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July 2014   

Dirty Low Down


By: Vince Bailey

They’re back. Activity in the commercial construction industry has been on the upswing for a couple of years now for most of us, and the reemergence of an unwelcome element in our midst was inevitable. It is an unfortunate but predictable phenomenon that when prosperity flourishes, the parasites appear, and so we should not be taken by surprise when an attack comes from below. The only trouble is, whether surprised or not, there is often very little that can be done to retaliate when a low-baller comes out of nowhere and bombs an otherwise righteous bid opportunity, shattering the prospects of valid and qualified bidders. The best we can usually expect to do is shrug our broad shoulders and wait for the bottom-feeders to self-destruct. But in the meantime, there is no question that they drag the level of the field down to a lower tier. Still, a general awareness (or, the dirty low-down) on the nature and development of these subcontracting scoundrels can be useful.

For the record, I’m not talking about qualified competitors who wind up on the low end of the number cluster on several successive bids. There’s very little serious resentment harbored for a worthy opponent who’s availing himself of strong production numbers or pursuing expanded revenue through low margins. Nor would I point the finger at any legitimate adversary who is absorbing the pain of a bid bust. An honest error can happen to anyone. My beef is with rogue contractors who consistently pepper the market with outlier-low numbers through devious means or pure ignorance.

No Forgiveness
I suppose the more defensible basis for this fly in the ointment is ignorance. At first glance, there seems to be no disgrace in making a few blunders upon entering uncharted waters. Scenarios are commonplace in which, for example, a residential drywall contractor sees better opportunities on the commercial side of the business but fails to weigh all the latent costs and sophisticated impediments peculiar to commercial work before taking the plunge. But as forgivable as it may seem, an impulsive intrusion into an unfamiliar market without due consideration is a sure sign that common sense has been eclipsed by greed—the lure of what they believe to be easy pickings in a fruitful grove. The consequences are, more often than not, financially fatal for the neophyte, but not without some damage to others in the market who have worked long and hard to carve out a lucrative niche.

But a more culpable source that’s clearly accountable for raiding and undercutting the market status is that small but unscrupulous constituent that seeks to penetrate settled spheres of exchange by flouting the rules of fair play. The bid categories in which these scammers bend the accepted protocols to the breaking point include labor, means-and-methods, and materials. The evidence that these manipulations are deliberate and calculated lies in the fact that the ill-conceived savings are built into the estimate up front. But then that’s the point, isn’t it? To be the low bidder and procure the award, that is.

With all the regulation and scrutiny directed toward labor these days, one would think that this segment of performance would be more or less resistant to deceptive practices. Recent policy developments, such as the federal government’s E-Verify program, have made it difficult if not impossible for subcontractors to hire undocumented workers directly in order to pay a substandard wage.

Wrong Farm
But there are still a number of resourceful ways of circumventing the system. For instance, it is common practice in some parts of the country for a subcontractor to utilize labor brokers or, in the vernacular, "farm out” the labor portion of a project. In this questionable relationship, a subcontractor’s responsibility for ensuring that his second-tier provider is in compliance with the law is "due diligence.” Now there’s a loophole for an 18-wheeler if ever there was one. Obviously, this arrangement, no more than a simple ruse, enables the subcontractor to turn a blind eye to wage and benefit violations (customary niceties such as prevailing wage, premium for overtime, workman’s comp and payroll taxes are side-stepped), while estimating his substandard labor costs at around half of what his law-abiding contemporaries will calculate into their bids.

Prevailing wage is another device that government has implemented in an attempt to level the playing field on public works jobs, with requisite certified payrolls serving to verify compliance. But even these strong measures are sometimes skirted by devious means. Coercing underpaid non-union journeymen to claim they are apprentice-level workers, and outright falsifying of certified payroll sheets are common examples of the underhanded lengths that crooked subs will go to in order to game the system and gain unfair advantage.

The bad news is that there seems to be no limit to the number or extent of daring dodges that some grasping contractors will come up with. The good news is that many scrupulous general contractors have devised ways of screening the low-ballers out of the running. Next month’s column will explore the low-down on these aspects of the topic.

Vince Bailey is an estimator at E&K of Phoenix.

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