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Is Your Contractors’ Prices Everything It Seems To Be?

Is Your Contractors' Prices Everything It Seems To Be?
Construction
By Paul Netscher | Read time: 5 minutes

So you’ve received prices (quotations) from a bunch of contractors or subcontractors! Who do you select to do the work? Well at first look the easy answer may appear to select the contractor with the lowest price. But is their price really the lowest?

Not all prices are equal and the cheapest price might become the most expensive price when the work is completed. It’s therefore vital to spend time and compare the prices that each contractor has submitted – to ensure that you are comparing apples with apples and that there aren’t hidden, unpleasant surprises. That the contractor has priced everything they were required to price.

Checking contractor prices

It’s important to check each price to ensure that:

  1. The contractor has priced all items they were asked to price and that they haven’t excluded anything.
  2. The contractor’s proposed construction schedule meets your construction milestone dates, that they don’t have any unacceptable early requirements which you can’t meet, such as earlier access to work areas, and that the sequencing and duration of the activities appear logical and it makes provision for expected delays such as normal inclement weather. In addition, their construction schedule should have allowed for all your imposed restraints, such as: when information and access will be available, discontinuities in the work schedule due to other activities and contractors, as well as interfacing with your construction activities and the work of other contractors, all of which you should have stipulated in the pricing documentation. You wouldn’t want surprises as the work progresses when your contractor claims for delays that they should have allowed for.
  3. The contractor has the resources and the skills to complete the work. Understand what these resources are and their availability. It’s useful if the contractor provides résumés of the senior personnel that will be managing the project.
  4. You understand their proposed construction methodology, in particular how this could impact your operations. Ensure that the methodologies are compatible and suitable for the way the work has been designed. They may want to bring large equipment to the project site which might not suit you, or want to prefabricate sections in modules which will then be difficult for you to alter later.
  5. Their payment terms and conditions are acceptable. Some contractors may want earlier or more frequent payments, upfront payments, or they may have added money to the items they will be doing first, which could impact your cash flow. This is particularly important where the contractor is your subcontractor and your client is paying you for the work. You don’t want to be paying the subcontractor when you haven’t been paid by your client. Anyway, paying contractors more than they’re due, or upfront, is risky business and you will be out of pocket if they become bankrupt or abscond before their work is complete.
  6. The specifications of the products the contractor proposes to use meet the project requirements. Some contractors may select cheaper products whose specifications don’t conform to the project requirements.
  7. The contractor has evaluated all the applicable drawings. Check that the contractor hasn’t omitted or neglected to price some drawings or portions of work.
  8. They’ve included for preparing designs and drawings where necessary.
  9. The contractor hasn’t included additional requirements which you must supply, such as; cranes, transport, materials, access, accommodation or offices. If they have then you must factor in these additional costs when comparing their price to other prices and to your budget, or ask them to revise their price to include these items.
  10. Where the contractor has priced a schedule of quantities then check that all their calculations are correct and all items have been priced. Don’t only look at the bottom line number.
  11. They have included all taxes.
  12. The contractor understands the project requirements.
  13. They have allowed for all testing and quality requirements.
  14. You won’t incur additional supervision costs, for example; managing after-hours work, or traveling to off-site manufacturing facilities which may be in another state or country. If there are additional costs be sure to add them to the contractor’s price when comparing the price against your budget and other contractors’ prices.
  15. They haven’t got any contract conditions or exclusions which are unacceptable, or that will make their price more expensive than the other contractors’ prices.
  16. They have met all the requirements in the request to price, such as complying with all the project conditions, including keeping to the stipulated working hours.
  17. They have included in their price for all their temporary facilities, equipment, and services required for their work.
  18. They have adequate insurance in place.
  19. They have complied with all the required project warranty periods.
  20. The equipment to be incorporated into the project comes with suitable warranties and that spare parts and servicing for the equipment will be readily available locally.
  21. The contractor has included all the documentation in their submission that they were requested to supply. This could include proof of insurances, method statements, cash flow forecasts, safety, and quality documentation and bonds.

If there are any queries or concerns then raise these in writing with the contractor. Don’t assume they’ve allowed for something in their price when it’s not clear.

Often work is awarded to the cheapest contractor, or supplier, who then ends up not being the cheapest when the client incurs additional expenses to manage them, or because the contractor later submits variations for what they perceive are additional works, but which were items allowed by other contractors.

Most importantly, something that many people don’t do, is to ensure that the price is fair and achievable. Sometimes contractors make a mistake with their price, or they don’t understand the project fully, so they submit a price which is too cheap. Don’t become focussed on the ‘bargain price’ and award the project to the contractor who then loses money. A contractor that’s losing money on a project will try and save costs, possibly using inferior quality materials and putting too few resources on the project. In addition they’ll probably do anything to try and recoup their costs and probably lodge additional variation claims, some of which may be spurious, but even so, it will tie up your time to refute them. Contractors that lose money may even become bankrupt, or insolvent, part way through the project, leaving you to have to appoint another contractor at additional expense, and in the interim, the project is delayed.

Conclusion

Ensure that you carefully check your contractors’ prices to ensure that there are no hidden surprises, that the price is what it is. Compare the price with other’s that you’ve received and then compare it against your budget. Don’t rush in to accept the cheapest price – that bargain price might not really be the bargain that you think it is.

Be wary of prices that appear too cheap, that are much cheaper than other prices. Has the contractor got a trick up their sleeve to catch you out, or have they made a genuine mistake? Can they really complete the work for that price? If in doubt ask the contractor if they’re sure their price is right. Of course, sometimes a contractor may have specific equipment or methods that enable them to deliver the project more cheaply than others – then that cheap price may really be the bargain that’s worth accepting.

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