A snap decision to chose the cheapest option doesn’t provide good value for long
I am fascinated by the concept of time and timing in the construction industry’s decision-making process.
How long should the building last? Does it really matter if more often than not we demolish it way ahead of its intended lifespan? Lowest capital cost before whole life cost? These decisions, among many others, are often made on the basis of the perceived best answer when looking at the issue in the moment, or just a little way ahead, rather than perhaps what may be best over the medium or longer term. Perhaps the most everyday example is: why pay more if someone else is offering to do it cheaper?
In this respect, I’m very familiar with the idea that everyone being asked to bid is considered equally capable of carrying out the scope of work, they all seem to know about the project and the people being offered seem fine. So the implied differentiator must be price, right? In a world where appraisals and finances are tight, and there appears no obvious tangible benefit to appointing someone at a higher price (because any benefits relate to the future and not now), you can perhaps understand why many plump for the cheapest. But all too often these decisions come back to haunt, as during the medium to longer term a pattern emerges that has financial consequences that far outweigh the money saved at initial decision stage.
There is always a right price to allow a good job, but rarely a very low price to do the same good job. We translate this in everyday life as ‘you get what you pay for’. The last time I had domestic building work carried out at home I decided to obtain three prices from local builders (in true quantity surveyor style) and the prices received covered quite a wide range. My initial reaction was, as you might expect, to go for the lowest. However logic meant that, despite the temptation, I would be walking into a wave of problems and commercial headaches. Put simply, the offer was too good to be true. Fortunately I chose the sensible option and employed the builder with the offer that I believed to represent the best value for money in the longer term. Rationalising this in my mind as the best value for money meant that I was not selecting the most expensive – an important distinction! I had a fantastic experience and later learned that friends who employed the lowest bidder on another project sadly had the opposite experience, which ended in a legal dispute.
I realise I’m not telling anyone anything new here, but it does amaze me how many intelligent people often make rather short-sighted decisions. Perhaps that’s because they are simpler to make, more straightforward to explain to others, easier to gain approval for or make budgets look more attractive. I suspect there is also a human psychology angle here about finding it difficult to make a decision based on a prediction of how things may, or may not, play out in the fullness of time (which is much less tangible than the numbers staring you in the face at the moment you need to decide). These points are also often exacerbated by little evidence of added value from paying more than the lowest bidder (who has generally bid tactically with no motivation to deliver a job that exceeds the client’s expectations).
The search should be for best value, which is not the same as appointing the cheapest. If the market is going to turn this year, it is worth remembering this and avoiding similar mistakes to those made after the credit crunch.
Caveat emptor, as some might say….
Iain Parker is a founding partner of Alinea Consulting