Buyer beware: Richard Steer on low bidding by QSs

Autumn has not just brought tumbling leaves but also falling prices, with the first salvos fired in a bidding war for professional QS fees. If we are not careful this price slashing could soon move from a skirmish to a bloodbath and both clients and consultancies will be the ones that suffer in the long term.

Baqus chair Clive Sayer alluded to this recently when he argued that low-bidding, smaller QS consultancies were underperforming and giving our industry a bad name. I think he has a point and believe that not only the minnows but also the big fish in our sector are beginning to identify short-term survival as only being achieved by driving fees down to an unacceptable level. This is foolish and will hurt us all in the final analysis.

The senior partner of one of the largest consultancies in the UK highlighted to me the fact that the firm had recently bid on a large residential project in Cardiff. The fee they quoted was 0.95% of the value of the contract – not a vast margin, but a fair price. However, they were aghast to learn that the winning bid from a competitor practice was 0.29%. We both estimate that at this level of fee the consultancy concerned would not even have covered their costs. Another even more startling example was in Ireland recently when my practice bid for a public sector role in a proposed large hospital development. It was a fixed-price contract lasting until 2015 and involved providing the entire design team. We bid €8.5m and would have made a modest margin. In the end we lost the job to another consultancy of a similar size who, we are told, bid €2.5m as a fixed price for the entire job, which they expected to hold for the next six years.

These jobs are not just being won by small consultancies with minimum overheads and a low cost base, providing a more keenly priced service than the larger consultancies. This is the big boys outbidding each other. They must be working at low or no margin merely to keep trading and show projects on the books.

Ultimately this will devalue the role of professional quantity surveyor in the eyes of clients, the role will be viewed as less important and fees will continue to drop.

Why should the clients care? Experience tells us that once a project has been underbid and the price has been agreed, the client will suddenly find a claims file has been started by the QS consultancy that was its best friend at the tender stage. Even the slightest variance from the original specification will require extra work and mean additional fees. The magic phrase “sorry mate … that falls outside our service agreement” will be heard with relentless monotony. Owing to underbidding for the original contract, more often than not the QS firm will be forced to under staff the job, or put less expensive employees on the contract. This will result in disputes with other suppliers, which can cause delay and increased interest payments.

This will provoke friction between the developers, the design team and the cost consultants who are all under incredible pressure to get the project completed on time once the initial disputes are resolved. Often shortcuts are then employed and specifications amended, leading to a compromised project that fails to live up to client expectations. Litigation and acrimony then follows. It is worth noting that the only people who don’t seem to have lowered their fees are the legal profession who in the end are the only ones to benefit.

It is true that currently most fee cutting is among the smaller consultancies and here I would just warn clients that if you are employing the QS equivalent of Millwall, don’t expect the professionalism and skill of Manchester United. However, the larger QS practices are not without blame and it would be a great pity if the hard-won respect and professional standing of our industry was sacrificed by adopting foolish and short-term bidding practices.

There is a role for the smaller QS consultancy and not everyone is operating a kamikaze cost-cutting philosophy. In rail and retail, for instance, many of these niche practices provide a needed and much valued service.

However, in our profession as a whole we are seeing a growing number of instances where businesses are buying work to try to appear busy. To this I would just say, buyer beware – if the price looks too good to be true then it probably is.