Price and Quality

Is the Lowest Bid, The Best Bid
LOW BID HARD TO IGNORE

Building Insights by Allen Gorin
(Excerpt from the Sacramento Bee, November 12, 1994)

Let's try an experiment, you and I. I promise I won't share the results with anyone, and you may learn something important about yourself in the process. Pretend you're doing a family room and half-bath addition to your home, and you're down to choosing between two contractors.

The first contractor appears to be well organized in his initial presentations. He explains what you will be getting in the way of a final product by showing you pictures, diagrams from remodeling magazines, and testimonials from previously well-serviced clients. When you ask him questions, he appears to think through each answer before giving you his opinion. His business manner is, in a word, thorough.

Contractor Number Two, on the other hand, appears more tentative. Sure, he smiles a lot and has a firm handshake, but his proposal is generally vague. You have to draw many specifics out of him, which if you didn't press him for them, wouldn't become clear until much later on in the project. Furthermore, when you ask Contractor Number Two a question, he seems to be scanning you in order to give you what he thinks you'd like to hear as an answer. His business manner, in the lingo of the Old West, is probably "shoot first, ask questions later" (if he even thinks to question).

Based on the profile I've given you to this point, which contractor would you choose for your project? Contractor Number One, you say? I thought so. So would I.

Oh, I neglected to add one tiny bit of information. And in all fairness, I have to share it with you in order to make this experiment as realistic as possible. Contractor Number One's estimate is $41,550: a mainstream price, you quickly determine. For everything. No hidden costs. Cast in concrete. Contractor Number Two's estimate is $32,762.00, about 20% less than the first contractor's proposal. For everything (we assume). No hidden costs (we hope). Cast in concrete (before it's had a chance to harden).

Now which contractor would you choose? I can hear the gears turning between your ears. "Hmmm, that $8,800.00 differential is mighty tempting. Think what I could do with that extra dough. More amenities, ceramic tile instead of a vinyl laminate in the bathroom?" And so on and so on.

But what about our mental reservations about this contractor? "Maybe he had a lot on his mind the day he compiled and presented his proposal, and just made some honest oversights. It can happen to the best of us."

See what is happening here? That $8,800.00 is tempting you to rationalize the contractor's initial behavior, so that you can find some way in your mind's final analysis to get the product you want at the bargain-basement price you desire. Say it isn't so and I will exclude you from the manifold group of homeowners who always fall for the lure of the low bid. What we're faced with here is the widespread tendency to accept the lowest-priced proposal which, to be fair, is not simply endemic to homeowners and the world of home improvement.

In fact, a while back I was one of several guest speakers at a meeting of the Santa Barbara Contractors Association, at which a fellow speaker went so far as to address the matter as a national problem. According to this fellow, an American businessman by the last name of Deming was courted by the nation of Japan sometime shortly after World War II. His reputation was that of a man of vision, one who had consulted for American industrialists and the war ravaged Japanese wanted his guidance in rebuilding their industrial economy. He established a number of principles around which the Land of the Rising Sun should rebuild.

Near the top of the list was the following mandate: to end the practice of awarding business strictly on the basis of price. The Japanese business sector took Deming's advice to heart and quickly changed their collective mindset from one that was price-driven to one that was value-driven. They began shunning the low-bidding contractors and suppliers and opting for those mid-ranged estimates which, while competitive (yet not cheap), offered long-lasting parts and equipment, iron-clad warranties, and great service.

They changed from short-term to long-term thinkers. And the rest, as they say, is history.

Back to our experiment. Based on Deming's principle, let's realistically re-examine our two contractors, and let our analysis be objective and long-term in perspective. The first contractor's proposal, reflecting an accurate grasp of the construction marketplace, was competitively priced and thoroughly thought through. Reality suggests that his work performance would reflect his estimating acumen. Translation: minimal change orders, minimal time delays, no hidden charges, more dependable subcontractors, fewer disputes, probable elimination of lien problems, stronger warranties, and generally a more pleasurable renovation for the homeowner.

The low-bidding contractor, on the other hand, gives the homeowner the chance to win big. But so do the blackjack tables in Vegas. And in both cases, the reality of what usually happens is that you can come out a loser. You could follow the advice of another sage, John Ruskin: "If you deal with the lowest bidder, it is well to add something for the risk you run. And if you do that, you will have enough to pay for something better."

Allen Gorin is a consultant and seminar speaker on the subject of remodeling.