Ethics in Bid Seeking: Question for Managers and Owners

[Wesley Sherow]

Hey Bigger Pockets People,

I was thinking about this in the morning today. My property management company is located in Albany, NY with about 350-500 apartments fluctuating. I have a few large clients that make up the majority of my portfolio. In many cases, they are purchasing buildings to fix/flip by apartment, raise the value, and refinance. BRRR in a nutshell.

Here's the question. I have a bunch of in-house labor that I can throw between work-order management and renovations. They're skilled enough to do a majority of a renovation job. For now i've just been billing their time hourly plus materials, regardless of work orders or renovation, however I was considering pivoting to a "Quote" system where I charge a pre-determined rate for a reno project, similar to how most other companies do it. 

If I seek multiple quotes for a renovation job, that makes me inherently biased. I've now seen everyone else's cards, know what they're charging and quoting, and if it works I can theoretically come in under the smallest reputable quote. Is this ethical? Is it even okay? I imagine that it can be viewed as a win-win all around for owners & management alike. Has anyone else considered this possible conflict of interest? 

Very Respectfully,
Wes

[Jamie Brayton]

Take my thoughts with a grain of salt, because I don’t feel I am an authority on this subject; however, having a foot in the construction world I have feelings that might be helpful.

I don’t think this is a legal issue (although it is worth consulting an expert on the subject), and I don’t think I’d call it an ethical issue (you want to provide the best pricing to your clients, which is helpful). I’m just not convinced it is a sustainable model. I’m sure your clients will be thrilled to discuss lower pricing, but I think you will quickly lose friends and favors in the contractor world. It won’t take long before subs realize you keep awarding the work to your own team and you are using them for their bids. I also think there is some danger in consistently trying to go lower than reputable guys if you don’t already have a great estimator on your team—you might find your quote turns out to be too low and that you aren’t really the lowest priced guy, but the guy with a low quote and a bunch of change orders.

With that being said, I think building an in-house team with a great GC heading things could actually allow you to perform work at a lower expense. It seems like the easy solution would be to be candid—disclose the affiliation, be clear about the service you provide and rates, and help clients pursue additional quotes if they wish? Similarly, be candid with contractors. If you think you can beat their pricing by using your in-house team, perhaps you can begin to eliminate the need for multiple bids? Is this the piece that has you feeling conflicted?

I have additional thoughts if this feels remotely useful.

[Steve Morris]

Well, I think you owe it to your client to get the best deal.

I guess I don't have an issue as long as I disclosed it to the bidder that I was getting mult quotes.  I wouldn't share the quotes other than if you can beat $X you can have the biz.

[Jamie Brayton]

Originally posted by @Steve Morris:

Well, I think you owe it to your client to get the best deal.

I guess I don't have an issue as long as I disclosed it to the bidder that I was getting mult quotes.  I wouldn't share the quotes other than if you can beat $X you can have the biz.

I agree with this— being candid feels like the key to maintaining good relationships. 

[Wesley Sherow]

@Jamie Brayton:

@Steve Morris:

I appreciate all of the advice. I think that matter of transparency is the key takeaway. I think I'll set my in-house rates first as a baseline, and then take it to bids after first possible refusal from the property owner. I'll be writing this into my business process now. This way good contractors don't feel like they would be wasting their time, and conversely I can still offer this in-house option first. 

[Samantha Cash]

Jamie brings up some great points. I agree that transparency, specifically with contractors, is the key takeaway. I'm wondering if the in-house team has fewer insurance, bond, or licensing costs than the other contractors you are getting quotes from. If so, that could be the reason for any price discrepancies. For smaller jobs it might not make a difference but might be something to consider for bigger jobs.  

[Wesley Sherow]

Originally posted by @Samantha Cash:

Jamie brings up some great points. I agree that transparency, specifically with contractors, is the key takeaway. I'm wondering if the in-house team has fewer insurance, bond, or licensing costs than the other contractors you are getting quotes from. If so, that could be the reason for any price discrepancies. For smaller jobs it might not make a difference but might be something to consider for bigger jobs.  

Sam,

That's actually a good point. On our end we don't operate with as many licenses & formal business contracting structure, as we're a management company. Similarly, our skills don't typically go into deep technical electrical, or entirely re-plumbing a unit. I think the overall resolution I have is to quote my own services prior to seeking bids, and then move to the bid process after refusal. I think the biggest risk is losing good graces with other contractors if they feel they're making bids when the house can undercut, so I think I may make a rule that we won't consider the job after the first refusal. Not sure about thay yet, but certainly considering the transparency all around. 

Wes