Does bidding the project yield the lowest cost? (Introduction)

For a business, the end goal of a construction project should be to maximize the prospective building’s value by achieving the best and highest use for the least amount of money. Therefore, the more appropriate question is probably whether the low-bid process yields the highest value. As such, in evaluating the effectiveness of this method, we should consider a combination of cost and quality.

The answer to this is far from black and white. There are many different contracting procedures, and each of them has pros and cons when it comes to maximizing a building’s value. However, some generalizations can be made about the low-bid process.

First of all, by nature, this procedure is intended to minimize construction costs, not design costs. Bidding the project does not control expenses established during the design process, which actually determine 90% of the project’s cost. The bidders spend time trying to figure out how to squeeze a few dollars out of the design documents and have the most impact on the remaining 10% of costs. While it consistently yields low construction costs, it does not necessarily ensure the lowest overall price, since it has no effect on early budgeting.

A great way to obtain insight about the impact of the bidding process on quality is to put yourself in a contractor’s shoes. Imagine yourself trying to acquire a project, and the only way to be awarded it is to be cheaper than any other bidders. Out of necessity, you would try to cut corners in order to produce the lowest cost. You might use the cheapest materials that meet the building’s requirements, diminish oversight and quality control to keep site overhead costs down, and hire the cheapest subcontractors. Inevitably, these decisions would translate to lower costs, but they would be at the expense of quality, thereby making it difficult for the building to reach its best and highest use.

As the rest of this series demonstrates, these generalizations are evident in some of the most common bidding methods.