by Rolly Mechler, Sales & Marketing Manager
I have been involved in bidding tendered jobs for almost 30 years now, and I bid my first elevator tender about 20 years ago. I found the process fairly frustrating from the start, and as time has gone by I have only grown wearier of the whole process. While there may be situations where tendering is the best solution for the end customer, I am hard-pressed to find many situations where elevator tendering gives the customer the best value for their money. I’d like to make a case, in this 2-Part blog series, for why I believe there are much better options for customers, whether private or public sector, to get the best elevator value for new elevator installations, modernizations, and maintenance contracts. Part 1 focuses on Construction Tendering (i.e. installing an elevator in a new building); and Part 2 addresses Maintenance and Modernization (i.e. upgrading existing elevators) Tendering for elevators.
What is Tendering?
One definition I have read is that tendering “is the process of choosing the best or cheapest company to supply goods or do a job by asking several companies to make offers for supplying the goods or doing the work.” In new construction, a bid tender is typically sent to General Contractors (GCs), including a specification document which specifies the supply details of the various trades (also called subtrades) such as electrical, masonry, etc. Specs have common nomenclature; for instance, an elevator company knows to turn to a specific section (called a division) which in their case is division 14. The idea is that every elevator contractor bids against the common spec, and the lowest price that is submitted wins. Similarly, a spec can be written for an elevator modernization project, or for elevator maintenance. Sufficient details are provided so that each bidder submits a bid which, in theory, provides the customers with the same approximate product/service to meet their needs.
In Ontario, we have laws in place that ensure for fair tendering (i.e. you can’t receive prices, then go negotiate after the fact with those who priced higher to get them to bring down their price, and then award them the contract); that would fly in the face of the entire concept of tendering. If the lowest price submitted is compliant with the tender (i.e. they meet the technical requirements and they do not have qualifications), they win the project. There is some solid case law in place in Canada; this article provides some good information about a key Canadian court decision in the early 2000’s: Tendering: A Contractor’s Rights and Obligations with Respect to Subcontractor Bids
New Construction Elevator Tendering
Here is the reality of what I have experienced in the past two decades regarding tendering of elevator contracts. The elevator contractor reads the generic elevator specification (a spec which does not specify the quality of components, and often does not address proprietary equipment issues), we submit our price to multiple General Contractors (GCs). The GC is supposed to now “carry” each respective trade required for the project (i.e. they carry ABC Electrical’s price; Don’s Drywall price, and Eddie’s Elevator Company’s price). Since their award is based on low price, typically they just carry the lowest price. The contract is awarded to the GC with the lowest total price (i.e. Smith GC). Now what should happen here is very simple. Smith GC sends a notice to ABC Electrical, Don’s Drywall and Eddie’s Elevator Company, congratulating them and letting them know they were the successful trades because they had submitted the lowest price and Smith GC had “carried” them. But here is the interesting part, a number of years ago, GCs realized that this was their opportunity to either get the actual company they want to work with (i.e. the one who will come through with the construction schedule that is there, or the one where the workers will get along with other trades, or sometimes they actually care about the quality of the end product) so they go back to the other sub-trade bidders and say: “hey, if you can come in at $250,000, the job is yours”. For many GCs this is understandable because they feel forced to submit a low price to land the job, but now they want to pull off a successful job, so they offer the job to a sub for the same price. More often than not, however, with some GCs that $250,000 is a bit lower than what they actually carried, so Smith GC has an opportunity to make a little money, or perhaps lose a little less money because they went in so aggressively in the first place to win the job.
Many years ago, when I was in a senior management role at another elevator company, along with the company president we agreed we were not going to participate in this game any longer because this practice flew in the face of the intent of the entire tendering process. Since we claimed to be a company with integrity, we had to live it out, so every time the call came in to negotiate an awarded tender, we said: “Who did you carry? Give it to them”.
Today, at Elevator One, we have a new strategy. We don’t even bid on tendered elevator jobs, because the value we bring on the front end is not appreciated by a very flawed system. Low price wins the project, and not surprisingly, the final product typically reflects that. We bid on Design-Build projects or Construction Management projects where purchase decisions are not made based on “low initial price”, they are more often made based on “highest value to the end client”. Because we offer consistent high-quality, non-proprietary, elevator equipment, and because we continually install our elevators on time, and with few if any change orders, we have the same quality builders and GCs returning to us every time. Our customers typically pay a higher “initial price”, but they never pay a higher “final price”, when all the costs are considered (i.e. unnecessary change orders, pain and suffering during construction, equipment longevity, and missing key end dates like client move-ins and associated revenues etc.). Fortunately end-customers are recognizing the advantages of Design-Build and Construction Management projects and we are seeing a significant movement away from tendered projects.
Rolly Mechler has been in the elevator industry for nearly 20 years in both a sales role and running an Operations Department. He works hard to help implement methods to provide superior service to Elevator One clients.