Suicide bidding - a consequence of a fraught economic environment or a more calculated approach?

The Chartered Institute of Building's procurement report describes suicide bidding as something companies do 'to ensure they have work for skilled staff to undertake, even if it means only breaking even on a project or, in some cases, making a loss'. This explanation sounds reasonable, especially if it's a short term measure but what are the implications of suicide bidding when looking at the bigger and more long-term picture?

Peter Owen, MD for Willmott Dixon Midlands discusses:

"Suicide bidding has negative connotations for our industry," he says. "The high profile collapse of Connaught last year proves it's not a sustainable business model and while it may be 'reasoned' as keeping staff in work, it ultimately leads to job losses when companies who are exposed to the worst consequences of 'suicidal bidding' lose money and are forced into administration.

"Responsibility lies with both construction companies and the client. The client needs to ask the right questions if they get bids significantly lower than the average as companies try to fill their order books with new work at any cost in a very tough market. When a project is delivered late, over budget and ends in legal dispute over cost variations, that initial price does not look so good. More emphasis should be placed at tender stage scoring in areas such as innovation, sustainability and the ability to deliver on time and budget.

"Let me give you some examples. We recently tendered for three projects in the Midlands. The first one was a traditional 'lowest price wins' tender and we were unsuccessful. The company that did came in hugely under budget, revealing it was all about cost. The second tender was similar but the weight of the cost element was underplayed - it was supposed to be all about innovation. We scored very highly in the innovation category - coming out top - but again the scoring matrix favoured the lowest compliant bid, allocating far more points to the cost element than to innovation. So, essentially, while it was packaged as being innovation centred, it was again, financially focused.

"In the third tender, the client wanted reassurance that they would get their project delivered on time and via a smooth and issue-free process. This was based on their past experiences when cost had been the deciding factor and they had been badly let down. They were of a mind to dismiss very low tenders as unrealistic, with the potential of being problematic. Willmott Dixon offered a very transparent, open book tender which the client welcomed and therefore awarded us the contract.

"An open book approach instils confidence and offers reassurance that there won't be any hidden costs or issues with the process. Unrealistic bids lead to contractors needing to squeeze the supply chain further by appointing subcontractors in a similarly weak position. This creates a circle of weakness which can break easily - causing no end of problems for the client. A quality supply chain will be based on value, not necessarily driven by cost.

"My advice to clients would be 'if it seems too good to be true, then it probably is'. Don't fall foul of 'over promising and under delivering'. Poor processes, hidden costs and failure to complete projects on time are the consequences of an unrealistic bid which while on paper sounds possible, in reality is impossible to deliver. We understand cost is now the driving factor in most construction projects - but who ultimately ends up paying the price?"