• Field Notes 27.11.2012

    Last week, while completing an estimate on a fairly large curtainwall project, I was reminded of an experience that has stuck with me for more than 25 years, regarding the importance of ethics in business.  My employer at the time had a project with a granite-clad steel truss with punched opening windows.  These were only two of the thirty-one glazing systems involved in the project, but they covered floors seven through 40 on a 50-story high-rise office building.

    Shortly before Thanksgiving that year, we needed to place a one million pound order for hot rolled steel tubes.  We had recently completed the mock-up, and it was time to gear up for the job order.  The steel obviously was going to be one of the major purchase orders (with more than a week spent doing the take-off).  When the sizes and quantities were finally ready, we called six or seven of the more reputable vendors we typically dealt with to get quotes.

    Never having officially been a salesperson, I don’t know what it’s like to earn a living strictly off commissions, but I have to believe when someone calls with a million-pound order for ANY commodity, they’d have my attention.  That was the case, here, too:  several expressions dealing with the religious nature of feces were heard when we told them how much steel we were planning to buy.  One vendor’s comment has stuck with me:  “This could make for a VERY Merry Christmas.”  I can imagine!

    Steel prices were about $0.35/lb at the time, as I recall, so the total order was around $350,000.  So, we put some ground rules together.  One, we were only going to go out for bid one time, we weren’t going to shop the number, using someone else’s quote to get a different vendor to lower their quote, and we needed pricing back as soon as we could get it.  We were going to immediately evaluate the bids and issue a purchase order within two to three days after receiving quotes.  We issued a deadline and we gave them sequencing instructions (we couldn’t take it all at once, etc.).

    As it turned out, I don’t think there was a nickel’s difference in the price per pound between the high and low quote.  The cost was extended out to four decimal places ––no more than $50,000 separating low and high.  We knew by way of the quotes several of the vendors had gone to the same mills, so the only difference was either their overhead and/or profit.

    So, obviously, someone did have a very Merry Christmas, and everybody else was left with Christmas stockings filled by someone else, or not at all.  What made this experience more memorable, and the reason it’s stuck with me all these years was what happened once we let all the high vendors know they weren’t getting the order.

    One of the higher priced vendors called back immediately and said he’d do whatever was needed to get the order.  I apologized, and said I couldn’t do that.  He asked “why not?” After telling all the vendors we were not shopping prices, that we were going to move immediately, and then letting everyone else know (including the low vendor, too) how we were going, he expected us to change course.  Not going to happen. I told him if I did that, any credibility the company had would be shot to Hades, and no one would ever believe us again on any orders of any size.

    He didn’t care, he was prepared to do whatever it took to get the order. Regardless what lines needed to be crossed, he’d move heaven and earth to get the order. I told him if I let him re-price his quote, all of the high bidders should be given the same chance. Of course, he wasn’t in favor of that.  Obviously, had the budget been blown (it hadn’t), we would have put it back out for pricing. Not to mention what the low guy would have thought if we started shopping the numbers again.

    Typically, estimates are basically converted to the project budget when the job is sold.  Sometimes, actual pricing comes in lower than what was carried in the estimate.  Sometimes it’s not, and you have to scramble, figure out how to get it back down within budget.  And vendors can help only so much.

    I could not get the guy off our backs about this.  When I told him he was nearer the high side than the low side, he wanted to know by how much.  That wasn’t going to happen, either.   The vendors by going to basically the same mill all knew what each other was paying for raw material, but it would not have been copacetic to give out what their prices were to their competitors.

    What we’re talking about here is how honestly we all deal with each other in the business world.  I was in a meeting with my boss at the time and a GC when the question of my boss’ honesty was put on the table by the GC. The GC didn’t like the price and thought my boss was being overly aggressive in the estimate for change orders.  My boss’s response was classic:  “I’m reasonably honest, but I’m no more honest than you are.”

    GCs sometimes may play this game, using one subcontractor’s price to get the sub he prefers into a job at a lower number, but it’s not ethical.  More times than not, there’s a good reason your price is not as low as someone else’s.  What did you get in your price that they might have missed?  Is your overhead the same as theirs?  Taking a job at someone else’s number is a risky proposition at best.

    And it’s not any more ethical to shop prices among subs than at any other level in the game than another.  In some respects, it’s almost like price-fixing on the part of the entity that stands to benefit the most from a lower price, rather than the suppliers (glazing subs or material suppliers) on the other side being in collusion in rigging the pricing to a certain level.  Maybe it’s the “golden” rule:  since the GC (or owner or whoever’s paying the bill) has the gold, they make the rules.

    As to the vendor wanting to get another shot at revising his quote:  it didn’t happen.  When he hung up with me, he called that same boss.  And when I walked my boss through it, he backed me up.  The vendor was called and told he wasn’t getting the chance to change his quote.

    I don’t know who first said it, but honesty is really the best policy, in dealing with both suppliers and customers.   While no one is thrilled to loose a job to a lower number, it beats getting a job with a really stupid number any day.  I’m not so naïve to think that there aren’t snakes in the grass; the snakes eventually reveal themselves for what they are, and my memory chip still works pretty good remembering who they are.

    I trust you and yours had a happy Thanksgiving.

    Posted by Bryan @ 8:31 am

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