low priced guys seem to be going out of business 1st

[huggytree]

I send out my monthly fliers/post cards....same 300+ contractors every month...every month 5 to 10 come back with address's which arent there anymore.

I keep a database of 650 contractors (potential customers)...i keep track of any phone conversation w/ them, bids ive done with them, my opinions of them, who their current plumber is....

Something funny I keep noticing is that most of the ones who are gone are on my 'bad' list....they were super cheap or use a low end cheap plumber...many have notes from me saying i had a bad experience w/ them...

in a time where 'price' is king how come the low price guy's are going under at a higher rate? i figure its because they get no referrals or because when you go after the cheap customer there is always someone cheaper than you.

i always find the cheapest customers are also the worst to deal with and expect the most...my business model avoids this type of customer. yes I only get 1 out of 10 of my cold calls from the phone book, but i qualify them and only spend 5 minutes on them to find out.

[orion_joel]

One big reason that i think cheap guys go under is because one of the practices i imagine they use is to keep buying the products to do the jobs they have but then because there is so little markup on the sales, and the other bills they get they just keep drawing out the payment of the bills. Until it gets to a point no one wants to sell to them, and they cannot buy the stuff they need for new contracts, and ultimately have to declare bankrupt.

[Evan]

By selling low, you lower your profit margin significantly. Ultimately, it suffocates you from being able to grow. It'd also seem like you'd need to conduct a lot of work in order to make a reasonable living for it to be worth doing.

Ultimately, they sell themselves short. And stunted growth isn't a good thing :)

[Paul Elliott]

in a time where 'price' is king how come the low price guy's are going under at a higher rate?

Price isn't king, value is.

Likely these businesses are the ones not only with the lowest bids but the poorest value as well.

Paul

[Spider]

Economics 101 says that lower price raises the demand. Increased demand = more sales = more profit, not less.

Of course, there is a limit to everything. Reducing price below cost is to court disaster, but short term losses can benefit a business if it increases demand. With that increased demand and more efficient working, one is able (if properly done) to reduce cost to below price and again move into profit.

High price does not always equate with quality. High value does not always equate with high price. And low price does not always equate with low quality or low value. These things are not co-dependent.

And that is where winners are made!

[vangogh]

Economics 101 says that lower price raises the demand. Increased demand = more sales = more profit, not less.

The first part about a lower price increasing demand assumes that supply is held constant. In this case I think it's safe to say supply hasn't significantly increased. However the second part of the statement about more sales equaling more profit isn't necessarily true.

Say your cost for a product is $10 and you typically sell it for $20. If you were to lower your price to $5 you would most likely sell more, but you'd be losing $5 for each of those sales. Clearly that doesn't lead to more profit.

Let's take the case where you lower the price to $15. You'd be making $5 profit per sale. At the $20 price you were making $10 per sale. At the lower price you'd need to do twice the volume to break even. Supply and demand would say at the lower price you'll sell more, but it doesn't say you'll sell twice as many or any specific amount of more. If your lower price results in 75% more sales you're still losing money compared to the higher price.


High price does not always equate with quality. High value does not always equate with high price. And low price does not always equate with low quality or low value. These things are not co-dependent.

True, but more often than not it's perceived that the higher price does mean higher quality. It may not be true, but human psychology often leads one to conclude it is true. The majority of people pricing plumbers will likely conclude that those who charge the higher price (within reason) will likely give better service. And if you see 9 plumbers charging $200/hr and a 10th charging $25/hr most people would draw the conclusion that the $25/hr plumber must not be good or he would be charging more in line with the other 9.

Also while higher price doesn't automatically mean higher quality you do get what you pay for. People and companies who do quality work will usually charge a price based on the value they offer. Granted a higher price doesn't necessarily make them better, but as long as they realize the value of their work they're going to charge accordingly.

[Steve B]

I've never seen the "= more" profit" on the end of that equation before. It wasn't stated that way in the Economics 101 that I took.

[Spider]

The first part about a lower price increasing demand assumes that supply is held constant. In this case I think it's safe to say supply hasn't significantly increased. However the second part of the statement about more sales equaling more profit isn't necessarily true...Correct. My statement was the basic principle - econ101. Econ102 would go on to discuss the application, exceptions and variations to the rule.


...Say your cost for a product is $10 and you typically sell it for $20. If you were to lower your price to $5 you would most likely sell more, but you'd be losing $5 for each of those sales. Clearly that doesn't lead to more profit...Correct, again. Except that selling more changes the conditions. By selling more - and thus buying more from a wholesaler - lower purchase prices may be achieved. Or, one may now be able to buy in sufficient quantity to buy directly from the manufacturer at even lower prices. Plus, moving larger quantities may be more economical (per unit) than moving small quantities, so saving shipping and handling costs. Also, one's overhead costs - much of which are fixed - would be spread over more sales, reducing the OH cost per unit. If one can reduce one's costs sufficiently, your profit can be maintained or even increased.


Let's take the case where you lower the price to $15. You'd be making $5 profit per sale. At the $20 price you were making $10 per sale. At the lower price you'd need to do twice the volume to break even. Supply and demand would say at the lower price you'll sell more, but it doesn't say you'll sell twice as many or any specific amount of more. If your lower price results in 75% more sales you're still losing money compared to the higher price.Not necessarily correct, this time.

(A) 100 items sold @ $20 = $2,000 .... (B) 100 items sold @ $15 = $1,500 .... Income down by $500 (this is not a loss - it is reduced income.)
Unit cost = $10 .... Product cost - 100 x $10 = $1,000
Gross profit A = $1,000 .... Gross profit B = $500
Overheads (let's say) = $500 .... Net profit A = $500 .... Net profit B = 0 (breakeven)

If lower price ($15) results in 75% more sales---
(A) 100 items sold @ $20 = $2,000 .... (B) 175 items sold at $15 = $2,625 .... Income increases by $625
Product cost A = $1,000 .... Product cost B = $1,750
Gross profit A = $1,000 .... Gross profit B = $875
Overheads (unchanged) = $500 .... Net profit A = $500 .... Net profit B = $375

But, if a 10% discount was granted for increased purchases (or other savings) that lowered the purchase price to say $9 /unit, the above calculation would result in--
Net profit A = $500 .... Net profit B = $550 {(175 x $15 = 2625) - (175 x $9 = 1575) - (OH $500) = $550}
.... which is a net profit increase of 10%

Of course, we have both made assumptions for investigating purposes, which shows that this sort of thing requires careful analysis. It does prove, I think, that one cannot just dismiss price reductions as an automatic money-loser.

[Spider]

I've never seen the "= more" profit" on the end of that equation before. It wasn't stated that way in the Economics 101 that I took.That's probably because your professors were academics and not businessmen, Steve! ;)

[huggytree]

The large cut rate builders are still going...its the small cut rate guys who are gone.

so maybe the theory of getting materials at lower costs is what works for the large guys...the small cut rate guys cant get the large discounts..

i dont give anyone a discount...thats why i can never work with large contractors..they all want me below cost....id consider a 5% discount, but they want around 20%

[Spider]

..Also while higher price doesn't automatically mean higher quality you do get what you pay for...I wish that were true! It may be more true at the lower end (pay little, get little) but the higher up the price scale you go, the less true it is, I think.

[Evan]

(A) 100 items sold @ $20 = $2,000 .... (B) 100 items sold @ $15 = $1,500 .... Income down by $500 (this is not a loss - it is reduced income.)
Unit cost = $10 .... Product cost - 100 x $10 = $1,000
Gross profit A = $1,000 .... Gross profit B = $500
Overheads (let's say) = $500 .... Net profit A = $500 .... Net profit B = 0 (breakeven)

If lower price ($15) results in 75% more sales---
(A) 100 items sold @ $20 = $2,000 .... (B) 175 items sold at $15 = $2,625 .... Income increases by $625
Product cost A = $1,000 .... Product cost B = $1,750
Gross profit A = $1,000 .... Gross profit B = $875
Overheads (unchanged) = $500 .... Net profit A = $500 .... Net profit B = $375

So under both situations, it is more profitable to maintain the $20 sale than the $15 sale. But the problem with this, and basic economics (because basics are not always of what happens in the world) is that the underlying assumption here is that by decreasing price, demand goes up. To an extent, that may be true. But there is also a point where it becomes more inefficient to do so.

The other issue with comparing this to economics is that there are always presumptions about different types of businesses and value. Why does your local pizzeria charge $15 for the best pizza in town, but you can get 3 pizzas at Domino's for $5 each. Which is a better value? It depends on who you're asking. The food aficionado, or the accountant? Or in reality, the value pereceived by people. While some people may not pay $15 because that pizza is expensive, reducing the price doesn't guarantee an increase in sales.

[cbscreative]

Evan made an important point I wanted to bring out; it depends on the business model.

Since huggy is referring to plumbing, I will stick with that. There are obviously different quality materials to use, and different skill levels of tradesmen. While the "larger" plumbers can stay in business at lower rates just as huggy indicated, the smaller ones trying to mimic their practices are unable to survive.

It's not like selling widgets where you can sell more volume and lower costs. Huggy has just so many hours in the day. The way to increase profits is through charging more labor. The only way to cover overhead is to have labor rates high enough. You can lower overhead and material costs, but there are always limits to how far. You can find ways to work more efficiently, but the costs need to justify the savings. You can hire more people, but you must increase the volume.

Service businesses are probably the most plagued with low ballers who under estimate their hidden costs, and they go out of business because of it.

[huggytree]

I think by spending more you usually get more...nothing is 100% true, but its close

You buy a Hyundai you get what you get
You buy a Lexus you get the best

Perfect service costs ALOT of office time and preperation..keeping track of things, ordering things, etc....I charge extra for it....low price guys cant do it..they have to cut their office time down to nothing....From my experience you cannot get good service/quality and be the lowest priced guy...i know you disagree Fredrick,. but ive never seen it in my own life...the lowest priced guy is always absolute junk

[Spider]

So under both situations, it is more profitable to maintain the $20 sale than the $15 sale...Er... no.

The first situation was a straight reduction in price with no benefit resulting. Obviously, if nothing could be gained from reducing the price one would not reduce the price.

In the second example, the gain in sales was not sufficient to offset the $5 reduction in price. That was only an example of a situation. That same situation - reducing price to gain sales - using a different set of figures may have been beneficial. Like, if a price of $16 (a $4 reduction) were to produce the same 175 sales, the result would have been $550 net profit against $500. If an even lower price of $12.75 (a wopping 36% reduction) were to produce 450 sales, the net profit would have been $737.50 against $500, a 47.5% increase in net profit.

See that? A 36% price reduction produced a 47% profit increase.

And this still doesn't allow for other benefits that could improve the results, like buying in bulk, saving in shipping costs, etc.

In reality, of course, (and this covers your other point, Evan) one wouldn't be doing these calculations this way round. It would be more like---
"If I could increase sales by reducing the price, how many more sales could I get at what price?" And one would estimate the increase in sales likely at various price points to determine the best possible result. In a large enough market, one would test this by selling the item in one sub-market at one price and the same item in another sub-market at a different price, and see in fact which produces the best result.

For the small business, one would have to use one's experience to estimate (= guess!) and hope you get it right.

[Spider]

....From my experience you cannot get good service/quality and be the lowest priced guy...i know you disagree Fredrick,. but ive never seen it in my own life...the lowest priced guy is always absolute junkI'll expand on this for the sake of others reading. Dave and I have discussed this in depth elsewhere.

I started a plumbing company in an area where plumbers were quite incapable of handling the commercial work that was suddenly required of them. They were all plumber/owners doing service work, straightforward replacements, renovations and extensions, and some small new installation. A lot of very large new building projects were started, large enough for international general contractors to become interested. I worked for one of them in project management.

The local plumbers were generally bidding too low to do the work properly and were failing the projects due to their inexperience in large commerical projects. They had few overheads - the owner's wife was often the entire office staff.

By the time I left the company I worked for and started my plumbing company, I had become well-known to the engineers, architects and client representatives. I joined forces with a mechanical engineer and we staffed an office with 5 people including ourselves. Our overheads were thousands of percent higher than our competition.

All work had to be won on competitive bid. (Which means the lowest price always got the job.) Material specifications were very detailed and very strict - so there could be no cutting of corners on material, equipment or fittings and fixtures. We used the same pool of workmen that our competition used. My partner and I both were wellknown and well-respected by the clients' representatives and they knew we knew how to do the job properly, so we were held to a higher standard than any of our competition.

In summary, we were forced to give the highest quality, carried the highest overheads, and had to do the work for the lowest price. And we won every bid we wanted, and made a fortune.

I haven't been able to convince Dave how that is possible, but I can assure you it is. I have done it. Not wartched someone else do it, not read about it in a magazine of hot-shot businesses, actually been in the hot-seat and got it done and made the money. And, incidentally, our workcrews were the highest paid in the area.

[Evan]

Yes, I'm well aware how to manipulate numbers in order to get them to work.

But if you can sell something for $20 a unit (and you normally sell 100), a reduction of $5 (or 25% reduction in price) doesn't mean a single unit more is sold. Now to make $2,000, you need to sell 134, or 34% more in order to be in the same boat as you were before. Whether such a thing is feasible is beyond our capabilities.

Of course, for example, we know there are (and we'll say we're at the point where we're comfortable with only working...) 40 hours in a work week. If you'd like to make $2,000 each week, you know that you need to charge $50 an hour. If the going rate is $40, that is 20% less than your required rate of return. Do you suck it up and make 20% less than your required rate of return, and in turn need to work 25% more hours in order to meet ends meet? To me, it seems like the 20% premium is less than the 25% additional work required, and would be more appropriate in this case. The biggest variable, of course, is whether you have sufficient work at $50/hour x 40 hours. If the demand doesn't exist, you may need to go back to the drawing board.

If real economics was only as simple as supply/demand being directly inverse.

[Spider]

...If real economics was only as simple as supply/demand being directly inverse.It's not, of course, Evan, we agree on that. But it's not a matter of manipulating numbers to make them say what you want them to say, either.

Let me say again, one would ordinarily ask, "If I could increase sales by reducing the price, how many more sales could I get at what price?" And one would estimate the increase in sales likely at various price points to determine the best possible result.

It's also possible an increase in the number of sales would occur by *raising* the price. It's also possible to increase the total profit by selling fewer items at an increased price, too. One must ask a lot of "what-if" questions, make a best guess answer - or test if possible - and try it and see.

What I am fighting against in this thread is the apparent acceptance that lower price means less profit and lower price means lower quality. It ain't necessarily so.

[vangogh]

What I am fighting against in this thread is the apparent acceptance that lower price means less profit and lower price means lower quality. It ain't necessarily so.

I agree, though I'm going to toss in a few caveats. In an earlier post you mentioned


By selling more - and thus buying more from a wholesaler - lower purchase prices may be achieved.

Depends on the volume you're currently doing and what you would be doing by selling more. It's true that when you buy more you can also buy cheaper. However that's not the case if you go from selling 10 units to 12 units. This is the kind of thing that would work better for big business than small business. That's not to say that small business can't get volume discounts, but big big business is always going to be able to get a better volume discount and will be able to sell for less than you can. It's why in general small businesses are better off not competing on price.

Completely agree though, that selling at a lower price doesn't necessarily mean less profit. It doesn't necessarily mean more profit either. We're obviously looking at very simple examples here when in truth there's more to the calculation. You really have to look at the many factors such as how much more could you realistically sell and also the possibility of being able to reduce your cost due to the greater volume.

One more caveat here. I think there's a big difference when applying this to the sale of products and services. Selling more products doesn't appreciably increase the amount of work you have to do to sell those extra products. Selling more services does increase the amount of work appreciably. Selling more services means working more hours. You could of course then outsource some of the work. I'm not trying to say you can't take on more work as a service based business, but rather that trying to profit more through increased volume opens up a whole new slew of questions.

Using huggy as an example he'd have to ask himself whether he wants to work an extra X hours per week to first break even at the lower price and then even more to make more money.

As to the second point about lower price not necessarily meaning lower quality, again I do agree that it doesn't necessarily mean lower quality. However more times than not it does. You shouldn't go out and buy either product or service and choose the highest price with the assumption that you'll get the best quality, but you also shouldn't look for the cheapest price with the assumption that the quality will be equal to higher priced offering.

I do think, particularly when it comes to service based businesses, that you get what you pay for. That doesn't mean the highest priced company is the automatically the best or the lowest priced company is automatically the worst. I think when hiring a company (or buying a product) you have to do your homework. You can't make assumptions at either end of the scale.

Higher price doesn't necessarily mean better quality, but you do get what you pay for. You have to find the balance in those two statements when making your choice.

[Spider]

I'm sure you will let me toss back a few caveats of my own...
...It's true that when you buy more you can also buy cheaper. However that's not the case if you go from selling 10 units to 12 units...Depends on where the manufacturer or wholesaler's pricebreaks are. If over 10 gets you a 10% discount, over 30 gets you a 15% discount, etc. going from 10 to 12 will get you a discount. I was offered very recently a 15% discount if I sold more than 10 seats to a $3,000 multi-day PD seminar.


...It's why in general small businesses are better off not competing on price...Sometimes a small business doesn't have a choice. Most government work is done on competitive bid. Almost all construction work is on competitive bid. Much of the oil industry functions on comeptitive bid. I wouldn't advise small businesses to avoid these industries, or any other, because they operate on competitive tendering.


...We're obviously looking at very simple examples here when in truth there's more to the calculation...Much, much more. And, as I said, in the real world beyond academic conversation, one would be attacking the calculations from a completely different angle.


...factors such as how much more could you realistically sell and also the possibility of being able to reduce your cost due to the greater volume...When in an industry that dispenses work on competitive bidding, it's not so much how much more you can sell as how you can sell anything if you are not the cheapest. Then it's not a matter of choosing to be cheaper, it's be cheaper or get out of the business!


...I think there's a big difference when applying this to the sale of products and services. Selling more services does increase the amount of work appreciably...If you consider selling retail products, where sales are one at a time to one customer at a time, doubling your sales will mean doubling your work. Just as in some service work, doubling your sales means doubling your work, also. I'm sure there are some service businesses that can gain from efficieny of scale, too. So, maybe, there's not so much difference over all.


...Using huggy as an example he'd have to ask himself whether he wants to work an extra X hours per week to first break even at the lower price and then even more to make more money...If a one-man business wants to remain a one-man business (and there is much to be said for that) then they can use price fluctuation to control their workload. Raise their prices when work is too plentiful and lower their prices when work is scarce. If the one-man business wishes to grow to a larger company with employees, a different approach needs to be taken. In this latter case, market share is far more important than immediate profit realization.


...about lower price not necessarily meaning lower quality, again I do agree that it doesn't necessarily mean lower quality. However more times than not it does...In some industries, that is perfectly true. In industries where competitive bidding is the way of life, it is not true, as explained above.

I believe that efficiency is a far greater controller of price competitiveness than quality. A service or product can be of the highest quality and still be cheapest due to efficiency - a more efficient manufacturing process, and more efficient service system, more efficient delivery, etc. etc. Lamborgini is a hugely expensive car and not of especially high quality, from all I hear, but it is very inefficiently built. Nikon beat the socks off Leica, not because they made a better quality camera (until later years) but because they had a very efficient manufacturing process and could produce as good cameras at a much lower price.

[huggytree]

I know exactly how many of the large 'low price' shops operate

they use parts designed to last 1-2 years
every part they use is $1-2 less than every part i use
different pipe,valves,toilets,faucets(they look almost the same), sump pumps,etc,etc,etc

everything is purchased because its the lowest price item they can get away with. They never put a sticker on anything they supply. When the house is 1-2 years old and things start breaking they dont want to be blamed.

I sticker everything i can in the house

They cheat and use apprentices for almost the whole house...the journeyman is there to get the house drilled out, then often he's gone and 3rd-4th year apprentices finish...they have a shop boy dig their sewer for $10 per hour w/ no insurance

2 years ago 1 shop had shop boys plumbing the whole house...1 journeyman and 4 shop boys....yea they were cheap...the unions shut them down...state law says no shop boys inside the house.

the latest ive heard about these companies is they cut the hours down and force the plumbers to either do it in those hours or work for free on the extra hours....thats a good way to get quality...

I do hear these companies have good service....but quality...nope...

Quality, service, Price....pick ONE....cant be all 3....i dont believe it...

I pick Service w/ a touch of quality

[Evan]

What I am fighting against in this thread is the apparent acceptance that lower price means less profit and lower price means lower quality. It ain't necessarily so.

Which is why I carefully used less "gross margin" and not less "profit". Reducing your GM isn't always a bad thing as you pointed out. A lot of coulda, woulda, shouldas.

The joys of business! :D

[billbenson]

I'll just touch on the competitive bid part as it relates to a small business. I get a lot of RFQ's from government entity's. Had one friday for 60k. I don't think I have ever gotten one of those. I may have; don't remember one though. Today, some big distributor will low bid. At times under cost.

Having said that, the gov't doesn't go out to bid that much. Very large multi-million dollar projects, yes. Purchasing agents don't shop for the best price, government workers put orders on credit cards even splitting the order on the card to keep under limits. I have a current project with a gov't entity. I got my name in as the sole supplier. A budget has been set up nationally for purchases. I'm getting about 10k in orders on this a month. About half are purchased through purchasing on that budget. The other half on credit card. I was never asked to discount. They don't want to go through their own bureaucracy.

So I can't compete with the discounters and don't try. I loose some business, maybe 5%. Its b2b for an unusual product though. I doubt that this would be true for all products. I raised my prices about a year ago with little impact on sales.

I'd say the gating item is idle time. If you have free time, then you have a problem.

[Spider]

I'll just touch on the competitive bid part as it relates to a small business. I get a lot of RFQ's from government entity's. Had one friday for 60k. I don't think I have ever gotten one of those. I may have; don't remember one though. Today, some big distributor will low bid. At times under cost.
Having said that, the gov't doesn't go out to bid that much. Very large multi-million dollar projects, yes. ...My only direct experience with doing work for the government has been in the contruction industry. In 30 years of many government projects, I have never known a project that was not by competitive tender. Yes, they were larger than a small supply contract for typewriter ribbons but not all were very large multi-million dollar projects. Some - like an electrical monitor sub-station - were very small.

In fact, whether the government was the client or a private entity, I have not been involved with, nor even remember hearing of, a construction project that was awarded by other than competitve tender.

Outside this, I accept your experience, Bill.

[Steve B]

It's been a long time, but when I was involved in Govt. bidding they played the game where if they wanted your product they would write the specifications so nobody else could possibly win the bid. I'm sure things are different - that was 25 years ago. I think it was mostly with state govts. also.

[billbenson]

I think things have changed Spider. For large projects you are certainly correct Spider. For those, I am such a small part that the contractors bidding on them don't bother negotiating however. The major industries I sell to are construction, oil and gas exploration, gov't. Orders range from about $1k to 20k. I'd say the most common is about $1500. I did a 60k quote friday. I discounted that one based on terms. 10% net 30, 15% 50% prepaid, 20% if the whole order is prepaid.

I probably do an RFQ a week for a bid. But for very large contractors. It's unusual, rather than the norm. It's even unusual that purchasing agents ask for a discount or GSA price.

My field sales career selling to major telcos's domestically or to government run phone companies internationally ended in 1999. That was all stuff that went through a bid process. After that, with purchasing agents ordering online and other industry changes business is done differently. Why purchasing agents don't price shop is beyond me, but its a rare occurrence.

Again, if you go to the real big projects like a bridge, then it goes to bid, but even at a $100k quote from me, they don't shop it because it's such a small piece of the project.

[Spider]

Very interesting.

[cbscreative]

if you go to the real big projects like a bridge, then it goes to bid

That just reminded me that I often wish they were not required to accept the lowest bid. I'm thinking of a major freeway going through town where they do an overpass every year now. It's 3 lanes in both directions and extremely busy. They have to close down to a lane in each direction (sometimes two lanes, or totally close the freeway) to do the project. This is a pain, but I see the necessity.

What's maddening about it is it takes them 7+ months to do a job they could do in 3 months. You drive by at 5:00 when there are still 5 hours of daylight left and the only "workers" still there are supervisors doing a final check on shut down status before taking off themselves. So instead of bottlenecking traffic for only 3 months, they stretch it out to 7 or more.

Great for their profits I'm sure, but it sucks for the rest of us.

Probably the only thing that has to do with our conversation is that low bidding does not equal good or even efficient work. It only assures you get the job.

[Spider]

...So instead of bottlenecking traffic for only 3 months, they stretch it out to 7 or more.
Great for their profits I'm sure, but it sucks for the rest of us.
Probably the only thing that has to do with our conversation is that low bidding does not equal good or even efficient work. It only assures you get the job.Actually, Steve, this is very relevant to this discussion. It's highly unlikely that this 7-month project could be completed in 3 months. From the contractors's point of view (and everyone else's) there is a great deal of incentive to get the job finished early - unless it is a Cost Plus project (not likely.)

If it was a $1 million project, for example, the contractor would make much more profit taking 3 months to earn $1 million than if he takes 7 months to earn $1 million. That seems to me to be pretty obvious.

What competitive tendering does, of course, is encourage the contractor to be as efficient as possible to get the job done as quickly as possible to make as much profit as possible.

Added to the fact that it is pretty commonplace in construction to have a penalty clause for taking longer than planned. Maybe this was a 9-month project that was completed two months early.

[billbenson]

I made an error above. I said the typical order was $15k I edited it to 1500.

It could be somewhat related to my industry, but I still think things are being done differently now. Perhaps purchasing agents are under staffed and there is more pressure to write the order an get it off your desk, than get the best price?

[cbscreative]

Frederick, the example I gave is a strange situation that baffles me. I would have thought the same thing you stated, but the projects COULD be completed in less time. Why would the quit BEFORE 5 pm when in June it's light until 10 and right now it's still light until 9? On Sat and Sun, the only thing there is a construction bottleneck, no workers. Apparently they don't want to hire a large enough crew or pay overtime.

The only time I see them working longer hours (and extending to weekends) is in Nov when they are behind schedule and scrambling to get it done before Dec when it's too cold and snowy to work. If we got winters up here like we used to before the late 80's, they wouldn't be able to work in Nov either, so they bank on not getting an early winter. Besides, by that late in the year, daylight doesn't last much past 5 pm.

I've seen larger projects get done faster, so they could definitely complete these sooner. Without knowing the specifics of what goes on in the DOT, I can only speculate as to why slackers are getting these contracts.

[vangogh]

Frederick, good points in reply to my earlier post. I'll pick up on just on of those points, that being the extra hours of work selling more for a product based business and a service based business.

I was thinking mostly of a retail store in regards to saying selling more doesn't appreciably increase the workload. I'm oversimplifying it, but the extra work in that case is mostly an extra trip or two to unload the truck and stock the shelves and maybe a longer line at the cash register during peak hours. To me those aren't appreciable. But I'd agree the extra hours could be more considerable depending on what you were selling. Maybe a car dealership having to sell one more car might be a good example.

In general though the difference is that the service based business has a certain labor in creation of their offering. Creation might not be the best work, but I'm not thinking of a better way to express it at the moment. With a product I'm assuming the person or company doing the selling isn't also creating the product. They could, of course. For example a shop that sells custom furniture designed in house. For the most part a service based business is going to do a lot more work to sell one extra job as a product based business is going to do to sell one more product.

[Spider]

Of course, it's possible that your contractors are working unnecessarily slowly, Steve (cbs), I admit that. If you are not versed in construction work, however, it is possible you are not aware of certain facts - and I am certainly not aware of your project's facts, but here are some ideas that might explain what you are seeing.

1. This project may have been one of several that made up a single contract. If Contract time is applied to the whole contract, early finishing on one (yours) may not bring about early finish of the whole. IOW, the project was not critical.

2. On a contract of several projects, one - the easy one - could be used to overflow workmen. That is, on occasions when less crew were needed on one project, they could be moved to the 'overflow' to keep them productive rather than pay them to be idle on their main project.

3. Concrete takes a certain amount of time to cure, and it doesn't matter how many men you have present nor how long their workday is, the job cannot go any faster than the concrete cures. Concrete at one level must fully cure before additional contrete can be poured above it.

4. Paying overtime to speed up work increases the cost. The most economical approach is to be as efficient as possible inside normal work hours. There is always an optimum time. Slower than that and faster than that is always more expensive. Obviously, most profit is earned at optimum contract duration.

5. Don't deny the contractors their profit. Construction is a very risky business, with all sorts of incidental obstacles that reduce profit. Not to mention hazardous. It is also a very low profit margin industry.

In contrast to your project, Steve, we recently had an underpass constructed on the road 500 yards from my house. I was very interested to watch how they worked. I was quite amazed at their progress considering the few workers I ever saw there. And very pleasantly surprised at the way traffic was directed. This was a very busy intersection that suffered traffic backup, obviously, but not nearly as badly as I would have expected.

Maybe, too, our expectations were different because of our different viewpoints.

[cbscreative]

Frederick, I have considered things like curing time for concrete and other factors, so I'm not trying to be overly critical of the work that needs to be done. In the case of this particular freeway though, it is a main artery for traffic. Many roads could be worked on without anywhere near the impact this one has. To hire a company that is less than expedient is not something I would do if I were making the decision.

I will contrast that with the world famous "S-Curve" that is on the same freeway in the heart of downtown Grand Rapids. Back in 2000, they needed to do a complete rebuild and were projecting over 2 years to complete it. They found a contractor to complete it in less than a year. That was a year of madness while they were working on it, but it was worth the inconvenience for the difference it made.

The overpasses to the south they are reconstructing now pale in comparison to what they had to do on that S-Curve. I know it has to be possible to shorten the time to 3-4 months, and with the impact it has on this freeway, I think they should. In addition to the freeway mess, the streets they are doing the overpasses on are major traffic veins too. One was 28th street a few years ago, and I recall hearing several years ago that it ranked high on the list of being one of the busiest streets in America.

There's another major project on a different freeway that they started last year and are completing this year. Each time, it is taking most of the year (7-8 months) to complete. Although it would be nice to have it done faster, and they definitely could because they're gone after 5 and weekends too, but the impact is considerably less than the major artery I have been referring to.

[Business Attorney]

Steve, I imagine that the timing on your overpass problem should be placed at the door of DOT, not the contractor.

If DOT decided that for the convenience of taxpayers the job needed to be completed in 3 months, the contractors would have bid accordingly, including any costs, such as overtime pay, that such a schedule entailed. If the contractors bid based on a slower-paced schedule, it is unreasonable to expect them to pick up their pace at their own expense.

[cbscreative]

You're probably right, David. Good point.

[huggytree]

got back yet another post card yesterday...looked up who their plumber was and it was once again the lowest priced plumber out there...

Almost every one that went out of business used the same plumber...they all went for cheap and not quality

[Paul Elliott]

got back yet another post card yesterday...looked up who their plumber was and it was once again the lowest priced plumber out there...

Almost every one that went out of business used the same plumber...they all went for cheap and not quality

HT, one of likely contributions to their demise was a "marginal" or "commodity"--lowest price gets the business--attitude from the beginning of their businesses. Therefore they had no cushion and nowhere to turn once the "commodity" end of the business dried up.

Paul