as well, with far more subcontractors bidding projects than normal.
"It's really an interesting and risky proposition to be trying to compete with people who you don’t even know much about and had never considered them as your competitor," Hinrichs said. "Then you’re also trying to deal with subcontractors that you have no track record with and have no idea if they are going to honor their bid after you use it on a project. It is dicey to say the least.
"It changes the degree of our due diligence that we have to do with those companies," adds Hinrichs. "We know nothing about them. We don’t know their financial stability. We don’t know their track record. We’re having to do a lot more due diligence and check all of the references possible and require a lot of information, because we just don’t know anything about them."
Hinrichs says he's seen subcontractors coming from Indiana, Kentucky and even as far away as Minnesota.
Much of the building that is going on, according to Hinrichs, is public sector work on schools or other public buildings. Here, the bidding process magnifies the problem, he says.
"On public sector projects, the selection process is very, very objective," Hinrichs said. "You really don’t have to meet very many requirements - many times none - and no pre-qualification required on many public projects. So the low bid is the low bid...and in the absence of something really, really unusual, the entity involved has to award it to the low bid. Many other states don’t have that. There is an evaluation of not only the low bid, but also the best value, and there is some subjectivity in terms of who can deliver the best project. That’s not true in the state of Illinois. It could be the worst deal. You could get strung out for months and months and months with delays and inability to perform and what have you."
Holland predicts that while the stiff competition seems like a bonus to owners, problems are going to develop. He says that when contractors are brought into a construction management or design/build position, problems are resolved in planning, allowing the construction process to go very smoothly. Even, when you have four to six bidders, he says, the owner can be pretty confident that the bids are on the up and up and
contractors will point out problems to him 
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during the process. But when there are so many bidders involved, he says, people start taking chances in an effort to come out on top.
"One of our project managers was taking a class and he was sitting side by side with a project manager from one of our competitors," Holland said. "He told our guy that he had received the mandate from up top that for them to get a job, they have to be able to look at the drawings and find holes - so that they can keep their numbers low but know that they're going to have the opportunity to come back and at least ask for more money, because there’s something missed here or there. That’s kind of what happens in a very competitive environment, especially if you’ve got so many contractors," Holland added.
One company that's not as hard hit as many is The Korte Co. According to company president Todd Korte, the company got into work for the federal government nearly 20 years ago building post offices. In the mid 1990s, Korte started doing work for the U.S. Army, building recreation centers, dining halls and temporary lodging facilities. Because contractors must go through a rather lengthy pre-qualification process, Korte says, it keeps the number of bidders low. Today Korte is working on army projects in Oklahoma and Washington and has done projects as far away as Hawaii.
The slow construction market is having at least one positive side effect, according to Holland. The cost of many construction materials has really dropped in recent months.
"We’ve seen bidding that is 20 percent or 25 percent lower now than what we saw a year ago for the same categories of work," Holland said. "I know with the project we're doing for SIU Carbondale, the bids are coming in 20 percent lower than budget - and our estimates are usually pretty accurate. So it’s a buyer’s market. It’s really a buyer's market right now."
While things are somewhat bleak now, Hinrichs sees some light on the horizon.
"There are a number of good projects that were in the planning stages before this all came crashing down," said Hinrichs, "and as soon as the banking thing can get resolved, I think these projects are going to get back on track. Unfortunately, that could be 2010." vice president/coo: Alan J. Ortbals
email: aortbals@ibjonline.com |
