Where Are These Lists Coming From?

I suppose it’s a sign of the competitive times but the list of bidders on privately-funded projects have become longer & less logical than the crazy public market. At the bottom of the downturn in 2009 it was common to see 15-20 contractors chasing even small public jobs but that returned to the ‘normal’ 10-12 after a year or so. Now the demand for opportunities from contractors seems to have given owners (maybe their architects too?) the idea that having 10 bidders on a so-called ‘select list’ of bidders is good for them. Two projects out this wee illustrate just how questionable that strategy is.

The $7 million East Suburban YMCA job in Penn Hills has 10 contactors on it, ranging in size from PJ Dick & Mascaro to Kacin Construction, with a handful of $10-30 million/year contractors sprinkled in. The bidders are mostly union contractors but there are a few non-union generals so the range of subcontractors who will bid is going to be broad.

An even more illogical list is the group invited to re-bid the $3.5 million Aquinas Academy job in Hampton Township. This project bid a year or so ago & was awarded to Graziano but never started. Now it bids again to 10 contractors, including Graziano. The list also includes BRIDGES, Busse, Franjo, Landau, TEDCO, Just-Mark, W. K. Thomas, Nello & Turner Construction. If you worked all day to come up with a group of contractors that is more dissimilar I doubt you could do so. Turner is a $6 billion global contractor. Just-Mark & Thomas are almost never in a hard bid situation. According to the Builders Exchange this is the 2nd job in two years that Just-Mark has appeared on.

What owners don’t seem to realize is that extending the lists like this only creates an environment that hurts them once construction starts. It’s not just that the generals can’t reliably judge how their competition is going to approach the job, it’s that putting together such different kinds of contractors with radically different rosters of subcontractors means that numbers will be out on the street that are not actually competitive. In a reasonable market, the smart generals (and subs) who have some work will just walk away from this job (and still may), meaning the owner is left with a much better chance of getting a low bidder that has bad sub numbers, is counting on buying out the job hard & taking advantage of any weakness in the documents to extract money as the job progresses.

The problem with bidding in general is that it tends to reward the least understanding of the project at hand. If a bad number is on the street, the price (and performance) for that category slips to that level. It only takes a few of those to make a competitive job become a bad job. History had shown that putting together a list with 3-4 contractors of similar size & approach provides enough competitive incentives to get to the best price for the project. That price may not be the one the owner wants to hear but it’s almost always the right price. Asking more contractors to bid until you can hear the number you want isn’t going to change the right number.

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6 responses to “Where Are These Lists Coming From?

  1. The YMCA relies on donations for their survival. Do you expect them to accept a donation from Contractor X, but not allow Contractor X to bid their work?

    • Mark,
      The YMCA (and YWCA) have delivered projects a variety of ways over the years, surprisingly more often than not by selecting one contractor w/o bidding (or at least w/o bidding anything but fee & GC’s). It’s a dicey proposition to tell a donor that you’d rather not have them be the contractor for a new building but going down the path of ‘pay to play’ is a very slippery slope & I’m not talking about ethics. Ultimately the YMCA’s board has a fiduciary responsibility to contract with the firm they feel can build the project they want for the best value. Donors to an organization should be making the donation because of a desire to support the mission/work of the non-profit. While this is obviously not always the case, the non-profit has that defense to fall back upon. At this point they would be better off just opening the project up to the public. As ugly as a public list can be there is rarely one with such disparity in size & capabilities as this.

      • All dogs do not go to Heaven! The facts of life are that 1.) donors frequently expect additional consideration in return for donations, 2.) organizations accepting donations frequently show additional consideration to donors, 3.) donors frequently have little or no interest in the mission of the organization, but participate because their competitors participate. To deny this dismisses reality.

        As far as the “disparity” question of the article, most of the larger builders have developed “special projects” groups. This allows the large builder to reach down and take on projects much smaller than their typical project. Yes, it is very common for a “$6 billion global contractor” to do projects as small as a few hundred thousand dollars – there is profit to be made in doing so.

  2. We seem destined to disagree on this one but since that’s the point of these things I’ll forge ahead!
    No doubt about donor expectations but obviously the Y has been able to build tens of millions without opening their work up to every contractor donor. Your comments also assume that those on the list are donors. I do not know if that is true.

    Only 3 or 4 contractors in the region have created SPG’s or SPD’s & the profits that they make are a result of the corporate entity choosing to absolve the special group from their share of the overhead burden, etc. More to the point, there is as much disparity between the remaining bidders who aren’t Turner or PJ & it cuts both ways. The smaller contractors have fewer resources to waste bidding a job if they aren’t being seriously considered. That may not be the case in either of these projects but I been in discussions with contractors hundreds of times who were concerned that they were putting together a number for an owner who was going to award the job to a ‘name’ contractor in the end.

    My ultimate point is that there are good fits for contractors of all sizes & matching bidders with comparative capacities & experience yields a much better result for the owner when the project is completed. That should be the owner’s goal. Both of these owners may end up with successful projects but it won’t be because they put together a bidders list that fostered good competition.

  3. The article ignores the reality that large companies like Turner successfully complete projects ranging from the very large to the very small every day. To say that the small projects division of a very large contractor and a small contractor cannot compete head-to-head is to ignore facts. This is why you can find these operations in Turner, PJD, Gilbane, etc. Simply put, it works, and IS profitable.

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