Do you cut your rate to get the work?

It’s that thing, that thing when as a small business you are faced with the question – “do you cut your rate to get the work?” I am fairly certain that businesses run into this all the time. In fact I had a very similar conversation with my client last week about the concern surrounding quality and cost. People want the best deal, but they also want the best product. Where it gets fuzzy is how you measure what good looks like for one person versus another.

Project Management uses a triangle to explain the time/cost/scope constraints in a project, and you will see that quality sits in the middle of that triangle. It sits in the middle because project managers like triangles and not squares. I’m kidding, it sits in the middle because it is the fourth constraint. What?

Each side of the triangle is a project constraint, the fourth constraint is quality and affected by each change of the triangle. You cannot change the length of one side without affecting the others. Got it? 

 
For example, your client increases the scope, has no more money and reduces the time to deliver the project. Is there a quality risk? Yes, maybe, well – probably. It might depend on where you are in your project plan, but how can more work for the same money in less time not affect the final outcome? Unless…you take the hit.
 
Some companies cut their rate to get the work, because they know or they assume, that the lowest bid will win. Then they issue a change order for everything outside of the scope. I think this maybe referred to as ‘nickel and diming’, which it really isn’t. By misrepresenting the actual costs, they skew the data because what projects are awarded for are not often what they are completed for – because? Ahh, the change order system. 
 
Companies who reduce their bids to get the work, (sometimes) implement a change order system which usually means they end up near or above the original competitor bids. So, what do you do?  Do you reduce your rate to get the work, then change order everything additional? Or do you submit an honest bid and hope that the evaluator knows what they need to know and can see the accuracy of your bid? Is it caveat emptor?
 
I’m torn as to how to approach bids because reducing my profit margin to nil doesn’t make any sense to me. And I dislike the idea of nickel and diming, although as commented earlier, that isn’t really what it is. But, perception is reality, so for your client it may be. 
 
I want to run a company built on honesty and education. I want to work with my clients so they understand why things cost what they cost and why cheaper is not always better. I want to submit accurate bids. I want to be seen as quality driven, constraint conscious and reasonable. I want to help my clients get the best bang for their bucks without jeopardizing quality. 
 
I want clients to look closely at companies who are constantly cutting their rates to get the work, I want clients to look at their quality, ask for and call references, and I want them to look at the awarded contract value versus the final contract value. I want them to read the bids.
 
People are not experts in everything so they hire people they believe know more than they do. And because of that they are constrained from understanding all the things that occur from A to B for any given industry, service, or product. All too often we take a little bit of information and make big decisions. We see things in their end state and make assumptions on the ease of getting to that end state. 
 
What if we all bid reasonably? Or what if our reputation for outstanding quality and service caused clients to want to understand why we are not the lowest bid. What if we changed the way people looked at the lowest bid by helping them see how that affects their triangle and their quality. 
 
What if we made quality, responsibility and honesty a requirement for bidding work? 
 
I don’t know how we would implement those things and I don’t know how we would evaluate them. I do know that the cornerstones of good project management and ethical bidding must be tantalizing to clients. I mean who wouldn’t want to know their up front cost for good quality and good project management? The key is in how we sell that. 
 

The foundation stones for a balanced success are honesty, character, integrity, faith, love and loyalty. – Zig Zigler

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