Google the word “undercut”. You will find stories on companies undercutting one another to grab more market share, or corrupt politicians undercutting one another to gain influence. Undercuts are bad for business. Believe me, I have monitored the word “undercut” on my Google Alerts for several years, and it’s all bad.
As contractors, the idea that we do not understand the sub-surface condition of our projects is scary. Even if we have soil borings, those borings are only representative of their exact location. In a competitive bid climate, we must keep prices low, so we quote the best-case scenario and include an insurance policy called an undercut contingency. Undercuts are expensive, and place a heavy burden on the environment.
These contingencies often include enough dollars to cover removing and replacing a small section of the entire buildable area, or worse, they provide a unit price that is open ended. When poor soils are encountered, the contingencies are quickly exhausted or escalate out of control and leave us with an unhappy owner.
On Earth Day, let us consider some better ways for our industry and our planet.
Try a site guarantee and provide a lump sum price for site development that includes a calculated risk to modify poor soils when necessary. The owner gets a guaranteed price, and you, the experienced contractor, takes the risk. When things work out you get a little reward for the risk, and your customer sleeps easy knowing their project budget is secure.
If you do not want to take all the risk, consider a modification contingency. Rather than funding undercuts for a small portion of the project, consider earmarking the same dollars for modifying one lift of the entire buildable area. Typically, the cost would be comparable to undercutting 25% of the same area, and if needed, leave the owner with a stronger more consistent subgrade. In this scenario, there is little risk of the owner exhausting the modification contingency and running over budget.
Another solution, a win-win, for both the owner and the contractor is for the contractor to buy the site with a modification contingency credit. With this method, the contractor buy’s the site but offers a credit for
modification not performed. Less risk for both parties, and the owner has a budget that can only shrink.
On Earth Day, make it a point to stop undercutting your customers and our planet. Do the right thing for your projects and start including modification contingencies in your contracts.
Need help creating a modification contingency plan? Give us a call.
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