Posted by: nedpelger | June 25, 2009

Brutal Bidding Market

When people ask how I’m doing, I tell them I’m swamped with work, busier than I’d like to be. I’m hearing that’s not too normal these days (not that I’ve ever shot for normal). I read an article in ENR this morning that was sobering.

Last year in late Spring, the commercial construction sector was in decent shape, this year we are in a deep recession. Unemployment, led by the many laid off construction workers, tops 10% throughout much of America. The public bid jobs that are coming out via the stimulus money show a crazy level of competitiveness.

For example, an airport terminal replacement in Utah drew 50 GCs. 20 to 30 bidders are common on projects. ENR reports that a fire station in Arizona recently bid for $2.2M while a similar project two years ago went for $3.8M.

That sounds like great news for owners, and it is with an important caveat. Owners need to be extremely careful about who they select to do their work. I experienced a fairly major construction recession in the early 1980s and many contractors went bankrupt.

When a firm struggles for their life, they will do almost anything. Lying, cheating and stealing all far into the range of behavior to expect. When the sub or the GC goes under, the owner will certainly get caught in the current. After a number of subs going bankrupt, we found that a 25% hit on the contract amount was typical to get it worked out and completed. We learned some brutal lessons in those days and lots of folks are going to be learning those lessons again these days.

Good luck. Be careful.

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