scheme to systematically and willfully fail to
pay his employees the mandated state set prevailing wage. The University of California
Davis housing project was investigated by the
Department of Industrial Relations and California Labor Commissioner Angela
Bradstreet believed the framing contractor intentionally underpaid its workers.
The rest of the story (and this should be a wake-up call to people who
knowingly accept super low bids) is that additional fine assessments were made
on the general contractor and the material supplier.
I suspect the qualified subcontractors
who bid the project using the correct rate with no intention of cheating knew
the awarded contractors bid was a stupid price. What may be a surprise to many
people is that additional parties are now being fined.
Everyone Pays
What the story failed to address is the money the state must be spending to
investigate and prosecute these cheaters. Who pays those state investigators?
We do, the taxpayers. While the state may claim the assessed fines will offset
much of the investigating costs, the likelihood of the framing contractor
paying the fines is pretty low. He is more likely to appeal the charges, drag
it out for years, run up more tax payer expense and then ultimately either
settle for pennies on the dollar or file bankruptcy. We all pay for that stupid
low bid in the long run. Is it any wonder why state budgets are
bankrupt?
I don’t blame the state. The labor department is doing their job to the best of
their ability. What about checking the bids and verify the low bidder is
qualified and is submitting a reasonable bid? The lowest bidder may have looked
like the best deal at first, but what about at the end of the day? Someone
needs to inform these owners that future construction defects may appear.
Underpaid workers forced to work overtime are far more likely not to be well
trained, fail to understand code compliance or simply skip important
life/safety steps in construction. The end result could be that we taxpayers
may be paying for that stupid price for decades to come.
Up Front: Too Good to be True?
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