Several months ago, I wrote a column entitled “Stupid Prices.” The theme of the column was the inevitable price dropping in recessionary times, sometimes to ridiculous levels. The bid prices can be so low, it is simply “stupid” low. This becomes most apparent on public works projects where a prevailing wage rate is set and mandated by law. How can bidders bid so low on a project where the government has mandated a wage? Contractors know the established wage that must be paid, and materials are not that difficult to calculate for a project, so prices should be all in the same ballpark. Superior supervision and lower overhead can save money in the bid process, but some of these bids are so low that the bidder is either completely unqualified or must be planning to cheat to bring the project in at this extreme low number.

Everybody Knows It

I got a resounding thumbs-up from the subcontracting community on the column and even several requests the editorial be re-printed in other trade publications. I had a subcontractor call me to share a story about a client who was typically loyal, but was entertaining a ridiculously low bid. The general contractor called his subcontractor and informed him he felt compelled to use this low bid, “I just can’t pass it up” he told his subcontractor. The subcontractor gave the general contractor the “Stupid Prices” column to read and asked him consider all the ramifications of using this super-low bid. Consider he did, and after a few days he called his loyal subcontractor and decided to throw out the stupid low bid and stay with his qualified subcontractor. That phone call marked a good day for me, for him and his customer-he just may never know just how good.

The disasters that are typically left in the wake of these stupid prices are unpaid bills, construction defects and a mountain of unpaid debt and paper work to fix the mistakes. General contractors, building owners and even suppliers may believe they are not affected by the stupid price, but we all pay for it in the long run. I recently read a news story that illustrated the full ramifications of a stupid low bid and the parties who pretend they do not know or “can’t pass it up” and now probably wish they did.

You’ll Pay Eventually

A framing contractor in California has been ordered to pay $1.3 million and fined $200,000 stemming from a scheme to systematically and willfully fail to pay his employees the mandated state set prevailing wage. The University of California Davis housing project was investigated by the Department of Industrial Relations and California Labor Commissioner Angela Bradstreet believed the framing contractor intentionally underpaid its workers. The rest of the story (and this should be a wake-up call to people who knowingly accept super low bids) is that additional fine assessments were made on the general contractor and the material supplier.

 I suspect the qualified subcontractors who bid the project using the correct rate with no intention of cheating knew the awarded contractors bid was a stupid price. What may be a surprise to many people is that additional parties are now being fined.

Everyone Pays

What the story failed to address is the money the state must be spending to investigate and prosecute these cheaters. Who pays those state investigators? We do, the taxpayers. While the state may claim the assessed fines will offset much of the investigating costs, the likelihood of the framing contractor paying the fines is pretty low. He is more likely to appeal the charges, drag it out for years, run up more tax payer expense and then ultimately either settle for pennies on the dollar or file bankruptcy. We all pay for that stupid low bid in the long run. Is it any wonder why state budgets are bankrupt?

I don’t blame the state. The labor department is doing their job to the best of their ability. What about checking the bids and verify the low bidder is qualified and is submitting a reasonable bid? The lowest bidder may have looked like the best deal at first, but what about at the end of the day? Someone needs to inform these owners that future construction defects may appear. Underpaid workers forced to work overtime are far more likely not to be well trained, fail to understand code compliance or simply skip important life/safety steps in construction. The end result could be that we taxpayers may be paying for that stupid price for decades to come.