It’s certainly no secret that many areas of the country are seeing less viable work to bid, and yet more competition for the jobs that are going ahead. The light at the end of the tunnel is still dim as companies are holding their breaths (and expansion plans) until they see an improvement in the economy.
This is not an unusual cycle, except that this one has lasted longer than previous downturns. Some contractors are losing work as companies move elsewhere for cheaper labor costs. This cycle has seen its drastic changes as well, as new Third World countries come into play for production of many products consumed worldwide.
This may leave the contractor’s estimating department in a quandary as to what to bid that will sustain the company’s cash flow and basic work forces. This may be a time to expand the area of interest of the typical projects bid and performed in the past years. Considering the government’s “No Child Left Behind” program, school construction and alteration may be a viable field to consider.
Good news, bad news
There is good news and bad news when considering these projects. The good news is that, even as a subcontractor, government entities usually pay all their bills, although some are very slow payers. Payment is further insured to some degree, as most of these agencies require payment and performance bonds to cover the value of the overall project. The fact that bid openings are done in public will, to a degree, reduce the bid shopping that occurs in private work. The downside is that enforcement of such laws is lax, letting scofflaws slip though too often.
Depending on the jurisdiction, the payment clause of the specifications will always require a percentage of contractors’ approved billings that will be withheld as retention. Most retention payments may have to wait until the project is completed. Interestingly, if the specifications are read for the fine points, some jurisdictions will pay the accumulated retention when in the opinion of the authorities the project is completed to a 50 percent stage. Considering that fixtures for the average project are a major part of the job, this item alone may bring the value of completions to 50 percent. The fixtures, however, will be required to be delivered to the job site. Another approach may be to have the high-cost items sent to a bonded warehouse that assures the owner that the materials can only be removed by joint control. Obviously, the warehouse is a cost that must be borne by the contractor.
I would not suggest that estimators go out and start bidding this type of project without some serious homework. First should be a serious reading of a typical set of contract documents with an eye to the requirements that may be foreign in other types of work. One of the items to look over is the invitation to bid. This document states the basics of what will be required. Next would be the general specifications and then the special specifications. Most bid packages will also include a copy of the proposed contract for the project.
The bid date and time are essential as well as the place where the bids will be accepted if bidding as the prime contractor. The place for the bid opening will also be noted. A late or incomplete document will usually not be considered, and any attempt for someone to sneak in after the deadline should be resisted to the utmost.
The payment for the project is of prime interest to the cash flow of the company. Contractors may take progress payments for granted, but there are exceptions where a lump sum is paid after the acceptance of the project. The acceptance may hinge on such nebulous items as watching the grass grow. Delays may require that a contractor get a loan to cover the expected cash, a cost that ideally should be borne by the bid price. Realistically, if all the costs for possibilities are included, the bid will probably not be the one awarded the contract.
Next month’s column will continue discussion of these projects. EC
DAVID is a professor of electrical technology at Long Beach (Calif.) City College, a consultant and an expert witness. He can be reached at 562.597.1877 or at email@example.com.