Warning Sign your Project is in Trouble

Recently I was speaking with a couple of contractors and they were telling me some project bid stories.

First of all, when a contractor bids work it is highly competitive and risks are taken to be the successful low bidder.  All contractors believe that when they have lost a bid, their competition has taken the project for an unacceptable number and their competitors can’t make any money at their price.

The shocking part of the story was when my contacts were saying they have actually bid work at no profit to keep their companies afloat – now that is serious trouble waiting to happen.  Construction is a very risky business with a wide variable of factors that will affect the end result.  Simple things that are out of the control of a contractor such as timeliness of owner payments, weather, and subcontractor financial health will all play into the financial outcome of a project.

When a contractor approaches a project with little or no profit, the owner had better understand that his project success is at risk.  Too often contractors that bid at no profit is one of the key signs that they will soon be entering bankruptcy or worse, view the project as an opportunity to create changes where they may not exist (and by the way this can also apply to design professionals).

A few years ago I wrote a series of articles that pointed out the “10 Warning Signs that your Project is in Trouble”.  A couple of them are worth repeating:

Sign #3  Watch Those Low Bids Carefully

Low bid contractors, coming in under all other bidders by more than 3% to 5%, need to be investigated completely and offered the option to walk away without penalty.  Remember the old saying, “The low bidder is the one who made the most omissions in the proposal.”  The temptation to accept a significantly lower bid won’t save money.  The owner who succumbs to this temptation will end up paying the difference in supervision, change orders, or worse — litigation.

Sign #4  Work at Cost Spells Trouble

Taking work at cost can lead to trouble and even bankruptcy.  All owners should ensure that their contractor makes a fair return that will vary with the risk involved.  Taking a project at cost leaves no room for error.  The owner carries the greatest risk and will ultimately pay the price through supervision, change orders, delays, or completion costs when the original contractor is unable to complete the project on time and on budget.

Time Means Money

As an owner, you ultimately pay the cost of all project delays.

Detecting the early warning signs of the project delays or problems enables the project team to take proactive steps.  Ignoring these warning signs means a reactive approach that causes time delays and budget excesses.