Why do contractors always seem to charge more than their estimate?

Well, the clue here is in the last word of the above headline – `estimate\’! Dictionary definition: approximation, estimation, guess, guesstimate, ballpark figure. In other words, no better than an educated guess. (And not even that sometimes!)

So what can the average office fit out or office refurbishment manager do to protect themselves – and/or their company – from falling into this potentially disastrous (and costly) scenario?

Prepare a well written `Scope of Works\’

The absolute first thing to do is to compile a detailed and accurate `Scope of Works\’ or `Schedule of Works\’ for the work required. It doesn\’t have to be too technical at this stage but it should contain detailed descriptions of each element of the work that needs doing so that each contractor on your tender list has exactly the same information on which to submit a fixed price.

Here are a couple of examples:

Item 1: Existing office partitions

Carefully dismantle existing aluminium framed solid full height demountable-type partitioning to General Offices & clear from site (including 1 no. door & frame)

Item 2: Existing office furniture.

Carefully dismantle as necessary all existing office furniture to General Office & clear from site.

Item 3: Making good

Make good to existing floor, wall & ceiling surfaces and finishes following dismantling works to best results.

Avoiding The `Tender Trap\’

Once you have a written the entire `Scope of Works\’ in this fashion the next thing to do is compile a short `tender list\’ from a list of contractors who have either been highly recommended by someone you know well – and whose judgment you trust – or from among contractors whom you know have previously carried out very similar work of the type and size as yours. (There\’s not much point approaching very large contractors if your project is miniscule relative to their size and turnover -they probably wouldn\’t be interested anyway!)

On the other hand you don\’t want to be dealing with a `one-man-band\’ working out of the back of a white van either! So, where possible, try to match the `tendering contractors\’ -no more than three or four -with the size and type of your project and their proven skills & experience in this field.

Then, invite each contractor on your tender list to submit a \”fixed price lump sum\” for the work you have described in your `Scope of Works\’. (The reason it\’s called that is that you want to leave room for a conscientious and experienced contractor to submit alternative suggestions which may either save you time and money and/or be of a better quality.)

How To Properly Compare The Tenders

Finally, once you have received back all of your tenders, carefully go through each one with a `fine tooth comb\’ comparing the cost for each item against one another. (If you\’re not sure whether an item has been included or not simply `phone the contractor and ask.) But ALWAYS, ALWAYS make sure that you get WRITTEN confirmation of any amendments and/or additions to the tender as a result of your call!

Underbidding – Caveat Emptor (Buyer Beware)

Having received all the tenders back and gone through them with a `fine tooth comb\’ to ensure that everything has been included and priced correctly, a savvy fit out or refurbishment manager still needs to be aware of the increasingly common practice of `underbidding\’.

Underbidding is where a contractor submits prices within his tender which are either at, or sometimes even below, the normal market prices for the work in an attempt to influence those managers who may be tempted to award the contract on the basis of the lowest `bottom-line\’ tender. Once the contract has been awarded, these contractors will then try to `claw back\’ costs from either the supply chain, or from the client direct via `Change Orders, which can often lead to confrontation, erosion of trust and which clearly could never work within a `partnering\’ culture.

In the end, underbid contracts harm the bidder, the client, the end-users and rival firms that might have been able to do a better job. So why does underbidding continue? And what if anything can be done about it?

Desperate Times Call for Desperate Measures

Almost everyone in the industry agrees that many tender bids are going in at or below the cost of a job, though nobody will admit to doing it themselves. A recent survey released found that 82% of respondents thought so-called \”suicide bidding\” existed in the industry but there is precious little hard evidence on how prevalent the practice really is.

So why do companies underbid? One reason is to use it as a temporary way to boost revenue and help the firm – albeit temporarily – stay afloat.

But it is not always simply a way to buy revenue in harsh times. Many contractors do it in the expectation of reclaiming costs by exploiting loopholes in the contract and/or squeezing their suppliers. In these cases, the contract seems to be just the start, rather than the end, of price negotiations.

Some practitioners in the industry defend low-bidding as a common sense response to a weak economy arguing that it\’s merely a sign of competition at work if a contractor decides to work for no profit. If supermarket brands sell customers loss-leaders, why not office fit out and office refurbishment firms?

The Value of Using Experienced Office Fit Out Professionals

Yet this low-bidding strategy looks increasingly risky as tender prices stagnate and the cost of materials and energy (in particular oil) rapidly rise. Office fit out and refurbishment contractors won\’t be able to claw back money by squeezing manufacturers and sub-contractors.

Clients, particularly in the public sector, are under more pressure than ever to accept the lowest bid. Perhaps the question should be asked that even though funds are tight, wouldn\’t it be easier to save money by collaborating on the job and `value-engineering\’ the final price rather than simply pick the lowest bid?

The truth is that `enthusiastic amateurs\’ cannot hope to comprehend and deal with the myriad and complex procedures involved in first recognising then unravelling an underbid.

End-users contemplating getting involved in an office fit out or office refurbishment would save themselves an awful lot of heartache, as well as serious amounts of money besides, by engaging an experienced specialist project manager and cost consultant who will advise clients of what\’s going on from the outset, providing effective solutions to below-cost bids and rooting out the `bad guys\’ with watertight contracts.

The Next Most Important Steps

Once you are satisfied that your chosen contractor has submitted the best price (it may not necessarily be the cheapest but it may well be the most inclusive) then send a WRITTEN letter of instruction setting out such matters as:

(i) When you\’d like the work to be started and – even more importantly –

when you\’d like it finished.

(ii) The agreed final price for the works and the method to be adopted in the

event of any changes to the `Scope of Works\’ once the work has

commenced.

Basically, you always need to be aware that if you change anything at all in the agreed `Scope of Works – no matter how insignificant it may appear to you at the time -it could well cost you disproportionately more than you thought it would because the contractor may have to include things such as `out of sequence working\’ or `non-productive time\’ in any claim for variations or change orders he may subsequently submit.

In a Nutshell