Good, Fast, Cheap!
Contractor Management “101”
“Good, Fast, Cheap, choose any two!”
It’s an old “adage” in business that applies well in project management; to explain:
In the project management role, there is a necessity to hire various sub-contractors and professionals. The sub-contractors are providing engineering, installation and commissioning for building services such as air-conditioning, plumbing, light and power, security, and the like.
To begin, your usual private tender process for the air-conditioning contractor is employed to your market favourites; you expect the cost to be in the vicinity of $800,000.
The prices all come back to you on time, and there is a stand-out price, its lower than all the others by approximately 30%.
Applying our old “adage” of “Good, Fast Cheap”, choose any two, then:
if you need something done, you can have a good finish and complete fast, but it won’t be cheap…..or
you can have the work completed fast and cheap, but it won’t be any good……or
you can have to work completed cheaply and with a good finish, but it won’t be completed fast.
If you are promised all three, then perhaps you should consider more “shopping around”.
All your contractors were asked to price based upon a specification, which has a quality control element as well as requested brands or equals in terms of quantity, performance and finish. The exclusions of the cheapest vendor are checked first to see if there is anything obvious that has deliberately been taken out of the price, nothing there. The usual evaluation process for all tender submissions takes place. There are differences, but nothing major, at least not t the value of 30% of the budget price.
A meeting is arranged with each of the top three contenders for the purchase order for the project, including the vendor, which was 30% less than the others.
There is no particular stand-out issues in the conversations; there are no obvious weak points or false claims; the question still remains in your decision process, which is: “How does the third party make money at a 30% reduced price and still survive?, Can they do the work on time and with the finish we expect and have asked for?”
The Answer: They can’t, given the product costs involved, which you are aware of, and there has been no collusion between any of the other vendors, then it is simply impossible, but, you have a budget, and you want to make a name for yourself and provide a great result which guarantees further project management work.
You issued the purchase order to the vendor who gave a 30% reduced price.
Let’s move forward in time, you are now at the end of the project, about 4 weeks from “handover” to the client and the beginning of the defects liability period.
Your 30% cheaper vendor compromised your project on the following:
- Safety Systems and documentation
- labour skills and qualified tradespeople
- schematics and functional specifications
- multiple sub-contractors of which were not paid
- payment issues and credit issues with their suppliers
- non-compliance with the construction specification
- non-compliance with out-of-hours work requirements causing unnecessary disruption
- application for payment for variation upon variation to the original works
- circa six weeks behind schedule
This compromise caused you additional project management work and time, which was over your allotted time. There was additional duress on your part as you persevered with the vendor, our questions:
Was it worth it?
Did you save the circa $200,000 + from the 30% budget reduction, or was it lost in indirect costs?
Have you impressed the client?
Are you proud of the finished result or are you just glad it’s over?
Will you engage this company again?
We can talk for hours about how we told you so, yet, there are times when the plan does come together, and the vendor provides a great finished product on time and without project management grief.
At 30% lower cost than the budget or market price, the variation in the price difference was too great.
What are your thoughts?.
Forte Asset Services