Lowest bidder usually costs more money: but who’s fault is that?
A common misconception when people hire contractors is that the lowest bidder should get the job, simply because they are cheaper. The reality is that when the job is completed, it ends up costing more than if you hired the second or third highest bidder. In Europe, contractors are hired a little differently. The customer collects bids, eliminates the highest and lowest bidder, and targets the median or average price to decide who to hire and for how much.
Think of this another way. Contractors are business people, just like you. Put yourself in their shoes for a minute. Let’s say a customer A calls you for a price on your widgets. The customer tells you they are looking for the best price you can give them. You give them your best price. Then they call you to ask if you can take off another 2% so that you are the cheapest bidder. You do so. How do you feel?
Now, customer B calls you, tells you they want a price on widgets, then tells you to give them your best price. You give them your best price. They call you back to inform you that you were NOT the lowest bidder, but they trust your experience and the quality of your work, so you are hired. How do you feel?
Now, while building your widgets for both customer A and customer B, you run into an unforeseen problem. There is a flaw in the design they furnished you with to build them their widgets which will cost you 2% more to produce them. Both have the same design and the same problem. Think back to how your customers treated you. Customer A bullied you into being cheap. Customer B respected you as a fellow businessperson. How will you handle the same problem with each customer?
The job is already halfway done for each customer. The chances of the customer hiring another widget maker at this point are slim. You gave 2% back to customer A before the job even started, which may have covered increased production costs. But since you gave it back already, there is no room for error. Knowing now that you can’t cover the extra cost, you have to ask for more money from the customer. But you also know that it will cost them much more than the 2% to start all over with a new widget maker. So, as a smart businessman, you charge Customer A 5% more to finish the project. Why not, they didn’t show any respect for you? Besides, if they started all over, it might cost them 20% more, so you are actually saving them money. Right?
Customer B will likely be treated differently. They told you right up front that they respected you and your product. They also told you that you weren’t the cheapest, so you have some reassurance in knowing you have a fair and reasonable profit margin built in. You know you could ask for more money, but you risk losing the respect that they showed to you first. A deal is a deal, and you decide to hold your price. Sometime during the project, you call Customer B, tell them about the problem, tell them that you absorbed the additional cost, and tell them you hope they are happy with the end result.
Which customer will likely hire you again? Which one will you want to work for again?
We are constantly barraged with news stories about crooked contractors. They do exist, no doubt about it. But when was the last time you read about a crooked customer?