Checking contractors' prices

Not all subcontractors' prices are equal

In our previous articles we discussed Selecting subcontractors for your construction project and What to include in Subcontractor pricing documentation So now you've received prices from a number of subcontractors. Which subcontractor do you choose? The one with the cheapest price? Are you sure this will result in the cheapest cost for your construction project?

Checking subcontractor quotations

It's important to carefully check and compare the prices and quotations you receive from the different subcontractors.

It's important to check the following:

• ​That the subcontractor has priced all items they were asked to price, and that they haven’t excluded anything.
• Their construction schedule meets the milestone dates, and doesn’t have any unacceptable early requirements.
• Their proposed construction methodology – what impact will that have on other construction and the finished product.
• That their payment terms and conditions are acceptable.
• That the specifications of the products they propose using meet the project requirements.
• That the subcontractor has evaluated all the applicable drawings.
• They haven’t got any contract conditions or exclusions which are unacceptable.
• The subcontractor hasn’t included additional requirements which your company must supply, such as; cranes, scaffolding, accommodation or offices.
• Where the subcontractor had to price a schedule of quantities you provided, that all their arithmetic calculations are correct and all items have been priced.
• You won’t incur additional supervision costs, for example; managing after-hours work, or travelling to off-site manufacturing facilities.
• That the equipment to be incorporated into the project comes with suitable warranties and that spare parts and servicing will be available locally.
• That the subcontractor included all the required deliverables and met all the requirements in the pricing request.
• There are no unacceptable provisional sums or prime cost items. - undefined items with ridiculously low costs.
• The price includes all the taxes and duties.
• The subcontractor understands the project requirements.
• They’ve included for preparing designs and drawings where necessary
• That there are no pricing anomalies – items which are priced high and others low – check for frontloading of prices. Frontloading is when tasks the subcontractor does at the beginning of their work has excessive profit, while work they do later has no profit or even negative profit. The extra profit the subcontractor makes with early work offsets the losses with later work, while their overall price is the same. – But what happens if the subcontractor goes bankrupt or deserts the project before they do the loss making work later in the project? – How will paying the subcontractor more for work at the beginning impact your cashflow?
• Most importantly, something that’s often not done, is to ensure that the price is fair and achievable. – Prices which are too low or too cheap could cause the subcontractor to lose money leading to problems
• Of course there is nothing wrong with awarding the work to the subcontractor with the lowest price (even if their price is much lower than other prices), providing that you’ve ensured that:

1. they are capable of doing the work,
2. there are no hidden extra costs which will be incurred later,
3. the subcontractor can deliver the project for their quoted price

Adjudicating subcontractor prices fairly

The adjudication of prices must be seen to be done in a fair manner.
A full record of the adjudication process should be kept, in case there are queries later.
Remember to add in your extra costs when evaluating the Subcontractor’s price against other prices so you’re comparing apples with apples.

Hopefully the last few articles have been useful and you will pick the right subcontractor for your project, using an appropriate contract document.

Other useful articles
Subcontractor construction contract documents
Don't save construction costs by doing this
What’s expected of your subcontractors? Do they know?​

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