Too many bidders, dreadful debtor days, ridiculous retentions. Change it! Improve it!

19 March 2015

When the winner loses!

Low bid tendering is not unique to the local electrical contracting industry. An effective tendering system should draw out a bidder who has carefully worked out the breakeven bid costs & then added modest margin that hopefully pips the efforts of the other bidders.

The elation of winning is often short lived, and quickly suppressed by the emergence of the Dutch auctioneer. Submitting the lowest responsible price may simply not be enough. Consequently intense pressure is applied by highly empowered buyers to induce a secondary bidding war aimed at progressively lowering the initial best price.

In certain cases the ethics of procurement appear to have lessened, triggering an often repeated scenario, whereby the winner ultimately loses. The impact and legacy of, going in below nett cost just once too often, is well documented by busy insolvency practitioners and despairing customers.

Putting the brakes on

The solutions are surely not found in a “more of the same” approach. A brake must be applied to the present runaway race to the bottom culture, if the industry is to recover profitability and re-establish its place in the modern era construction.

The sector must rally to develop and improve the business conversation with public and private procurement organisations. Intelligent client engagement and common purpose by bona fid electrical contracting enterprises is essential. Access to the local legislative assembly and public procurement professionals is possible. If the industry is to improve productivity and become more efficient it must do so on the basis of responsible tendering based perhaps on a new client approved first past the post system.

Changing Direction

Around 30 contractors gathered for the second part of the electrical business conference at Corrs Corner on the 12th March 2015.

Contractors heard from Professor Rudi Klein (SEC Chairman), who spoke on the subject of “Overcoming barriers to getting paid”. Ulster Banks Chief Cconomist Richard Ramsey provided a Building Services tailored overview of the economy. The conference also welcomed Patsy McGlone MLA (Chairman of the All-Party Group on Construction) who shed light into the work of the committee on behalf of the sector.

The conference also returned to some of the important themes and discussions that had taken place back in the November 2014 “Let’s Talk” event. Three areas have been identified whereby a change of direction might be possible.

The first requires an ambitious turn by the industry from the Dutch auction merry go round. Most electrical contractors are pressed and drawn into a win/lose relationship during the final leg of the procurement process. The remedy will almost certainly require the help and support of the local assembly and the public sector procurement professional.

A further turn is also required away from the over dependency on false self-employed labour. This issue is close to becoming the elephant in the room, with most contractors re-validating underlying concerns about its current and future impact on the industry.

The final change of direction must be about contract retention deduction. Although good work is underway by others, local contractors must continue to accrue and document their trading story difficulties in order to influence the momentum for change.