At Alchemy Development, we have a running list of things that we have to remember every time we start a project. The list includes everything from blacklisted subcontractors that we refuse to do business with to a reminder to always put fitness rooms on the ground floor. Treadmills, it seems, make bad upstairs neighbors. Like the treadmill example, most of these lessons learned can be filed under D for "duh." As I get a little more comfortable with this blog format, I will share a few more tricks of the trade. But today's first installment will be a fairly obvious item that should be at the top of every developer's list. It's better phrased as a question, and it applies to anyone buying anything: "Are you sure you want to take the low bidder"? Now, many times the stars align and the best and most qualified subcontractor is also the low bidder. For example, in the Omaha multifamily industry, Aksarben HVAC is a solid outfit and they are usually low. But there's a lot of times where the low guy is someone who you're not so sure about. The recession has weeded out many of the weaker guys already, but there are more than enough who will try to use your job as a means of life support. These guys are like junkies who need one more hit, just one more hit, to keep going. It's musical chairs, and when the music stops they can't find a chair because its been moved into the corner. Unfortunately, you paid for that chair and you have to sit on it, Potsie. On a smaller scale, it's just like those painful Seven Can Help episodes when Mike McGoodnight reports on some siding company that disappeared from a job after cashing a nice deposit check. These guys are scam artists, to be sure, but they are simply playing on the oldest American desire trying to get something for (almost) nothing. Yes, the buyer is an accomplice in these cases. There were red flags flying all over the place ("Sir, my bank closes at 4, so just make the check out to cash"), yet you went with the low price because you... were... greedy. Equating a low price with best value is a mistake that all of us have made at one time or another. About ten years ago, I bought a certain local bedding company's mattress from a certain local furniture company. It felt good to buy local and save a few bucks. I woke up six months later with a sagging bed and an aching back. I bought cheap EAS protein powder at Costco instead of the GNC product recommended by my friend who actually owns a GNC store and paid the price on the toilet. I mail ordered a pair of khakis from a catalog called Sportif because they had some Lycra in them for elasticity and comfort. They were a bargain at $30. I think the company was really called Sport-If because if you wore them a few times, the threads came apart at the seams. At the end, it was like I had a pair of khaki chaps on. There are times where one can get pleasantly surprised. The Kia's and Hyndai's I've driven seem to be a good value for the price. The sheets I bought at Kohl's are nice and smooth. My Champion moisture wicking shirt purchased at Target feels as good as anything from Under Armour. So what the hell is my point? If you get a low bidder, check under the hood. 1. Ask around. Visit their other job sites. Is the sub current with their accounts at suppliers? How did they perform at their last job? Maybe they're low bidder because they are supplying too few laborers. Cheap and slow is not better than more expensive and fast. However, there is a corollary to this rule: Ask plenty of people so that you get the whole picture. There are some people who will badmouth a sub (gasp!) to cover up for their own incompetence. Don't take everyone's stated experience as gospel. 2. Is the bid way below the others? It's probably a mistake. Make sure they have everything in their bid. Plumbers are notorious for coming in low but only later do you find out that they didn't bid the fixture package specified. 3. Can they be bonded? You don't really want to go this route because of the cost, but on big jobs it may be worth it if you are concerned about performance. Bonding can be sort of a contradiction in it's very nature: if the sub is strong enough to be bonded, then they probably don't need a bond. The guys who need the bonds can't get them. You're better off doing your homework. 4. Retainage. Don't pay for work that's not completed. Double "duh" file. 5. Pay the supplier directly. If you're worried about an electrician, tell them you are going to pay their labor only and that you will cut a separate check to the supplier. That way, you won't come to the end of a job and find out the supplier hasn't been paid. 6. Get lien waivers. After every check, get a lien waiver from the sub and their supplier. 7. If the difference between sleeping at night and worrying is more than the cost of having your job shut down for a month while you find a new sub and pay for lawyers, then suck it up and pay the higher amount for the bidder you know is qualified. Better yet, ask the qualified bidder if he will match the low guy. If he says no, ask "why"? I bet the answer is something you would want to know. 8. Trust your gut. If the guy seems shady and disorganized, they probably are a shady and disorganized outfit. 9. Remember, it's not just about price on day one of the bid. Never underestimate the power of quality over the lifecycle of ownership. An honest sub who bid the job fairly will want to help you be successful in the long run. 10. Check their reputation for change orders. Sure they bid low, but are they notorious for saying the drawings were vague and they didn't know they were supposed to include motion sensors in their common area lighting? Yes, it's their fault and yes, they should eat those costs. But eventually, they are going to try to slip you some change orders. So pretty no-brained stuff in this first episode, but it's a good place to open the topic of lessons learned. Until next time, my friends...
