5 ms·

Raised an eyebrow since change orders are the primary mechanism for inflating post-award margins. This comes down to how well the contract is written. The Big

Raised an eyebrow since change orders are the primary mechanism for inflating post-award margins. This comes down to how well the contract is written. The Big Dig was getting screwed pretty early on by contractors doing exactly what you described, but learned from the experience and started tightening up those contract terms. As a result, some contractors continued to try to play that game, and when they couldn't make up for lowball bids using change orders, they went out of business. Other contractors learned their lesson and started pricing things more realistically.

deveac 14y ago
>and when they couldn't make up for lowball bids using change orders, they went out of business. Yeah. Unfortunately, this also adds to the cost of projects massively. One of the reasons I like the practice of throwing out the lowest and the highest bids. That method doesn't work in every scenario, but when you have enough firms competing it can really protect the owner, as well as the winning contractor. I used to drive in the Boston area in 95-98 and dealt with the Big Dig daily for years. Shudder.
btilly 14y ago
And there you fall into one of the traps. Contracts that are long because they explicitly protect against every way that the agency has been screwed in the past. It would be much more effective to have the response to being screwed be, "We have the option of saying you are not allowed to submit bids on public projects in the future." Then you don't have to legislate every last detail of when that happens. This is what happens in the private sector. I do not have to do business with you if I don't want to, and I don't want to do business with you if you've screwed me in the past. If you're not planning on screwing me, this is not a problem. If you are, it is only a problem for me..once. And a problem for you going forward.
- Anechoic 14y ago
  It would be much more effective to have the response to being screwed be, "We have the option of saying you are not allowed to submit bids on public projects in the future." Then you don't have to legislate every last detail of when that happens. This happens in the public sector as well. Case in point: Parsons-Brinckerhoff is persona non grata when it comes to bidding on MA projects (MA tried to legislate the ban and weren't able to, but I know firsthand that PB has been thrown off several teams bidding for MA projects when the team was told they would have no chance of winning the project with PB on board).
- yourapostasy 14y ago
  >This is what happens in the private sector. I do not have to do business with you if I don't want to, and I don't want to do business with you if you've screwed me in the past. That goes in both directions in the IT services world. I run into plenty of procurement departments that are far less ethical than many contractors I've worked with. I have caught procurement officers flat out lying to me on what they have as competitive offers, playing incredibly puerile alpha dominance games, pulling bait and switch by tacking on a new deliverable as an afterthought in an email without prior discussion after a verbal agreement at the end of exhaustive negotiations, acting rude and imperious as if that was their sole strategy to browbeat me instead of negotiating like a professional business person...the list of eye-popping, unprofessional behavior would have been unbelievable to me when I started in business. These customers go onto our blacklist that we graciously introduce to our less-capable competitors.
  - deveac 14y ago
    >These customers go onto our blacklist that we graciously introduce to our less-capable competitors. Why not keep them? Doesn't sound like anything that can't be addressed. Insert language defining scope as only in contract with verbal, email, and other communications besides formal change orders not binding. Rude? Imperious? Browbeating? Fine with me. As long as I can lock you down on paper I'm fine with it. You can corral most customers like that and shrug of the distasteful personalities...as long as they are paying their bills. That's the deal breaker right there. Even lying on what they have for competitive offers. It doesn't matter what they say as long as you know your margins and make your decisions based on that. Psychologically it can be painful to know that you took money off the table for what turned out to be non-existent competition, but it won't bite you as long as you are negotiating with a solid grasp of your costs and profit potential. This type of behavior is so standard that it doesn't even bother me. Really, they wouldn't be doing their job if they didn't do this in a lot of cases from one point of view. If you suspect your customer is lying about competing bids and you feel your margins are dipping close to below acceptable levels, try a large increase in margins on a smaller sized order or project to test the waters every once in a while. It really gives good feedback that you can use to make decisions when confronted by that behavior in the future. I have a couple clients who like clockwork, ALWAYS try and talk the price of a quote down after submission. I look at my margins and decide if I'm willing to do it based on that alone, but every once in a while when we're really busy and I get a quote request from them for a medium or small sized job, I will increase the margin to 20% past my ideal rate to see if they bite. They usually do. So now when they try and talk me down on a larger project I just 'see if my distributor can move at all on the pricing'. Turns out he can't. Sorry. I tried. Most of those games are rare though. Our firm is often subcontracted out, and I openly discuss my margins and those of my customer that is requesting a quote. Being open, honest, and transparent really goes a long way. I'll often send a quote along and follow up with a phone call that goes something like this: "Hey xxxx, I just sent that number in. Take a look at it. I've got about 20 points on it, -how much were you planning on marking my number up, -is that going to leave you enough margin?" 9 times out of 10 they say yeah, and appreciate me asking if they are set on their margin. When they ask for a price reduction, it's usually with the sense that we're both in it together, and they aren't looking at me as an adversary, and they are more honest about what number from me is the HIGHEST they are comfortable with. That information is golden, because I am usually bidding against other firms (at least to start). I've had many contractors stop competing my bids just because of this type of communication (as well as the execution of our firm as well).

deveac 14y ago

>and when they couldn't make up for lowball bids using change orders, they went out of business. Yeah. Unfortunately, this also adds to the cost of projects massively. One of the reasons I like the practice of throwing out the lowest and the highest bids. That method doesn't work in every scenario, but when you have enough firms competing it can really protect the owner, as well as the winning contractor. I used to drive in the Boston area in 95-98 and dealt with the Big Dig daily for years. Shudder.

btilly 14y ago

And there you fall into one of the traps. Contracts that are long because they explicitly protect against every way that the agency has been screwed in the past. It would be much more effective to have the response to being screwed be, "We have the option of saying you are not allowed to submit bids on public projects in the future." Then you don't have to legislate every last detail of when that happens. This is what happens in the private sector. I do not have to do business with you if I don't want to, and I don't want to do business with you if you've screwed me in the past. If you're not planning on screwing me, this is not a problem. If you are, it is only a problem for me..once. And a problem for you going forward.

Anechoic 14y ago
It would be much more effective to have the response to being screwed be, "We have the option of saying you are not allowed to submit bids on public projects in the future." Then you don't have to legislate every last detail of when that happens. This happens in the public sector as well. Case in point: Parsons-Brinckerhoff is persona non grata when it comes to bidding on MA projects (MA tried to legislate the ban and weren't able to, but I know firsthand that PB has been thrown off several teams bidding for MA projects when the team was told they would have no chance of winning the project with PB on board).
yourapostasy 14y ago
>This is what happens in the private sector. I do not have to do business with you if I don't want to, and I don't want to do business with you if you've screwed me in the past. That goes in both directions in the IT services world. I run into plenty of procurement departments that are far less ethical than many contractors I've worked with. I have caught procurement officers flat out lying to me on what they have as competitive offers, playing incredibly puerile alpha dominance games, pulling bait and switch by tacking on a new deliverable as an afterthought in an email without prior discussion after a verbal agreement at the end of exhaustive negotiations, acting rude and imperious as if that was their sole strategy to browbeat me instead of negotiating like a professional business person...the list of eye-popping, unprofessional behavior would have been unbelievable to me when I started in business. These customers go onto our blacklist that we graciously introduce to our less-capable competitors.
- deveac 14y ago
  >These customers go onto our blacklist that we graciously introduce to our less-capable competitors. Why not keep them? Doesn't sound like anything that can't be addressed. Insert language defining scope as only in contract with verbal, email, and other communications besides formal change orders not binding. Rude? Imperious? Browbeating? Fine with me. As long as I can lock you down on paper I'm fine with it. You can corral most customers like that and shrug of the distasteful personalities...as long as they are paying their bills. That's the deal breaker right there. Even lying on what they have for competitive offers. It doesn't matter what they say as long as you know your margins and make your decisions based on that. Psychologically it can be painful to know that you took money off the table for what turned out to be non-existent competition, but it won't bite you as long as you are negotiating with a solid grasp of your costs and profit potential. This type of behavior is so standard that it doesn't even bother me. Really, they wouldn't be doing their job if they didn't do this in a lot of cases from one point of view. If you suspect your customer is lying about competing bids and you feel your margins are dipping close to below acceptable levels, try a large increase in margins on a smaller sized order or project to test the waters every once in a while. It really gives good feedback that you can use to make decisions when confronted by that behavior in the future. I have a couple clients who like clockwork, ALWAYS try and talk the price of a quote down after submission. I look at my margins and decide if I'm willing to do it based on that alone, but every once in a while when we're really busy and I get a quote request from them for a medium or small sized job, I will increase the margin to 20% past my ideal rate to see if they bite. They usually do. So now when they try and talk me down on a larger project I just 'see if my distributor can move at all on the pricing'. Turns out he can't. Sorry. I tried. Most of those games are rare though. Our firm is often subcontracted out, and I openly discuss my margins and those of my customer that is requesting a quote. Being open, honest, and transparent really goes a long way. I'll often send a quote along and follow up with a phone call that goes something like this: "Hey xxxx, I just sent that number in. Take a look at it. I've got about 20 points on it, -how much were you planning on marking my number up, -is that going to leave you enough margin?" 9 times out of 10 they say yeah, and appreciate me asking if they are set on their margin. When they ask for a price reduction, it's usually with the sense that we're both in it together, and they aren't looking at me as an adversary, and they are more honest about what number from me is the HIGHEST they are comfortable with. That information is golden, because I am usually bidding against other firms (at least to start). I've had many contractors stop competing my bids just because of this type of communication (as well as the execution of our firm as well).