The Case of the Low-Ball Contractor

by Ed Dugan, Northeast Bowie Sales LLC

We have all experienced it. You spend time estimating the job and considering all the contingencies and you put together a bid that you know is highly competitive. Maybe you even cut your price a bit close because, for any number of reasons you really want to win the job. You then find out you have been under bid and unbelievably worse, by over 25%! The notorious low-baller strikes again. It unfortunately happens way too often. So let’s delve into the scenario a bit to help understand the mechanics and how to strategize against it.

Let’s get the first issue out of the way. Is it your fault? Did you make a mistake in your pricing? It is a good practice to review your losing bids and look for any estimating errors you may have made. For instance, did you miscalculate your product amounts? Overestimating site areas is a common error that can be made which can lead to higher material numbers. Being off by 10% on a large job can lead to mistakenly high top soiling, grading and seeding numbers. Confusing sq. ft. with sq. yds... is another error I often come across, particularly when erosion control blankets are involved. I have experienced a number of instances where I had to walk back customers on their quantities because of confusion of units of measure.

Finally, are your profit margins unrealistic? If you constantly find yourself being under bid, perhaps the fault is your own. First let me be clear that we are all in business to make a profit. Owning a business comes with great risk and thus deserves great reward. However, being unrealistic in your profit margins is a business killer. A quote I have heard is “you can’t try to retire on one job”. Owning a business is a marathon not a sprint, long term business success is dependent on presenting a quality job at a competitive price while making a fair profit.

Having been self-employed most of my working life, I have learned a few things about running a business. One of the most important is separating yourself as the “employee” and yourself as the "business owner". Both entities need to make money. You as an “employee” should arrange to receive a paycheck every week. Depending on your company structure this can be a real paycheck, or in a sole proprietorship, a predetermined draw. After you and your vendors are paid the remaining monies are the business profit. This is where money for new equipment or upgrades comes from. Failure to look at this type of money management is the biggest cause for the low balling contractor.

Who is the Low-Baller?

The low ball contractor falls into a number of categories. Probably the most common is the novice. An inexperienced business bidding on jobs that they have little or no experience in. They frequently underestimate costs, particularly labor, failing to realize the needed man power, equipment and time the job will actually take to complete. They often fall under the “best case scenario” illusion that the job will run perfectly. They fail to anticipate weather or material delays or costly down time from improper scheduling, equipment

failure or work being performed by other contractors. Experienced contractors recognize the pitfalls and plan for them. Eventually the "novice" either goes bankrupt or survives the early years and learns better pricing strategies.

An associate of the novice is the part timer or the still living with their parent’s contractors. These type of contractors are usually found in the lawn maintenance side of the industry. It’s been said that every person with a pickup truck can become a property maintenance company. Their profit margins are based on how much money is in their pockets on Friday. In most instances they are not looking for more than to make a few bucks. Their overhead is low and their investment minimal. They feed on the customer driven by price not quality. Unfortunately, there is little if anything to combat them. You see them all day long pulling a small trailer loaded with mowers in a pickup truck with no name or commercial plates and yes, in most cases working with some sort of illegalities. Paying workers under the table, not properly insured, not

collecting or paying the proper taxes and in many cases not even being a legitimate registered business. Unfortunately, there is little that can be done about this type of mentality. These businesses come and go and there is always another one in the wings. On the upside they pick off work that is priced so low you wouldn’t want it anyway. In addition, they create a pitfall for themselves, as they try and grow and realize they need to be more competitively priced. They are trapped by their history of low pricing and as they try and raise prices they lose work to the next low baller on the block. Karma bites everyone eventually.

A third type is the cash flow strapped contractor. At one time or another almost everyone falls into this trap. Maybe they have hit a dry spell of work but need to keep their crew busy or just generate some cash flow to pay bills. Working on a tight margin for a particular job is sometimes a good business strategy but taking work on for little or no profit is not. “You can stay home and not make money”. If this becomes a continued theme for a company its usually a sign of deeper management issues.

Lastly there is the “oops I made a big mistake” contractor. I have received calls from contractors who have won jobs with a low bid only to find out they misinterpreted product specs and their costs are now double or triple their original estimates. I don’t consider these incidents real cases of low balling as much as a costly mistake but one they hopefully learn from.

So what does one do to combat the low baller? In reality, very little. Their business strategy, if they actually have one, is designed to meet the low bar of success they have set for themselves.

Your business resume is your greatest asset in this battle. Having a professional presentation at the initial meeting is important. It should include any business licenses and certificates you hold as well as any Industry Associations you have membership in. Importantly it should include a statement regarding your Business Liability Insurance. The greater the image of professionalism your company presents, the greater ability for the consumer to justify in his or her mind the price you are presenting. References from satisfied customers on your timely completion of work that met the customers’ expectations is a big selling point. As a contractor you need to sell beyond the price and sell on your company’s reputation as a quality contractor who the customer would be proud to do business with.

The inspiration for this article came from a recent interaction with one of my customers. He had just lost a large job by a bid $20,000 less than his. Since I had worked on the materials numbers with him he called to review the bid. We double checked numbers and specs and determined that there was no way the winning contractor could do the job at that price. We are confident that he misread a spec on the erosion control products and quoted it using a standard cheaper product as opposed to the specified higher end product. We ended up discussing low ball bids and the reasons for them and how they can affect the industry. The article highlights some of our conversation.

Ed Dugan is the owner of Northeast Bowie Sales LLC. The company specializes in the sale of Bowie Hydromulchers and Straw Blowers as well as hydroseeding supplies and erosion control products. He currently serves on the Board of Directors for the International Association of Hydroseeding Professionals. More information on hydroseeding and straw blowing can be found on the company website at www.nebowiesales.com.