Just Say No To Reverse Auctions
Do a Web search on “reverse auctions” and you'll find abundant commentary about what a bad idea they are. AGC, MCAA and a horde of other construction trade groups are rightfully indignant that reverse auctions reduce their members' hard-won skills to commodity status.
Yet, genuine commodity producers scream just as loudly. You can even find articles by procurement authorities who caution that reverse auctions don't save as much money as assumed and ought to be used sparingly.
Reverse auctions are a lot like sin. Everyone claims to be against it, which makes you marvel why so much of it occurs.
Actually, in construction, reverse auctions have a long way to go to match the popularity of sin. They are still much more the exception than the rule for bidding jobs - and therein lay a path to salvation.
The industry's backlash against reverse auction bidding rests its faith in H.R. 1348, which would prohibit bid shopping and whose wording puts reverse auctions squarely in that category. That's just dandy, except H.R. 1348 would apply only to federal construction contracts exceeding $1 million, leaving more than 90 percent of construction unencumbered.
Besides, anti-bid-shopping bills are one of those habitual Washington activities that keep lobbyists employed but never go anywhere. H.R. 1348 has languished since March 2003 in the obscure House Committee on Government Reform. Its 21 co-sponsors are mostly far-left Democrats exemplified by Dennis Kucinich, whose presidential campaign won the hearts and minds of dozens of voters nationwide. If only their influence were as intense as their huffing and puffing on behalf of any and all trade restraints.
Just Say NoNot every social and economic problem has a legislative solution. In fact, most of them could be better resolved by large doses of individuality motivated by common sense.
How do you avoid getting sucker punched by reverse auctions? Just say no to them. Decline to bid on those jobs.
I know, you've got overhead to support and crews to keep busy. As the saying goes, beggars can't be choosers.
This kind of thinking permeates the industry and becomes a self-fulfilling prophecy. When so many contractors engage in a rugby scrum over profitless work, is it any wonder that owners might treat them as an undifferentiated mob?
As noted, reverse auction bidding accounts for a tiny percentage of construction projects. Refusing to take part shuts you out of only a handful of jobs that have little chance to be money makers. This seems a no-brainer.
All right, things are not always as they seem. There are many permutations of the reverse auction, and some may not be as onerous as others. Then there are situations where a GC or owner invites/cajoles/blackmails a contractor into participating with the implied threat of withholding future work. Saying no may not always be a viable option.
That's when USP comes into play.
The USP ImperativeWalk a mile in owner shoes and you'll find it not so obvious that construction work isn't a commodity. After all, most jobs have no trouble attracting a dozen or more potential bidders for virtually all craft segments. Even when bidders are pre-qualified, there are plenty that possess the required credentials and can point to a track record of projects completed successfully, more or less.
Which leads to the question: What makes you better than the pack? What is your unique selling proposition (USP) that would lead an owner, GC or CM to hire you for the job even at a bit of a premium price?
And, if you can't provide a compelling answer to this question, why shouldn't you be treated as a commodity?
USP is a fundamental concept to marketing professionals. They earn considerable pay defining their companies' competitive edge and getting the message across to prospective clients.
Many contractors are clueless when it comes to marketing. That's because they have relied mainly on competitive bid markets to obtain work. Competitive bidding pretty much does away with the need for marketing. It distills your entire marketing message into, “I'm willing to do this job for less than anyone else.”
Marketing is a way out of the reverse auction ghetto. It's time to define your USP, hire a marketing professional if necessary and spread your message. If reverse auctions are the wave of the future in construction, it's time to pursue an alternative future filled with negotiated work.