Why “Lump Sum, Low Bid” is not always the answer – Written By Craig Preston
There is a joke among the contractor community that he who made the biggest mistake on bid day is the low bidder. Unfortunately, this can be true. Here are some things than can happen with lump sum low bids.
- Cost on bid day is usually not the final project cost. Change orders occur and they typically add money to the final cost of a project. Read closely the name of the dinghy and the yacht. Many owners feel this is what happens with change orders; they feel like they cost more than the original job.
- Low Bid is not always Best Bid. In the public bidding arena, the owner is required to use the “low bidder”. If the bidding documents are incomplete (all design details not drawn), bidders are savvy enough to know that there will be change orders.
- Many times with “Lump Sum, Low Bid”, owners do not get to choose which subcontractor or supplier is going to be on the project. There are other delivery methods that allow the owner to choose.
- Any savings that the bidder finds during buyout or at the end of the job goes into his pocket, not the owner’s. Again, there are other delivery methods that allow the savings go back to the owner.
- The“Lump Sum, Low Bid” delivery system sets up an adversarial relationship between the general contractor versus the owner and designer. Typically in this situation the general contractor is not working as the owner’s advocate.
In closing, I have found the best way to ensure that the final project cost = the bid day cost is by having the documents complete by bid time. Even if it requires additional fee for the design team, it is worth it.
There are some who say if you fix a conflict in the design phase, it costs $1.00, but if you fix it in the construction phase it will cost $10.00. My experience has shown this to be true.
I understand many owners have to use the lump sum bidding system, however, if you are interested in discussing other delivery systems, please leave a comment below and I will be happy to follow up. By- Craig Preston
Heartwood Construction wanted to add the following: In my experience as a General Contractor for over 35 years, I have found that no matter what any contractor will tell you about keeping in budget, you will ALWAYS go over. The beauty of Time & Materials (TM) is that there is no stress involved. Sure with this TM, it can be very easy to spend a lot more than what you planned, BUT YOU’RE GOING TO ANYWAY!
Just look at the statistic Craig talks about cost in design phase vs. cost in construction phase, 10 TIMES more! I have ALWAYS found this to be true with contractors who tell you they will build for a set price, ALWAYS. Yes, there are exceptions to the rule. I don’t necessarily want to put down our whole construction industry in one fell swoop, but the truth is the truth. Your project will cost more, period.