A few years ago, Tricia Sinn bid on a room addition and master bath project designed by an architect. The president of Sinn Design Build in St. Louis usually does not bid, but made an exception for a strong referral from a previous client. The prospect chose to hire a contractor they had previously worked with whose bid was $50,000 less than Sinn's bid. On the past project, not only had this same contractor gone way over the contracted price, but one of the crew had stolen the homeowner's pool furniture.
Rick Livingood of Livingood Construction decided to try a proactive approach to being outbid by other contractors — he scheduled a seminar on estimating to educate his lower-bidding competition about markup and profit. “Most remodelers are great craftsmen but lousy businessmen,” he says. He booked a room at the local library in his town of Claysville, Pa., and sent out 200 invitations to the $20-per-person seminar. Two contractors showed up.
Educating homeowners and contractors can be an uphill battle, but it's the foundation of the fight against low bidders, as explained by remodelers in this story. It took two rounds of choosing a low bid before the homeowner in Sinn's story learned his lesson, but he did learn. Sinn asked him to call her after the addition was completed to provide an update on that project. The final cost of the project was within $500 of Sinn's original bid and, in addition, the client paid $7,000 to fix problems with the design. When that client's wife inherited a mansion that needed remodeling, he came straight to Sinn with the multiphase $1 million project.
PROFILING LOW BIDDERS
Low-bidding contractors often have good intentions but are uneducated. “In the progression from carpenter to owner, we have intentions of getting jobs completed and making money at it,” says Danny Feig-Sandoval, owner of Small Carpenters at Large, in Atlanta. Many remodelers receive a check at the beginning of the project, then realize that they do not have enough money to finish, he says, so they have to start another job to bring in money to finish the first one. “If they had time to stop and review their company, they would understand that they are losing money right and left,” Feig-Sandoval says.
Tim Cross recently lost a job that both he and another contractor had priced at $400,000. The winning bid was $250,000. “You can save some money by physically doing the work, but not that much. If a bid is that far off, all I can say to the homeowners is: ‘There is too big a discrepancy. I think you're making a mistake,'” says the owner of Merrick Builders, in Little Silver, N.J.
Some contractors just starting in the business price bids lower to win projects and establish themselves in the market, or to maintain a foothold in a downturn. “If you drop your price by 10%, how many jobs do you have to do to make up that amount of profit? It does not make sense to do it,” Cross says.
Homeowners who have been burned by uneducated or inefficient contractors are hard on the next contractor they hire, a situation Livingood finds frustrating. “If more remodelers understood markups and margins, it would give us all a better playing field,” he says.
Bill Peterson, president of Add-More Construction, in North Brookfield, Mass., says that even reputable contractors may begin to price jobs low during a downturn in the market. “That might only cover overhead in the short term, but they are so desperate it affects the rest of us,” he says. “We can no longer point out [to homeowners] that we are bidding against unlicensed, uninsured contractors. We try to tell them that with a price like that, the job might not get finished, or might have corners cut, but it's hard to educate the consumer when the remodelers giving the bids are reputable,” Peterson says.
Darrell Thompson, president of Mr. D's Construction, in Lake Tapps, Wash., says most homeowners are willing to pay a bit more for quality workmanship and service. “I guess they would pay up to 15% to 20% more for good quality and knowing that the project will actually be completed,” he says.
Robert Lauten, president of Lauten Construction in Purcellville, Va., says that in his area, $200,000 to $500,000 renovations are a significant investment and homeowners are more discriminating about the contractor. However, for projects in the $10,000 to $20,000 range, homeowners are willing to take a risk. When he noticed that he was mostly competing against low bidders on repair jobs, he closed his handyman division.