At the beginning of every economic downturn, there is a six to eight month transition period in which all businesses try to adjust to rapidly changing market conditions. This period is normally defined by what’s been seen recently in the media. Stock market fluctuations of 500 points per day, mass corporate employee layoffs, government intervention within financial markets, buyouts, Congressional reviews, the lowering of the prime interest rate, all creating a financial “snowball” rolling down hill due to the failing of consumer and investor confidence with the present economic situation. The end result, a six to eight month transition period where it is very dangerous for high dollar purchases of goods and services, especially for construction! Why, because it’s during these times that the pursuit of a great “construction deal” could most often result in costly a “nightmare!”
One of the most common mistakes made by self storage owners or contractors in transition periods is the hiring of or purchasing from the “lowest bidder.” This is not to say that the lowest bidder is not the best price, especially if its price is within 7% of the bidder’s prices. Anything over a 7% difference from average of the other bidder’s prices should be scrutinized very carefully. Often those low bidder’s are having financial difficulties and they are able to make them yours! It is imperative that each buyer investigate the seller / subcontractor performance history by a call to the state licensing board (if available), the Better Business Bureau and their credit and customer references. In addition, make a point to visit the seller’s place of business and the project locations that they are still providing materials or services. While there, be sure to ask the project Superintendent about the quality of their services, products, their ability to meet his schedule and his staffing requirements.
It’s during transition periods that these type of sellers or subcontractors have a variety of ways to undercut their competition and give you the headache. One of the most common practices is the use of substituting less quality materials for what has been specified by the plans and specifications. A common practice in self storage construction is the substitute of 28 gauge metal for the building’s partition walls verses the often specified 26 gauge metal for the partitions. Some owner and contractor use 28 gauge metals for partitions and that is their preference. However, 28 gauge metal is much lighter and flimsier than 26 gauge and there is a good difference in price. The solution is to insure you get 26 gauge metal partitions when specified by the plans by asking for the subcontractor’s material list from the metal supplier. If that becomes a problem, one can get a micrometer to measure the gauge of the materials in question.
Using a different gauge metal roofing panel is another way “low bidders” can get in your pocket. This usually occurs when specifying 24 gauge standing seam roof panels and then the 26 gauge roof panels are installed. That substitution has a major cost difference and it also creates a host of other issues. First, if the 24 gauge roof panel was specified, it was so either due to structural engineering requirements or because the local jurisdiction required it. Failure to use 24 gauge could cause catastrophic roof failure leading to loss of property, injury and costly law suits. Again, ask for proof that the roof panels are the right gauge and if not convinced, use a micrometer!
Unfortunately, using factory reject materials most commonly known as “seconds,” is the most common practice for “low bidders.” Buying “seconds” from the factory are sometimes over 50% less expensive than those that were planned to be installed. The best way to recognize “seconds” is by a black discoloration on each panel. “Seconds” can also caused by deformities, staining, scoring and variations in required gauge of metal products. Whether used as metal partitions or roof panels, their use comes with some major liabilities! If the “seconds” are related to structural difference, the buildings could have serious structural loading problems. If they are related to staining or scoring, white rust (same a red rust) could occur which could eat through the panels. In any form or fashion, “seconds” spell trouble!
It’s also during transition periods that subcontractors in financial trouble tend to use less costly, therefore less qualified labor. You can expect that during questionable economic times, subcontractors and vendors make reductions in their workforce just like every other business. However, some, whether on purpose or not, make the mistake of releasing their highest paid labor, which historically does the most quality work in the least amount time. Therefore, the owner or contractor inherits poor quality workmanship and with a greatly increased time of production.
In addition, a sub’s poor quality workers can have a terrible affect on the other subcontractor’s performance. If a troubled sub can’t complete his work on time or has to go back and redo poor quality work, it disrupts the following subcontractor’s ability to finish their work properly and on time. It creates “on site” management nightmares for the superintendent rescheduling work, deliveries and required inspections. If not fixed soon, the other subcontractors will be financially affected and will start maintaining only a token workforce to lessen their loss. This starts a production cascade affect over the entire project which could cost thousands over the original savings of using that subcontractor. One bad sub cutting corners can jeopardize the health of the entire project, no matter how good the contractor’s construction management is!
Production and quality are not the only things affected by a “lower bidder’s” unskilled labor. Poor quality construction will always lead to long and expensive warranty periods. Owners and contractors can spend thousands of dollars on workmanship that should have been done properly by the original subcontractor. First, anyone willing to lower his price to a point that it’s not feasible to complete the contract will be out of business soon. In addition, any faulty work done by the “lower bidder” will interfere with another subcontractor’s work. The result, the Owner and contractor will incur all of the expenses required to fixing the original work and also the subcontractor who has to do his work over again.
The last major caution when “bargain basement” shopping for the best construction deal in transition periods is that a vast majority of construction liens are directly related to purchases and contracts done during that time period. It stands to reason since “lower bidders” usually have at this point, laid off or sold most of their major assets. One problem, like bidding a project too low and BOOM, he is incapable to paying off his debts. Now a new cascade begins! The “low bidder” starts to scramble and uses the payment from your job to pay debts on his other contracts. The result, the owner or contractor has paid off the subcontractor’s debts, but not for his projects. Thus, construction liens from each of the subcontractor’s vendors start arriving and the owner or contractor get to deal with a variety of lawyers, bankers, partners, bonding companies (the list is never ending) and the big bonus, he gets to pay for these new players plus the total he’s already paid to the “lower bidder” originally.
In summary, everyone building during transition periods should be careful with anything that seems to be “too good to be true.” Usually it is! There is an old saying which says “Don’t spend a dollar trying to save a nickel.” Unfortunately, a lot of self storage developers and contractors get burned just before economic conditions get worst looking for that one thing that might give them a edge. Remember periods of transition also bring confusion, financial concerns, and a lack in confidence and most often than not, wishful thinking. People are scrambling around trying to make ends meet. It’s not a time to gamble. Just do business as normal and don’t take any chances unless you are dead certain there is no risk!
by Mike Parham, as seen in Mini Storage Messenger