Bidding Competition Heats Up

By Diane Greer
June 29, 2009

A year ago the building boom was fueling skyrocketing construction costs.  Now tight credit markets and the recession are sharply reducing demand across the industry.  As work dries up, contractors aggressively bidding on projects are driving down construction costs.

“The bidding environment is much more competitive than in the past,” says Erin Phalon, New Jersey Department of Transportation (NJDOT) spokesperson.

“As of this past week, NJDOT had received bids on 14 stimulus projects and the low bid was under our estimates for 11 of the 14 contracts,” she says.  On two specific projects, the I-295 roadway reconstruction and the Route 52 causeway, the low bids were six percent below NJDOT estimates.

Sharon Greenberger, president and CEO of the NYC School Construction Authority (SCA), is seeing 7-to 12 bidders on projects which last year might have seen two to four.  Costs and escalation rates are coming down and bid ranges are tightening.  “Where the price range might have been 20 percent now it’s more like five percent,” she says.

In Milford, Conn., the Perry Hill public school project received 23 bids, up from the six bids a similar project would have seen last year.  The winning bid from W&M Construction, Stamford, Conn., was just 0.1 percent lower than the next highest bid, says Tom Durels, W&M’s CEO.

Durels cites three factors contributing to lower bids: the price drops on finished goods, tighter profit margins and subcontractors trying to increase labor productivity.  “Subcontractors are dropping prices by about 20 percent from their peak about 12 months ago.”

“One of the dangers in this market is that subcontractors providing trade support to General Contractors are getting too aggressive,” Durels explains.  “One of our concerns is we might see quality fall off.”

The composition of firms bidding on projects is also changing.  Contractors that normally work on private sector projects, hardest hit by the downturn, are now looking to the public sector for work, explains Mike Cobelli, executive vice president of Skanska USA Civil Northeast, New York.

“Contractors that might be strictly attached to site jobs, like housing developments or commercial work, are now looking to gain work in the heavy highway sector, says Tim Casey, regional manager, Rifenburg Construction, Troy, N.Y.

At the SCA, Greenberger is starting to see some of the larger firms come back to the bidding on school projects, at both the subcontractor and GC level.  Larger firms that typically work on new building projects are also turning up on bid sheets for interior jobs, says Mark Varian, president, John Gallin & Sons, New York.

For owners that can obtain project funding, the recession has a silver lining.  W&M was awarded a bid for a school project in Fairfield, Conn., last year.  “As we purchase this job, I think they are going to see prices come down significantly from what we had budgeted earlier,” Durels says.  “Now is an excellent time to be bidding work.”

Greenberger is pleased to see the participation rates rise and bidding become more competitive.  “For us it means we can do more projects.”

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