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Thread: What do you do if a project bids super low?

  1. #1
    Member PatrickGSR94's Avatar
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    What do you do if a project bids super low?

    On a state-funded project, we had a construction estimate, and a percentage and architectural fee based on that construction cost estimate.

    We received several bids, about half of which were near the estimate. But a couple of bids were MUCH lower than the estimate, one of them by nearly half. The contractor assures us up and down that they have everything covered in their price, and this Owner has worked with this particular contractor before on past projects. They are familiar with one another and the Owner has been happy with their work before, so the Owner has decided to accept their low bid.

    The problem now is that the Owner has already paid us through CD's, more than what the total fee ends up being based on the low-ball bid. Going by that, we would have to give money back to the Owner AND have to conduct CA duties for free basically.

    Unfortunately our contract with the Owner doesn't address low-ball bids. The whole thing seems really unfair, especially since the time we've spent on the project to date also exceeds what our fee works out being with the low bid. Just out of curiosity, what do you do on a percentage-based contract if someone were to bid really low as a way of "donating" time and/or materials, on something like a public college job or church job, maybe if alumni or a church member were bidding on it?

    Any advice?

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    Forum Co-Founder Twiceroadsfool's Avatar
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    It sounds like your firm made a big mistake, and worked on the project without having a finalized contract in place, including the final fee. I know a lot of firms START projects before the contracts are fully signed, but if youve already been paid so much that it ended up being more than your fee, a few things have gone wrong:

    1. Someone waited WAY too late to get the contract negotiated and signed
    2. Someone made the mistake of letting the "final construction cost" dictate the Design Fee, which is just poor negotiating.

    The "Design Fee" is the "Design Fee." Call it based on SF, based on building typology, or based on rough estimate of cost (set out prior to engaging in full design). But if someone talked management in to the DESIGN fee being based on the final construction bid AFTER design is done, basically... You work for the worlds worst negotiator, and you should quit.

    But to answer your other question: When people low ball projects, if the owners are happy to sign with the low ballers, i am generally happy to walk away. The goal is to "deliver quality and be compensated for it," not to "win the job." Im not racing anyone else to the bottom of the fee tree, just to stay busy. I "lost" a job recently, because another team had a lower fee than us. And i happily wished the clients good luck, and told them to keep us in mind in the future if they need anything else. Id rather have a person out there saying "Aaron's team wanted too much to do this work, so we went with someone else," than have someone out there saying "We got Aaron's team down to this number, because someone else bid lower." :shrug:

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    Moderator Robin Deurloo's Avatar
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    Don't have any experiance with this, but should a % price not be according to ACTUAL construction cost and not the cost the contractor bills the owner for?
    Meaning that if the contractor donates materials, those should still be part of the actual construction cost you are getting a % of.
    Last edited by Robin Deurloo; December 7th, 2017 at 09:23 PM.
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    Member PatrickGSR94's Avatar
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    Quote Originally Posted by Twiceroadsfool View Post
    It sounds like your firm made a big mistake, and worked on the project without having a finalized contract in place, including the final fee. I know a lot of firms START projects before the contracts are fully signed, but if youve already been paid so much that it ended up being more than your fee, a few things have gone wrong:

    1. Someone waited WAY too late to get the contract negotiated and signed
    2. Someone made the mistake of letting the "final construction cost" dictate the Design Fee, which is just poor negotiating.

    The "Design Fee" is the "Design Fee." Call it based on SF, based on building typology, or based on rough estimate of cost (set out prior to engaging in full design). But if someone talked management in to the DESIGN fee being based on the final construction bid AFTER design is done, basically... You work for the worlds worst negotiator, and you should quit.

    But to answer your other question: When people low ball projects, if the owners are happy to sign with the low ballers, i am generally happy to walk away. The goal is to "deliver quality and be compensated for it," not to "win the job." Im not racing anyone else to the bottom of the fee tree, just to stay busy. I "lost" a job recently, because another team had a lower fee than us. And i happily wished the clients good luck, and told them to keep us in mind in the future if they need anything else. Id rather have a person out there saying "Aaron's team wanted too much to do this work, so we went with someone else," than have someone out there saying "We got Aaron's team down to this number, because someone else bid lower." :shrug:
    This is a design-bid-build job, as all State funded projects are. Architect signs contract with the Owner for a fee based on a percentage of the estimated construction cost. The project is advertised in local newspapers, and any licensed general contractor may submit a bid. Contractors submit sealed bids that are opened and read aloud publicly at the Owner's board meeting. Architect's fee is adjusted based on the amount of the construction contract. If it's higher we get more fee. If it's less than we get less. But in this case it was massively less than anticipated.
    Last edited by PatrickGSR94; December 7th, 2017 at 09:35 PM.

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    Member cganiere's Avatar
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    I worked for a company that had this same thing happen. My boss was very unhappy that the company had to write a check to the client.

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    Forum Co-Founder Twiceroadsfool's Avatar
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    Quote Originally Posted by PatrickGSR94 View Post
    This is a design-bid-build job, as all State funded projects are. Architect signs contract with the Owner for a fee based on a percentage of the estimated construction cost. The project is advertised in local newspapers, and any licensed general contractor may submit a bid. Contractors submit sealed bids that are opened and read aloud publicly at the Owner's board meeting. Architect's fee is adjusted based on the amount of the construction contract. If it's higher we get more fee. If it's less than we get less. But in this case it was massively less than anticipated.
    To be fair, ive never done work in Mississippi, but im not misunderstanding the way DBB work is contracted out. Every single DBB job ive been on (and i HAVE done state and government work), the contract amounts were based on a Precon estimate from super early in the project (like, during SD or earlier). Ive never seen a fee (for work already done!?) get *updated* after the fact. Thats lunacy.

    Maybe people should stop agreeing to work under those conditions, and it would stop happening. I would literally walk away, if that was the arrangement. I guess i wont be doing work in Mississippi anytime soon, LOL...

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    The problem with Designers is that they will work just to be able to Design, thus making bad business decisions. Time is $$$. So it's best to be paid as such than by a %'age. What good is the %'age of construction & or Sq Ft if the time invested equates to more than that, which will happen more often than not; a 3rd for employee - 3rd for overhead - 3rd for profit, & sometimes if your culture is run right the Profit may end up being more than the projected 3rd from the fee per hour. I find way too many Clients taking advantage of "now I can slave work them into designing infinite options up until construction or til the space is roughed in" before incurring extra fees.

    If you're dedicated doing the same market sectors then maybe you can guestimate a better deal upon the %'age, I guess, but Murphy's Law is Murphy's Law; & the best practice will always need to meet the bottom line of "(Project investment) < (cost for time + ~15% profit)", or is the business term "Cost +".

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    Quote Originally Posted by PatrickGSR94 View Post
    This is a design-bid-build job, as all State funded projects are. Architect signs contract with the Owner for a fee based on a percentage of the estimated construction cost. The project is advertised in local newspapers, and any licensed general contractor may submit a bid. Contractors submit sealed bids that are opened and read aloud publicly at the Owner's board meeting. Architect's fee is adjusted based on the amount of the construction contract. If it's higher we get more fee. If it's less than we get less. But in this case it was massively less than anticipated.
    The fee contract arrangement is not uncommon for public work. You could argue that the estimate represents the ‘fair value’ of the work and the low bid is an an unreasonable outlier that, while representing a windfall for the Owner, is not a fair basis to compensate the Architect for their efforts. This reasoning may have better traction if the original budget was set by the Owner; all depends on the Owner interest in ‘fairness’.

    Good luck

  9. #9
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    Quote Originally Posted by rspeicher View Post
    all depends on the Owner interest in ‘fairness’.
    LMFAO! I can bet you a dime that the Owner in question has an under the table deal with the Contractor and said Contractor will be getting a bit more than his bid to complete the work. It's not an uncommon scenario in my construction experience...As a matter of fact I could tell some stories but then I'd probably have to go to jail so, well, we'll leave it at that
    elton williams and JeffH like this.

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    Forum Co-Founder Twiceroadsfool's Avatar
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    If there are parts of your story that would mean you'd do time, I wouldn't be proud of that. But... That's just one guys opinion.

    Sent from my Phablet. Please excuse typos... and bad ideas.

    Aaron Maller
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