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Is choosing the lowest-priced tender a false economy for construction companies?

Lowest-priced bids in ConstructionAs someone responsible for procurement in a construction firm, you may well feel pressure to consistently secure the lowest prices. But is it always wise to pursue cost over all other factors?

Selecting the lowest-priced tender might seem a sensible action especially in the current economic climate. Indeed, many tenders are heavily weighted to price over quality, it’s common to see a 60-40 grading split. Construction firms should look at using the detail and evaluation of their tenders to obtain the best price while minimising the risk of sub-standard delivery.

When to save and spend

The old adage ‘you get what you pay for’ is certainly not always true. In some ways, of course, it’s the procurement department’s job to ensure that buyers do get what they pay for.

Establish the required level of quality early on

We’ve all come across bargains and, of course, suppliers sometimes under-price their services for any number of reasons. However, when high quality contractors, subcontractors and source materials are required it’s sensible to invest well. Moreover, it’s prudent to agree the required level of quality prior to the assessment stage in order to gain buy-in later on from those who focus strictly on the bottom line.

Of course, if the works are straightforward and the team proven and capable, cost can comfortably be a deciding factor. If the project is more challenging (tighter schedule, site constraints, complex construction, or to be of a particularly exacting standard), then the lowest priced tender will be a riskier commitment, highly unlikely to pay off in the long-run. 

First, let’s clarify that we’re excluding the very lowest bidders (more than 25% below the average price) as often these are rejected outright and seen as highly suspect. So our focus is on those who propose a price of 10-15% less than average as these are more likely to be selected.

The costs of going low

For a complex project, choosing a lower tender than average is more likely to result in:

  • Delays as the tenderer struggles to acquire the materials and subcontractors for the project
  • Lower quality subcontractors
  • Inferior materials and the resultant poor products
  • Over-running
  • Additional costs from over-running and delays, or from fixing problems
  • Failure to cover a contractor’s costs leading to claims and disputes
  • Possible damage to a company’s finances and reputation

Look for collaborative value in higher bids

To root out the best quality bidder, it’s wise to formulate tender questions which elicit responses around collaboration and value as these will lead to real cost savings while preserving quality. Additionally, during assessment look for answers that demonstrate the bidder’s commitment to providing excellent value for the price. These could include:

  • buying from preferred suppliers or buying direct
  • sharing job roles
  • effective governance and quality standards
  • collaboration with relevant partners
  • creating efficiencies

A quality approach should bring in cost savings, support the project to stay within budget and complete in good time, while a lower priced bid could end up being costly while making up for cheap mistakes.

The right tools for higher quality projects

Construction companies, as well as those procuring complex services and solutions, can use eTendering to support supplier recruitment as well as the tender process – ensuring higher quality contracting and subcontracting.

To find out nine more benefits of eTendering for construction firms, download our free guide.

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