The Games boosted the city's immediate prospects, but a litany of low-bid projects is coming back.
The competitive bidding environment in the B.C. construction industry is all about price, and no one is getting a good deal.
The Vancouver Olympics were widely hailed as a resounding victory of organization. One major project was checked off after another: on time, on budget. However, not everyone has a happy story to tell.
VANOC hired Florida-based Gameday Management Group to handle much of the bus transportation during the Games, and Gameday subcontracted much of that work out to smaller companies. News reports surfaced last August that dozens of those smaller firms were still waiting to be paid millions for the work they did. Closer to home, there’s Surrey-based EventStar Services, which was hired by New York-based Blackwalnut to help build sets used by CTV during the Games. EventStar claims it is still owed more than $50,000 from Blackwalnut, even though Blackwalnut was paid in full by CTV. (Blackwalnut maintains it has every intention of paying any outstanding bills.)
Stories like this are common with major projects; a competitive process where the work goes to the lowest bidder often results in conflict. Those chosen first – general contractors – repeat the process, soliciting bids from subcontractors who also fight to be cheapest. So when general contractors can’t quite make ends meet and fail to pay their bills or when subcontractors have to cut corners to make a profit, one has to ask, Aren’t we just getting what we pay for?
Comren Construction Inc. is a Coquitlam-based wall-and-ceiling specialist that, like anyone in the construction business, bids regularly on contracts. Comren did about $10 million in business in 2007, says business development manager Suzanna de Souza, but only about $3 million in 2009 as the recession put the brakes on B.C.’s building boom. “Everyone was outbidding themselves and even undercutting themselves, and nobody was making a profit,” de Souza says. “The generals [general contractors] were having the same problem; they were forced to go with the lowest bid, not necessarily the people they wanted to work with.”
De Souza notes some underhanded tactics starting to show up; for example, some subcontractors are bidding far below their profit margins to get in on projects that are being rushed into production. They’re counting on the building plans failing and needing to be changed at the last minute, she explains; they can then renegotiate their contracts at a premium price.
To help map a strategy in this cutthroat low-bid environment, Comren’s managers commissioned a study of the B.C. construction market from California-based Empire Research Group. The report found that competing on price alone leads to a number of problems that raise the cost of a project in the long run, including poor planning, poor work quality, delays, the need to redo work and litigation. De Souza and her team have been sharing the report and organizing meetings with their peers to help educate general contractors and project owners of the dangers of fixating on the bottom line.
Keith Sashaw, president of the Vancouver Regional Construction Association, says buyers who award bids based on price alone are treating construction services as a commodity, whereas contractors increasingly want to be treated as value-added service providers with a meaningful role in planning. “And that gets very hard to evaluate on a full-frontal tendering system, where you put it out to tender and the low price gets it,” Sashaw says.
Sashaw notes another disturbing trend: players striving to shift risk down the production chain – for example, owners shifting the financing risks they’ve traditionally assumed onto the general contractors or general contractors shifting their usual scheduling responsibilities onto the subcontractors. Unsophisticated players bidding low to get into these projects are often ill-equipped to handle the new risks, and if things go wrong, the costs in money, time and litigation can be steep.
All this leads to an obvious question: Is the lowest-bid-wins contracting system responsible for these conflicts?
“This is a very hotly debated issue in the construction industry,” Sashaw says. “There’s no right answer.” But there are many good practices that can help the system work better, he insists. For example, owners can specify that only contractors that meet certain requirements (such as success on past projects) are allowed to bid. The bidding itself should also be fair, open and transparent, so competing bidders aren’t played one against the other by secretive clients trying to whittle down the price. Also, players should stick with their traditional responsibilities, as outlined in standardized agreements put together by industry associations, and not resort to complex legal tactics to offload risk, Sashaw says.
And as companies such as Comren have already figured out, the best way to get these good practices into the industry is by spreading knowledge. “We have a new generation of owners out there and a new generation of contractors,” Sashaw says. “It’s our job as an industry to educate those people.”