Monthly Archives: December 2010

Ethics, Relationships and Electrical Estimating – Part 3

In my previous post, I quoted James Gill, Jr. as saying “If you are an owner and you want to get the best price for your (new) house, for example, what do you do? You call four or five different contractors while you are shopping. (The subcontractor’s) Suppliers expect you to shop around, but subcontractors don’t want you to take their price and tell it to somebody else.”

I have comments on two parts of that statement. First, “You call four or five different contractors while you are shopping.” Yes, but that doesn’t mean I’m going shop their numbers to each other. I can understand the assumption however. It seems that the practice of shopping numbers is everywhere. While purchasing some furniture a few years ago, I got quotes from two dealers. The high bidder accused me of shopping his number, read me the riot act, and barred me from his store.

Second, “Suppliers expect you to shop around…”. True, but only because they know that it happens. That does not mean they want their numbers shopped around. Because of the shopping, they do the same thing to us that we do to GC’s and owners, holding quotes to the last minute. Light fixtures are the worst. Many times I do not get my lighting quotes until fifteen minutes before bid time, and often there are conflicting scopes that can not be worked out in time.

In the past, when starting a relationship with a new vendor, most of them assumed they were going to be shopped, and did not quote me their best price up front. They did this even though I warned them that I do not shop numbers. They were quite upset when I actually wrote purchase orders to the low bidders. I would get calls asking me why I didn’t give them a chance to beat the number. The upside here was that my anti-shopping ethic soon reaped rewards. Vendors began to trust me, giving me better numbers, sooner in the day. The relationships I fostered with my vendors resulted in a better hit rate. I was getting better numbers than my competition, because my vendors knew they would not be shopped.

Another benefit of good relationships was revealed to me for the first time by a manufacturer. Sometimes, manufacturers are in a very strong position to influence the selection of subcontractors. They can do this with preferential pricing for the subs they trust. They can also be in a position to make recommendations to owners. Since I treated them fairly, they pushed work my way. This is a great way to get work, as your markups can be higher, and your hit rate is near 100%.

I also want to respond to an AGC article I ran across. The article states their position on current legislation pending in the United States House of Representatives regarding bid shopping. It is copied below, so it will be easy to refer to in the discussion that follows.

Background:

The Associated General Contractors of America is resolutely opposed to the practice of bid shopping. In 1995 AGC, the American Subcontractors Association, and the Associated Specialty Contractors issued this joint statement on the issue of bid shopping and bid peddling: “Bid shopping or bid peddling are abhorrent business practices that threaten the integrity of the competitive bidding system that serves the construction industry and the economy so well.” AGC strongly believes that bid shopping and bid peddling cannot sustain long-term working relationships between prime and subcontractors. However, AGC has serious reservations about this particular legislative solution to the practice.

AGC Message:

No Evidence to Support Assertions that the Practice is Widespread. Legislation designed to constrain bid shopping on the federal level is unnecessary. The need for such legislation is not supported by any federal government study, nor has the legislation been requested by any federal entity. The construction industry does not consider bid shopping a common practice in federal government contracting.

Mandatory Bid Listing is Not the Solution. Mandatory bid listing would require a general contractor to list all subcontractors when a bid is submitted and would only allow substitution with permission of the government’s contracting officer. Mandatory bid listing undermines the government’s attempts to streamline procurement, removes the flexibility of the prime contractor to manage projects, and does not improve the quality or decrease the cost of construction projects. Not only would this be a huge administrative and paperwork burden on contractors, but even more so on the part of our chronically understaffed and overworked federal agency partners.

The Solution Proposed Has Empirically Failed Before. The legislation proposes the practice of bid listing as the solution, yet that practice has already been found to be net worse. Previous attempts to require bid listing created a morass in the administration of federal construction contracts, including delays in awards of contracts, rejected low bids, project delays, and higher procurement costs. The General Services Administration (GSA) previously required bid listing, but eliminated this requirement in 1983 on the belief that “bidding problems and protests related to the ‘listing of subcontractors’ requirement adversely affected the GSA construction program”. By eliminating the bid listing requirement, the GSA stated the change would “simplify procurement procedures, reduce paperwork burdens associated with procurement… and eliminate potential delays and financial losses experienced as a result of the listing requirement.”

Existing Framework of Federal Rules and Regulations Solves Better. The contracting community believes that the solution is a strong commitment to ethical conduct by the professionals who work within the construction industry. Federal construction contractors hold themselves, and are held, to the highest ethical standards. There are also several mechanisms already in place to ensure contractors do not engage in such practices such as the False Claims Act and the Federal contractor Ethics and Compliance Rules. Grafting a new mechanism onto the system (which has failed in the past) to prevent this practice, is not only unnecessary, but is also net worse for the system than the practice which the mechanism is designed to solve.

The first paragraph strongly states that the AGC is opposed to bid shopping. However the following paragraphs oppose legislation against bid shopping. Let’s look at those.

No Evidence – You could have fooled me. Many of the non listed projects I bid show signs of bid shopping. Most of my customers complain about being shopped. A few of my customers will not bid anything but prime electrical projects because of their lack of trust regarding general contractors.

Mandatory Bid Listing – For the type of work I have bid most of my career, this is not true. Most of the public projects I work on require bid listing. The process is simple. The GC writes down a number and a name for each listed subcontract. The low qualified GC gets the job. The listed sub’s get the job. This is not rocket science.

The Solution Proposed – This paragraph does not ring true. I have never had a problem with a listed project in my career. My hit rate is higher on listed projects in comparison to projects that do not require listing. There are no “negotiations” allowed after a bid. The process protects the subcontractors from unethical GC’s. An example from my career happened when we were listed on a school project. The GC said that a 5% buyback was required (read as give the GC 5% of our money for their profit). We brought a member of the state contractor’s license board with us to the start-up meeting. After the board member handed the GC’s representative his card, we never heard another word about buy backs. Also in this paragraph, I noticed that there was no follow up on the claim by the GSA that the procurement would improve after listing requirements were removed.

Existing Framework – This paragraph sounds good, but experience tells me that a voluntary commitment to an ethical standard does not work. I am also a bit taken back by the assumption that the AGC can claim they speak for the entire contracting community. They do not seem to be speaking in the subcontractor’s interest.

As usual, I look forward to hearing your thoughts on this post.

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