A failure to tackle the issue of so-called ‘suicide bidding’ could see more construction firms go to the wall, according to the boss of the one of the region’s biggest players.
Peter Owen, managing director for Willmott Dixon Midlands, said the practice - where companies bid for projects at break even or lower to retain staff and cash flow - had already been responsible for the high profile administrations at Connaught and Rok.
“Suicide bidding has negative connotations for our industry,” he said. “The high profile collapse of Connaught last year proves it’s not a sustainable business model and while it may be ‘reasoned’ as keeping staff in work, it ultimately leads to job losses when companies who are exposed to the worst consequences of ‘suicidal bidding’ lose money and are forced into administration.”
He said the responsibility lies not just with construction companies but also with the client.
“The client needs to ask the right questions if they get bids significantly lower than the average as companies try to fill their order books with new work at any cost in a very tough market,” he said.
“When a project is delivered late, over budget and ends in legal dispute over cost variations, that initial price does not look so good. More emphasis should be placed at tender stage scoring in areas such as innovation, sustainability and the ability to deliver on time and budget.
“Let me give you some examples. We recently tendered for three projects in the Midlands.
“The first one was a traditional ‘lowest price wins’ tender and we were unsuccessful.
“The company that did came in hugely under budget, revealing it was all about cost.
“The second tender was similar but the weight of the cost element was underplayed – it was supposed to be all about innovation.
“We scored very highly in the innovation category – coming out top – but again the scoring matrix favoured the lowest compliant bid, allocating far more points to the cost element than to innovation.
“So, essentially, while it was packaged as being innovation centred, it was again, financially focused.
“In the third tender, the client wanted reassurance that they would get their project delivered on time and via a smooth and issue-free process.
“This was based on their past experiences when cost had been the deciding factor and they had been badly let down. They were of a mind to dismiss very low tenders as unrealistic, with the potential of being problematic. We offered a very transparent, open book tender which the client welcomed and therefore awarded us the contract.
“My advice would be ‘if it seems too good to be true, then it probably is’.”
