How low should you go? Know when it's time to bid business goodbye

Custom Home, Sept-Oct, 2004 by Al Trellis

Scenario: When the Byers called Barry Builder to tell him the plans for their new home were ready, he asked them to bring the plans by. Barry had talked with the Byers several times about the possibility of building their home.

He liked the Byers. They were a pleasant couple, with two teen-age children, and a decent income. Barry had plenty of work, but he had nearly finished the Brinker house and would be able to fit another house into the schedule.

When Bill Byer showed Barry the plans, however, Barry knew that there could be some problems. The house was a difficult piece of construction, with multiple level changes, an in-and-out foundation, and a complicated roof. The architect had specified materials and finishes that would add to the cost but wouldn't add much to the beauty or livability of the home.

When Barry did his preliminary estimate, he realized that the house would cost more than what the Byers had budgeted. With a little redesign, the house could be built within their budget, but Barry wasn't sure they would be willing to do that.

He prepared a detailed estimate. As part of that analysis, he noted the problems with the design, and indicated how making some changes in plans and specifications could result in significant savings.

A week later, Bill Byer called him to discuss the proposal. Bill indicated that Barry's was not the lowest price, but wondered if Barry could lower his bid. When Barry asked who the low bidder was, he told him it was ABC Builders.

Barry knew that ABC was having financial difficulties. One of his subs also worked for ABC and hadn't been paid for quite some time. ABC was a decent builder but was stretched too thin and had had several bad clients in a row. Barry was afraid that the Byers could be left holding the bag if ABC went under. What should Barry do?

Solution: Barry's first responsibility is to his company and his clients. Since the Byers are not his clients at present, Barry can simply walk away from the situation with a clear conscience. He doesn't owe the Byers anything at this point and certainly shouldn't undertake building a house for them at a loss to himself.

He is under no obligation to tell the Byers what he knows about ABC's financial situation, although he might want to caution them to make sure all bidders are financially stable. Disparaging another builder is never good business and might leave Barry open to retaliation or legal action.

Barry could, however, enter into a negotiated-bid situation. Obviously the Byers want Barry to build their home, or they wouldn't be asking him for another bid. They would have simply accepted the lower bid. That indicates that they have greater confidence in Barry, despite his higher cost. The real issue is not whether they believe Barry is better--it is about the quantification of how much better.

Barry should offer to go through the plans carefully with the Byers, reviewing ways to reduce their costs. Based on the changes the Byers are willing to make in their plans and specs, Barry could then resubmit a bid that will lower their cost but still give them the home they want.

In a competitive environment, businesspeople may have to decide if they want, or need, work at a lower margin than they would like. But at no point should Barry simply lower his price to match that of another builder--especially one who may be desperate to get the job.

Al Trellis, a co-founder of Home Builders Network, has more than 25 years of experience as a custom builder, speaker, and consultant. He can be reached at altrellis@hbnnet.com.