Art Rouse speaks eloquently for the interests of subtrades in North Carolina, in this blog associated with the North Carolina Subcontractors Alliance. You’ll discover thoughtful (and sometimes disturbing) insights here, as he (and the alliance) speaks for the interests of businesses that often get the short stick in this industry.
The content obviously is North-Carolina state focussed, but you’ll find ideas (and potential challenges) to provide food for thought wherever you are located.
Consider, for example, his recent posting about reverse auctions:
In 2013, the Department of the Interior and Army Corps of Engineers announced they were considering expanding the reverse auction method to eastern North Carolina for jobs that small businesses can perform. This is a method whereby the Owner posts a price online and registered bidders will bid the price down until time expires and a low bidder is declared.
I had some experience with reverse auctions about 20 years ago when Target Stores decided they were going to start using reverse auctions for their construction projects. Needless to say, we didn’t get much work with Target until they stopped the practice. We only got one in Lawton Oklahoma where we were the only bidder. A sophisticated company, even in the worst of times, will not price below the cost of labor and materials, plus taxes and overhead, and the cost of working capital. They may price at cost hoping to buy it down, but they will never knowingly go into a job at a loss. An unsophisticated company, hungry for work, can be tempted to take work too cheaply. Work they may not be able to afford the interest on for the duration of the project until they can collect final payment and retainage.
In other words, reverse auctions deprive contractors of a fair profit. I am in favor of reducing government waste, but not at the cost of unfair business practices.
Rep. Richard Hanna (R-NY), has introduced a bill, HR-2751, to ban these practices. The Associated General Contractors has testified before Congress in favor of this bill and recommends everyone ask their Congressman to co-sponsor or support this bill. It is scheduled for a committee vote in March, 2014. Subcontractors should support this bill as well.
I agree with Art — I’ve heard enough horror stories about the abuse of the reverse auction process to support any initiative that can curtail the practice. It is one thing to have extensive and sometimes loss-provoking competition for open bids on fixed price contracts, but the reverse auction, which steps into the space of organized bid shopping, creates the incredibly bad situation where the low bidder either is so desperate that he will work for free (or at a major loss) or knows something is so wrong with the job that he believes he can make it up with change orders (a risky way, indeed, to win work, unless you really know the client, and then you are stepping into other ethical minefields.)
I had the privilege of meeting with Art in a recent visit to Charlotte, NC, and we may be doing business again in the not-to-distant future.
In the meantime, his blog is undoubtedly a worthy entry in the 2014 Best Construction Blog competition. You can vote for his blog and others you like here, until March 31.
Also, please feel free to visit North Carolina Construction News, published by the Construction News and Report Group of Companies.