Construction Economy and Bids- A Liability Nightmare?

The City of London, United Kingdom Just recently ENR Magazine (one that I read regularly and highly recommend), published an article stating that contractors and subcontractors are bidding at or near cost in a race to get work. In a post at his great blog, my friend Tim Hughes (@vaconstruction on Twitter), posted on this same topic, stating

The availability of some increased government funding in a tight market, a highly aggressive bidding environment, and the nature of competitive government low bidding delivery methods collectively appear to create the perfect storm for claims and litigation.

This aggressive bidding environment requires contractors and subcontractors to find work in a field with a present glut of supply to go with a smaller demand and lower materials costs causing states to push projects.

In short, the temptation (and possibly the need) to cut overhead and strip costs to be a low bidder is great. The thought of bidding at or near cost may cross your mind. However, as a construction professional, you need to be very careful when these thoughts arise. The present environment will lead to more risk and a higher likelihood for claims.

As a business proposition, we all know that the lower the margin, the lower the margin for error and delay. With this lower margin for error, you need to make sure that the construction contract that you sign has a lower risk to you.

If you are a contractor or subcontractor, you won’t be able to count on change orders to make up any issues that you may have with the original bid. If you are an Owner, be ready for change order requests. For these reasons the contract that you sign at the beginning of a construction project and your business sense are more important now than ever.

In short, a good set of attorney reviewed documents and an eye to being selective in what projects you take are necessary to deal with the potential issues of a tight economy where money is king and disputes are more likely to arise.

Image from FreeFoto.com.

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13 Responses to Construction Economy and Bids- A Liability Nightmare?
  1. Timothy R. Hughes
    Twitter:
    October 19, 2009 | 9:39 AM

    That ENR article is sobering for sure. I only wish we had real numbers on the GSA’s bidding, I think the 8-10% quote is wildly conservative and that the numbers really are a lot lower than that.
    .-= Timothy R. Hughes´s last blog post ..DC Contractors and Construction Managers License =-.

  2. […] This post was mentioned on Twitter by Christopher Hill, Timothy R. Hughes. Timothy R. Hughes said: RT @constructionlaw: New Musings: Construction Economy and Bids- A Liability Nightmare? http://bit.ly/31EjNv @AGCofA and Chris Hill LOL! […]

  3. Christopher G. Hill
    Twitter:
    October 19, 2009 | 9:42 AM

    I would like to see them also. ENR is a great source of information. Thanks for the comment Tim.

  4. uberVU - social comments
    October 19, 2009 | 10:48 AM

    Social comments and analytics for this post…

    This post was mentioned on Twitter by constructionlaw: New Musings: Construction Economy and Bids- A Liability Nightmare? http://bit.ly/31EjNv

  5. Mark Rabkin
    October 19, 2009 | 12:33 PM

    Heard from some Cincinnati architects that bids for a $90 million green school project came in under $80 million so they added more stuff to the project to get back to $90 mil. Recipe for disaster?

  6. Christopher G. Hill
    Twitter:
    October 19, 2009 | 1:24 PM

    @mark, your comment is interesting. I had not considered this possibility, but you make a good point. Adding in more to a construction project is, from an owners perspective, a risky move because of the need for contractors to bid low, and possibly below cost. This could be an invitation to put contractors off the project and lead to a serious bonding and time of completion issue.

  7. Rex J
    October 31, 2009 | 7:19 AM

    The information you have provided will prove to be handy for many individuals from the construction industry. I would also recommend a site Construction Wire (http://www.constructionwire.com/), where you will get project reports of the big construction projects held in the past years. In this way, you will get to know the loopholes as well as strong points of the construction project and it would surely be a good add-on to your knowledge.

  8. Christopher G. Hill
    Twitter:
    October 31, 2009 | 10:40 AM

    Thanks for the comment. I’ll check out the site.

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About Musings

I am a construction lawyer in Richmond, Virginia, a LEED AP, and have been nominated by my peers to Virginia's Legal Elite in Construction Law on multiple occasions. I provide advice and assistance with mechanic's liens, contract review and consulting, occupational safety issues (VOSH and OSHA), and risk management for construction professionals.

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