It’s hard to believe spring is already knocking on the door.
We don’t have a lot of work this spring, but we’re feeling quite fortunate to have what we do. It was almost a year ago to date when I wrote in our newsletter about how great it was to have good clients that were excited to get under construction last spring. Somehow we are in the same boat again this year – great clients and great projects (just not many of them).
We’ve bid several residential projects over the winter with a myriad of General Contractors, where the winning bid has been around 30% lower than the median average bid. For the majority of the projects we’ve observed, the low bidder has predominantly been awarded no matter what the average of the bids have been. When the winning bid is below the actual cost of the “sticks and bricks” of the project – undoubtedly it’s only a matter of time before there is a problem.
Welcome to “the Dirty Project”…
We saw a little bit of the fallout in 2009 with low bidder contractors front loading projects and then bankrupting the business. Every once in a while you’ll hear a story of “that guy” being spotted somewhere in Aruba cuddled up to a 6′ hookah and some young Jamaican woman he calls Mama.
I think ’09 was only the tip of the iceberg for construction claims and fallout. As both sub and general contractors have most likely burned through the majority of their reserves in ’09 – the amount of fallout in ’10 should be staggering. The first to go will obviously be the ‘below cost” and “30% under” bidders who are just trying to keep their crews busy or make the next payment for their jacked up Ford or diaper polished Audis. So where does this leave the dirty projects? They will either be tied up in lawsuit or in need of troubled project turnaround – most likely both if history repeats itself from the construction collapse of the 80’s. It’s simple, a business can only sustain for so long doing work at or below cost.
Aside from the overall cost cut – the next to go is quality of construction. Even in small towns like Bozeman and Big Sky, it doesn’t take a rocket scientist to see what kind of crap was being built in 80’s. The current market really isn’t all that different with the amount of construction companies just trying to survive while making quality cuts just to be in the running of a “competitive” bid. Pastels, big hair and poor construction defined the 80’s – what will define construction in 2010?
I think the face of construction will change in coming decades, as well as the standards for building a custom home. Of course there will always be the rat race on specs as well as pre-sold units, but the current trend for high end custom isn’t sustainable with the value we put on our dollar and the high regard we generally hold to the quality of our homes. The high dollar commercial sector got wise to this in the late 80′ and early 90’s and started pushing negotiated contract and construction management services in lieu of the competitive bid/change order game. Twenty years later and the private residential sector still hasn’t caught on yet. Why is that?
Don’t get me wrong, there are a number of savvy Owners out there that see the value of negotiated bid and quality work as well as a handful of contractors that won’t succumb to the change order game or make quality cuts just to be competitive with an underpriced contractor.
How will your home be viewed in 10 or 15 years? Will it be a tear down just like the homes built in the 80’s or will it be a testament to maximizing the dollar of the recession?