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During recessions we see steel fabrication prices drop to rock bottom at a time when we need all the money we can get from our jobs.  Business owners make decisions like drastic drops in pricing  based on an effort to keep people working and the company running.  This strategy, while it sounds like a great idea, is much like shooting one’s self in the foot.  (It’s ok, I’ve got another one… )

The hope is that using this strategy might sell enough work to keep the cash flow always moving forward, then pricing for future jobs may be raised and projects sold at higher dollars to keep the company from getting into financial trouble. 

Prices go down a whole lot faster than they go up in the fabrication world.

Businesses exercise this strategy (designers and general contractors too), while keeping fingers crossed that not even so much as a hiccup occurs during the course of the job.  Any upset in this forward moving plan could send funds seeping down a hole instead of creating funds to propel the company forward into the next cash positive project.

The immediate gratification received by the flurry of activity is all too soon followed by mounting debt, swelling payrolls and slow cash flow, exchanging one headache for a whole stack of new ones that may send companies into the world of Chapter 13 or Chapter 7.

How do we tell our fellow competitors that to choose this strategic plan is just bad business and keep them from going there?  We can’t blame the business owners for making every effort to hold on to their livelihood, can we?  So many companies do it – and the low bid goes to the one with the most to lose.  Then we all start taking turns.

Companies utilizing this low bid mentality get sharp attention from potential customers, their own competition, as well as the material vendors and subcontractors.  All wonder about the credibility of the business due to this behavior. 

Material vendors and subcontractors have a broad customer base and few competitors.  Price cutting from them to support a low bid mentality is seldom found.  We still have to buy what they are selling and those prices are going up, matching the rise in fuel cost.  Good luck in finding any kind of deals. 

The more savvy businesses choose to wait out the storm, pricing projects the same way as they do in the good times, diligently and consistently.  This practice, while honorable, results in what seems like wasted estimating time and dollars as one bid after another is beat by 25 to 50 percent.  With the length of time this recession has lasted, even the most conservative fabricators are suffering the impact.  Soon even these fellows may follow suit, and this will make every bid a virtual bloodbath.  

Is there anything that could be done about this?  Do we have to accept this as the status quo?  Will any among us be able to keep from diving into the cellar with everyone else and survive this tornado of a recession?

Company owners ask themselves these same questions daily, while shaking their heads upon reviewing the competitive bid results.  How do we stop the downward spiral?  How do we survive till these guys quit doing this or go out of business?

We find that the root cause of this low bid mentality is desperation.  Despair is an emotion, and most of us understand that emotions usually don’t serve business well.  But what is the root cause of this despair?   Peel back another layer and you might find that it is blatant ignorance and a total lack of commitment that is actually behind this kind of desperation. 

How so, you ask? 

Most fabricators get into the business because they thrive in the trade.  A commitment is made to do quality work and to deliver the finished product on time.  In fulfilling this commitment, a successful business is created and maintained, supported by the industry it serves.  In other words, the foundation for any good business is strong business ethics.

Stupid low pricing doesn’t change any of that, does it?   Well, it tampers with the success part, and probably the ethics part, which in turn bumps aside commitment, quality and thoroughly stomps on fairness. 

Do we honor ourselves or our trade industry when we beat up our vendors and subcontractors for lower pricing to support our price slashing plan?  Just how long is the line of people you have to screw to make budget?  Maybe making budget isn’t the intent.  Maybe robbing Peter to pay Paul is really the intended solution.  Who knows?  Maybe the plan is to worry about all of that later, because it’s a bigger worry that there is no work right now.  Makes sense if you don’t think about it.

We commit to do quality work to honor our business and the industry we serve that supports us.  For the company, that honor is based on doing a fair job for a fair price, on behalf of the employees, the vendors and the subcontractors.  

If a contractor is purposefully bidding and taking projects too cheap, they then threaten the opportunity for their own success by destroying fairness, trust and honor, not only for their own company, this destruction by association includes the business employees, vendors and subcontractors.

If running the company by emotion, the owner has decided that fairness, trust and honor have no value, that it is alright to ignore any commitment to themselves, the industry and its fellows.  Just for one job.  We can be smarter later on.  After we score a job and get some work.  

Those that follow suit on bid day have made the same decision.  And so the downward spiral is maintained. 

This is why the root of this type of despair is blatant ignorance and lack of commitment .  This level of desperation is achievable only when someone is willing to totally disregard the commitment made to those who support the company, as well as to the trade industry that has been supporting them.

Servicing emotion and ignoring these commitments may win the bid, but it will also renders the industry unable to support your business.  It starts the negative cash flow trend, not only for your company, but for everyone else even remotely associated.  It’s a practice that builds a ship that will sink. 

In closing the only answer to this problem is not to create it.  Don’t go down that path of desperation.  Choose downsizing or diversification, find different opportunities – anything else. 

Don’t be the one that decides to cut the throat of an industry that has supported so many for so long.  You will be the leader of a line of lemmings, and if you survive the migration (recession), you will be following in that same line again, set for that same destructive opportunity.  

You can choose to stop the cycle and set a standard, others will notice and follow.  The result will be almost immediate.  Those emotional quotes will be singular and untouchable, forcing market trends back where they belong. 

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Sometimes, the best way to win a fight is not to go there.

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