Internet scams. You’ve seen them in your inbox.
The foreign citizen who has inherited several million dollars from a relative in the United States, and they want you to help them get the money.
If you forward an email enough times you’ll get paid or get a free laptop. No unknown person in a foreign country needs your help with an inheritance and no one is going to send you a free laptop because you forwarded an email to 20 of your friends.
When it comes to internet scams, the old adage rings true: if it looks to good to be true, it probably is. Common sense should be enough to help people avoid these scams, but some people want this unbelievable scenario to be true so much that they convince themselves they have stumbled on King Solomon’s mine.
So what do internet scams have to do with construction? Because if you are an owner or contractor, you would do well to remember that, “if it looks too good to be true, it probably is.”
Too many projects have been derailed by someone accepting a bid that could have potentially qualified as an internet scam. When it comes to reviewing bids, listen to your common sense.
If you’re an owner and three contractors’ bids are within a few percent of each other and a fourth contractor’s bid is 30 % less than the others, then common sense tells you that you should ask some hard questions.
If you’re a general contractor and a subcontractor’s bid comes in 20% lower than other subcontractors bidding on that scope of work then you should wonder what makes them able to get materials and provide labor at such cheaper prices.
If a bid looks too good to be true, then it usually is.
I understand the pressure to get the best price possible for a project. But an unusually low bid from a contractor or subcontractor should cause red flags to go up.
Did they overlook a scope of work? Are they properly staffing the project? Were they able to secure materials at a better price? Maybe there is a legitimate explanation for why their bid is so much lower.
But if there is no valid explanation, do not be seduced by the voice in your head that says, “So what? It will be their problem not mine.”
Nothing could be further from the truth. Accepting an unusually low bid usually leads to one of two scenarios: (1) an avalanche of change order requests for time and/or money; or (2) a failure to complete the work.
Trust me, both on those situations will be your problem instead of just being the contractor’s or subcontractor’s problem.
Over the years I have had owners and contractors who find themselves cleaning up a mess explain that even though the bid was way lower than the other bids, they felt like they would be protected because there was a bond (or similar type comments).
That is a flawed logic. Providing a bid bond or a performance bond is not a solution to mitigating the risk that comes from accepting an unusually low bid.
While a bond may compensate for damages or pay to complete work, the timing of the project will be catastrophically impacted. There will be delays, and the delays will likely be significant.
Delays have a ripple effect that can place an entire project at risk. If an owner or contractor has to get a surety involved it will take time for the surety to investigate and determine how it wants to respond.
In the meantime, subcontractors who were properly performing will move crews to other jobs, and then the schedule is impacted by trying to get them back to the project. This impacts sequencing and usually compounds the delay problem.
In the end, the damages caused by accepting the unusually low bid will exceed (often significantly exceed) the savings that an owner or contractor hoped to achieve with the low bidder.
I’m not saying that unusually low bids can never be valid because there are different reasons that some bids are higher or lower than others. The next time you see the unusually low bid, however, do your homework. Just remember that if it sounds too good to be true, it usually is.