Consti’s difficulties continue.
Competitive bidding in renovation construction is a brutal game.
Typically, the one who promises to do it the cheapest is the one who ends up having to do the job.
I deliberately wrote “ends up having to,” because the winner of a renovation tender typically gets the contract with very low margins. Often, the project is even loss-making.
Consti’s disadvantage compared to its competitors is the company’s significant administrative and group costs, which are massively smaller for more agile players.
A housing cooperative’s renovation (e.g., plumbing or facade renovation) is a typical example of a Consti competitive bid. Due to my career path, I have been involved in over 200 such renovations.
It has been common in these tenders that about 40-50% of the bids received are priced “correctly.” In other words, they are very close to each other in price. They have been calculated seriously, and great care has been put into the bid estimation. As a result, the cluster of correctly calculated bids is a tight group with a spread of only a few percent.
Typically, about 40-50% of the bids received are somewhat expensive, meaning their price tag is 10-50% higher than the “correctly” priced ones.
Often, the bids also include one that has offered the job at a price that stands out as an “underprice” (when compared to the “true” market price). Typically, this underpriced bid is 4-8% cheaper than the second-cheapest contractor. So, not massively, but distinctly cheaper nonetheless. There are no longer any margins to be seen in a contract like this.
Then there is one more group that pops up every now and then in tenders: Unhealthily underpriced bids. In these cases, the bid can be 10-20% cheaper than the second cheapest.
It has been striking that these outrageous underpricings have almost without exception come in envelopes with the Consti logo. Private entrepreneurs do not fall for such mistakes. Their own pockets are on the line.
Everyone can think for themselves how profitable renovation contracting is if “correctly” calculated bids yield, for example, 3-5% margins.
Namely, if you calculate the technical lines correctly and put, for example, an 8% margin on the margin line, someone else will take the job for absolute certainty. In a competitive industry, contractors have to settle for low margins.
Consti is poorly equipped to succeed in competitive bidding with good profitability. The customer (e.g., a housing cooperative) typically buys from wherever they can get it cheapest, and that means very slim margins for the contractor, if any margins at all. The industry is competitive and many bids are received.
I do not intend to become a Consti owner in the future either, because smaller, local companies with a turnover of 3-15 million are capable of profitable business with significantly lower site margins than this giant. Therefore, they will continue to keep Consti in a tight spot in the future.
Does anyone have any thoughts on how Consti could turn this plight, caused by its heavier cost structure, into a success?
Correctly calculated bids are of course one way, but you won’t win many percentage points or tenths of a percent with that, otherwise smaller contractors will start snatching the jobs away, as their business can tolerate a thinner site margin than Consti.
Edit:
And of course, Consti does not systematically or even typically miscalculate its bids; much more often it is not selected because it is in the middle group of the bids received.
Clear cases of underpricing, when they are encountered, are however most often Consti’s handiwork.
Sedän suosikki eli Lehto tekee sillä kovasti turskaa ja onneksi se pyrkii korjaushommista nyt kokonaan eroon. Syytä onkin, kun Lehtolaput on tällä hetkellä varsinainen turskakasa salkun salapohjan alla piilossa. Sitten eräänä päivänä, kun Lehto painaa pelkkää uudismoduulia Ruotsissa kovalla tahdilla ja katteella, lienee aika katsoa, josko laput saisi vielä kunnialla myydyksi.
