Use basic supply and demand economics to combat underbidders.

America's capitalistic, free enterprise society is based on supply and demand. We've all experienced major price increases due to crop failures, citrus grove freezes, shortages of copper, drywall, cement, gasoline, fuel oil, etc. We've also watched prices come down when there has been an abundance of any commodity. That is how simply our business world revolves.

America has one major industry, however, that doesn't always keep pace with the supply and demand business philosophy. Our construction industry is polluted with "Billy Bobs" who willingly pay the fiddler every time one of those shortages jack up the cost of doing business, but they fail to pass on those increases to their customers.

Business Economics 101 teaches that any profit-making enterprise must sell at a higher price than it is bought to show a profit and survive. In other words, anyone fortunate enough to have cool, clear water out in the middle of the desert can name his price.

I'm sure you're aware of today's skilled craft shortage. But I'm not sure if you realize this is one of those supply and demand free enterprise opportunities that substantiate profit orientated mega price increases. It is time to wake up and smell the roses!

The Con Men Cometh

You have watched in amazement while your own Billy Bob competitors confront our supply and demand, free economy by underbidding everyone in town just to maintain overhead and keep their oversupply of manpower busy. You've also witnessed those unscrupulous construction managers ("con men") and general contractors shopping and chopping bid prices with subs who often are not even desperate to get enough work to survive. None of that is going to change! We will always have those Billy Bobs.

As most of you already know, the Small Business Administration claims that 94 percent of these new businesses will go broke in less than three years. That is not much consolation since even more will give it their best shot. You cannot eliminate this unqualified or unfair competition, but you certainly don't want to join them.

We are not sure whether these gasoline shortage price hikes are realistic or just another political, big business oil industry rip-off, such as what we experienced back in the 1970s. One thing we are sure of is that our construction industry has a critical skilled craft shortage no one can solve by simply uncapping an oil well.

You who run a good ship and have an ample supply of qualified workers are now in a position to reap the benefits. Our economy is very good, and many major construction projects seriously are behind schedule due to critical labor shortages.

Naturally this labor shortage also is creating a serious urgency to increase wages and benefits just to keep existing employees, let alone attract new ones. Raising the price of cool water in the desert would be quite futile if your well goes dry. Even if our booming building economy fails, America still will need our skilled technicians to maintain, repair and replace what is already built.

Today's "too-much-work-with-not-enough-help" situation also generates some other enviable options:

    1. You now can pick and choose who you want to work for.
    2. You can dictate flex-time work hours that will attract and motivate this millenium's working families.
    3. You can negotiate training expenses in your contracts.
    4. You can provide first-class tools, equipment and vehicles that will create and maintain that critical "pride of a craftsman."
    5. You can practice and enjoy Paul Ridilla's philosophy, "Make a good life, not just a living."
But we don't want you to fall asleep and think all of this is easy. Here are some critical basics that will help you capitalize on this enviable profit-producing potential.

Go For It

Ask yourself these basic marketing analysis questions: Is this job within our effective work area? Do we have a management team available? Will we be able to supply capable manpower? What is our profit history on this type of work? Who else is bidding, and how will they price it?

When you decide to bid, do a complete and accurate takeoff with a free-hand isometric of every system you intend to install. Keep in mind, anything you miss or overlook comes out of your intended profit.

Use your team's past experience to value-engineer your bid. Scrutinize effective shortcuts and cost-saving techniques and every possible opportunity to pre-fab.

Carefully review and rewrite the legal issues in their general conditions and bid documents, especially regarding scheduling, change orders, monthly draws, final payments and warranty work. And keep one foot in the door to negotiate! Always submit feasible cost-saving options that will make them come back to you for clarification.

It is quite easy to see how this simple marketing analysis will help you establish how much profit you can add to each project. You may even decide not to bid or add enough profit, so you won't need to worry about the hassle. Remember two important facts about our competitive free enterprise system construction industry:

  • Profit is not a dirty word; it is our only key to survival.
  • There is no such thing as too much profit!
When you successfully get a job and negotiate a good contract, you need to then assure that your customer receives everything you agreed to furnish and perform. This also should guarantee you receive exactly what the customer has committed to you. This will promote a long-lasting contractual relationship of repeat business and referrals.

I hope you in the service business are already using flat rate pricing to maintain attractive wage rates for your service techs, along with a fair profit for your services. You certainly do not want to try competing with pickup truck contractors, moonlighters and low-ball Billy Bobs who work for low wages with no regard to overhead or profit.

We always will have first-class customers who want and are willing to pay for first-class performance. Hang on to those and let the tire kickers shop around to see which of your competitors are willing to do their work just for the fun of it.

America definitely is running out of skilled craftsmen and technicians. Our struggle to attract, recruit, train and maintain a competent and competitive workforce is getting tougher and more expensive every day. In case you skipped Business Economics 101, or maybe forgot what you learned, you simply need to look at what you are paying for a gallon of gasoline at the pump. That will remind you of how the supply and demand free enterprise system works!