Crack down on suicide bidding

Clauses are being written into tenders in a bid to stamp out suicide bidding, Construction Enquirer reported.

Suicide-bidding was blamed for last year’s collapse of contractors Connaught and Rok.

But the signs are that the problem has not gone away, with reports of some bids being made 20% below the average.

At the same time, contractor Willmott Dixon achieved a 43% boost in pre-tax profit last year because market conditions allowed it to hire subcontractors at low rates, Building reported.

In an attempt to undermine suicide bidding, housing association Poplar Harca has introduced a clause in tenders awarded as part of its £145m refurbishment programme on 8,400 homes.

The clause gives Harca the right to ask contractors for evidence that the work can be carried out to standard if the bid is more than 10% below the average.

“In the event that… the employer still considers a tender price to be abnormally low, the employer reserves the right to discount that tender submission,” the clause states.

Meanwhile Willmott Dixon announced a 43% jump in pre-tax profit to £25.6m on a flat turnover of £989.5m.

Chief executive Rick Willmott explained that the firm had hired subcontractors at lower rates than they had tendered for, boosting profits. “Generally we work on fixed-price contracts and the supply chain market changed in 2010,” he said, adding the firm had been able to “buy [suppliers’] contracts lower than we tendered for.”

Paul Dooley, director of estate regeneration at Poplar Harca, said the housing association’s decision to introduce the clause against suicide bidding was taken after receiving a number low bids, some of up to 20% lower than the average.

“We feel that without a clause in the contract we could be subject to contractors making a challenge,” he said.

Other housing associations are understood to be following in Poplar Harca footsteps.

However, Rick Willmott believes the situation will change this year and that tender prices will increase, under the pressure of rising materials costs, leaving main contractors needing to employ more costly subcontractors for contracts signed last year at the bottom of the market.

“In 2011, [we] will see these prices move northwards by 5-10% … [which is] better for the rest of the supply chain,” he said.

Comments

Excellent report. This goes on in all areas of landscaping/ground works and should be stopped. Its obvious if a company "buys in" work, that they are saving some where and that could be safety etc.

27th May 2011, at 07:06 PM
Stuart Marler

Responsible Employer/clients have the duty to dismiss very low bids and take the advice of their professionals.The situation has not changed in 40 years.
There is desperation out there for some contractors to buy work and then make claims during the project duration just to tick over . I am working on such a project currently- it makes the post contract administration more costly trying to maintain quality standards . Understand MR client Employer -there are no cheap jobs any more -best thing is to look at the lifecycle of the project -invest now to protect the future -will it happen? maybe :-))

30th May 2011, at 03:36 AM
Keith Skelton

Employers/clients should not take advantage of the situation i can guarantee you that were there is low bids there will be shoddy work some where and its the end user who has to suffer. I also think the employers/clients should protect the industry and not just look at the profit margins. I suggest to the clients to look out of the box and extend there wings in the third world countries were opportunities are broad. i am more than willing to work with interested parties to achieve the target.

3rd Jun 2011, at 06:23 PM
Benjamin Byarugaba

Interesting report, this has been going on for years and for some time 'paying' for the priviledge of work was accepted as the norm. It seems that if contractors agree to keep the tender process on a level keel thay are accused of price fixing and when they compete they are accused of tendering below the average.
Construction has been around for thousands of years and the built environment will be here in another thousand years so why do we feel the need for yoyo tendering?
Consistency is key to a safe and secure construction industry because as we know, the world revolves around money.

4th Jul 2011, at 07:31 AM
David Marsh