It was late December – the belly of construction’s slowest season. It was the midst of a recession with no end in sight and 12 general contractors were bidding on one public works project.
In the past, it was typical for five contractors to bid on such a job. Work was plentiful, and they stuck to their niches. But on this day, builders of varied ilk competed for an addition and remodel for Clark Public Utilities District in Vancouver.
As of Dec. 31, the apparent lowest bidder was Vancouver-based Union Corner Construction Inc. at $4.2 million, said Union Corner Project Manager Steve Lilly. The contract winner wasn’t announced by press time.
To prepare that bid, five Union Corner staffers also collected bids from subcontractors. Around a table, they sorted bids and charted them on a wall for analysis.
As bids piled up, competition was palpable.
“On our fax machine they’re coming in one after another,” Lilly said. “It’s game day, it’s pretty exciting.”
For every project line item, there were 15 to 20 bids from subcontractors. A few years ago, it was half that, Lilly said.
“We had more subcontractors’ bids come in for this project than we typically did for a $12 million job,” he said. “There’s only one bone, but there’s a whole lot more dogs trying to fight over that bone.”
Compete or fall under
For local subcontractors, a hard part of that fight is in winning jobs by quoting lower and lower prices.
“In this economy the numbers coming out in quotes are already rock bottom,” Lilly said. “(Subcontractors) have no backlog of work, so they’re trying to create work just to keep their doors open. … PUD’s getting a bargain.”
Many subcontractors interviewed said it’s common for general contractors to accept a bid then call for even lower bids.
Lilly said he avoids that practice and called it unethical. But Randy Graves, executive director of the Southwest Washington Contractors Association, said it’s not unusual.
“The generals are looking for the cheapest dollar,” he said. “They can get a lower bid right now. Everyone does it for different reasons.”
Jim Misner, owner of Brush Prairie-based Pro-Touch Painting Inc., has had increased re-bid requests in the last two years.
“I had to re-bid 30-plus homes and drop prices 12 percent so I didn’t lose a builder that I’ve been working with for eight years,” Misner said. “We did it to keep our guys working through the winter time.”
Since customers such as Lake Oswego-based Renaissance Homes filed for bankruptcy, Pro-Touch is down to 20 employees from about 55, and has 30 percent of the work it enjoyed two and a half years ago.
“A subcontractor is at the mercy of that builder,” Misner said. “Subs are considered vendors to the builder. We take the No. 3 position as far as people (the builder) wants to pay” after payroll and overhead.
Making do
To make the slow times easier, John Fazzolari, owner of Vancouver-based Fazzolari Custom Homes, is booking a series of jobs rather than one at a time.
With building and land costs falling, Fazzolari has secured custom home projects with at least eight investors in Felida, and can offer subcontractors work for months rather than weeks at a time.
“Otherwise you don’t know two months out if you have another job coming up,” he said.
Fazzolari admitted investors want new homes partly because labor costs are down. He saw the cost of one project bid at $92,000 fall to $70,000 when it was done. But Fazzolari said he hires subcontractors for quality, not low bids.
“Depending on how busy (subcontractors) are and how bad they need the work, that’s a component of their bid,” Fazzolari said.
Standing firm
Steve Vanek, owner of Vancouver-based S and L Electric has cut his residential electricians from six to one, but said he refuses to underbid.
“In the past, when I was slow, I would underbid,” Vanek said. “But as I get more history behind me, I realize it’s not helpful to me in the long run or to the industry. There’s a point where it starts costing you money to do a project.”
Instead he relies on relationships he’s build with remodeling contractors.
“You develop a trust thing where they know they don’t need a bid from you, they know you’re going to charge them a fair amount,” Vanek said.
BEFRIENDING THE DEVIL IN THE DETAILS
Accountant Bruce Jooste helps construction businesses prepare for the future financially. But these days, he’s helping many dig out of financial holes.
“A lot of contractors are big-picture people,” Jooste said. “They’re not looking at details and that’s where the devil is hiding.”
Building-industry business owners need to be equal parts entrepreneur, business manager and technician – and that’s not usually the case, he said.
At Vancouver-based QMTA Inc., Jooste gives financial consulting and workshops to about 500 businesses in the Vancouver-Portland metro area, including workshops for the Building Industry Associations of Clark County and Washington.
One of the biggest battles for building industry clients is in determining costs, Jooste said. If a business owner isn’t certain of actual operating costs, it’s easy to underbid a job and lose money.
It’s common for a self-employed contractor to buy QuickBooks software, bring on a family member as bookkeeper and forge ahead with little financial planning. He said he has seen this even with multi-million-dollar contractors.
“They put the (financial) information in, but don’t know how to interpret the information they get from QuickBooks,” Jooste said. “They don’t account for a lot of things.”
That includes hidden costs such as fuel for each trip to a job site, payroll taxes, employee benefits or contingency for error.
A worker who takes home $29,000 without benefits costs an employer an additional $7,700 in taxes each year, Jooste said. That can be a surprise if those costs aren’t factored into project bids.
“Be selective with the jobs you’re taking,” was Jooste’s advice to subcontractors. “You’re getting into a worse situation by not knowing your costs. Get back to basics. Know your hidden costs before you ever take the job.”
Charity Thompson can be reached at cthompson@vbjusa.com.
Editor’s note: The VBJ will continue to examine the slow economy’s impacts on subcontractors in the Feb. 6 Design and Construction focus section.
