PART 2: Why the Vendor Bidding Process Is Broken (and What It’s Costing Property Managers)
Manage episode 458749533 series 3019380
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Can vendor bidding solutions like RoDevia Brigham’s Proposabid create more transparency and detect fraud?
That’s where we left off during Part 1 of this discussion on The Property Management Show. Let’s pick up the conversation about how the bidding process is broken, and how property managers can avoid wasting time and money. Here’s Part 2.
How has Proposabid Contributed to Fraud Detection?
When RoDevia was talking with her partner, they discussed how a lot of vendors would inflate pricing or maybe there would be work that was needed but didn’t really have to be done in the particular way that a vendor believed, or at a higher price point.
There are a couple of specific cases that she was able to detect, and she cautions owners and property managers that things like this could be happening without them knowing about it:
- On-site staff may claim that work is necessary, or they’ll be billing you for work that may not be completed or required. If you’re an owner in Arizona with properties in Tennessee, you may not know that what you’re being told isn’t true. If your manager is overstretched and has 76 different properties to manage, she may not know that 34 doors need to be replaced in a specific way at one property.
- There could also be a conflict of interest or some self-dealing going on. Staff or property managers may use companies they own. In San Francisco, we had a cleaning company that got a $15,000 per month contract at one property for 150 doors. It was on-site staff that was registered and had an EIN. Family members worked at this company, and they managed to claim contracts across other properties for almost $500,000 over three years without the owner knowing. There was no bidding process at all.
If you have a third party that doesn’t have a dog in the fight and can source bids for you in timely fashion and has comparables for you, the process is fully transparent. Proposabid also posts their bids online so other vendors can compare.
Any number of issues can crop up when a company is just assigning someone to source bids who isn’t qualified to do it or is too busy to give it the necessary attention.
Challenges for Property Managers in Analyzing and Comparing Bids
Let’s say a property manager does manage to get some bids. Now it’s time to analyze and compare them. What are some of the challenges and issues would a company face at that point in time?
First, RoDevia would be wondering if you have enough bids.
When you do, you have to ask if the bids have expired to the point where they’re no longer viable.
One of the main things she has noticed is that property managers won’t necessarily know what the vendor does not offer.
For example, there was a hazmat fentanyl situation at a property, and the building had to be closed down. Police were involved. To get bids for the cleaning, you also have to think about what the vendors are not offering in those bids. Proposabid needed to analyze that particular piece. What all five vendors didn’t offer was to post drug testing. Can you post it once it’s clean?
Also, what about repairs and renovations after the cleaning. It might be necessary to tear into a wall. Asbestos and lead testing might be necessary depending on what’s found when you do open up the wall.
Always consider whether you know what you need beyond the bids themselves. This is the most challenging part.
Another challenge can be the number of hands in the pot.
If you have a board or an HOA, there could be some extra time needed. One HOA client had three good bids, but they wanted more. That’s fine, but the three best bids are still going to be the three best bids. So, who is making the decision? Can you get in touch with the right people at the right time? The person receiving the bid probably cannot sign off on the awarding of that bid.
Often, staff does not know what they’re looking at or what the next move is.
Another example: RoDevia had a client with seven roofs. Four had allegedly been replaced and three more needed to be replaced. But as she gathered the bids from roofers, all of them pointed out that one of the four actually had not been replaced by the original vendor. Because of her RFP process, all the vendors bidding went out to have a look, and they all reported that four roofs actually needed replacing, not three.
So, is there a lawsuit with the previous vendor, and how do we prove this?
It’s proven with the bids. Multiple roofers confirmed it. So now the owner has to decide whether to pay for three roofs or four.
The challenges are everywhere.
What you want is someone who will strive to get you in line to make the next decision and help you narrow down the options so you can make educated decisions.
Property Managers or Owners: Who Is Making Decisions?
Even after good bids have been gathered and all of the information makes sense, someone has to make a decision. Marie asked RoDevia in her experience, who should bear the brunt of making the decision?
Each relationship is different, and in the property management world, it can play out any way.
The property manager is representing the property and has the authority as outlined in their operating agreement. Many owners want their manager to handle it for the purposes of efficiency and expertise. They’re just not there and they just don’t know. And, if the property manager has relationships established and the expertise that’s needed, it’s an easy call.
But, there are a lot of owners who want to make the final decision, especially if it is financially impactful. So in this case, a property manager would gather bids and present them. The owner gives the final approval.
In a mom-and-dad situation or with independent owners, it’s whoever has the resources and the bandwidth to make the decision. It’s also how did the vendor make them feel. That gut feel aspect along with the warranty and the expertise and quality assurance and safety record and insurance all counts.
Bidding and Documentation
Documentation is always your friend, so document the bidding process.
The problem is that over the last few years, RoDevia has noticed that documentation is all over the place. It’s in emails. It’s in a text. It’s in a voicemail. There’s no real solid database where all parties will go to find the same information, and that’s something Proposabid has built in for clients.
Here’s how Proposabid works at a high level:
- They get to the property and do an intake.
- They create an RFP.
- That RFP is marketed out to their vendors.
- They gather those bids and aggregate them.
- Those bids are submitted to the property and the property makes a decision.
The process is completed in 15 business days or less. This works for a $15,000 bid or a $3.5 million bid. It covers office remodels, concrete, and whatever needs to be done.
Looking to the Future for Property Management and Vendor Bidding
What do you need to know about future trends? RoDevia shares lessons from the field:
- Cash for Bids. This is starting to happen more and more, and it will be devastating for property management companies. Vendors are looking for cash deposits and payments up front to secure the bid. Those payments can be several thousands of dollars. And that’s just to get the bid. Some of these things have to do with reduced risk of nonpayment. (It’s highly recommended to pay your vendors on time). This will probably not become a gold standard. Some vendors may adopt it, but overall it shouldn’t be normalized because of client pushback.
- Rising Costs. When projects are delayed or bids are incomplete, costs rise, and that is a huge burden on the budget. More so than it was five years ago. For commercial buildings, the average increase is 5 to 8 percent per year on labor expenses and materials. There are also continued supply chain challenges. For multifamily buildings, that rate of increase is 6 to 10 percent annually.
- Inflation pressure is outrageous. A project costing $90,000 four years ago would be $124,000 now.
Get your properties in order.
Get your bids organized.
One big recommendation RoDevia has is to be honest with your vendors. This will protect your reputation. When you’re sourcing your bids, be honest if you’re just shopping for bids. We always let our vendors know when we’re just budgeting only. A client may simply need some numbers. So you’ll just get the quote not the full breakdown.
If you just go fishing and then never award bids, your reputation is damaged. Mitigate around that and be honest about your intentions once you do have bids.
Each estimate costs about a hundred dollars an hour, so most vendors will give a bid even if they know they won’t necessarily win the award. They know up front that they might not get any work from it, but there’s still a bid in place that may be honored later. It actually lowers costs for the client.
If any of our listeners want to learn more about the bidding process or what to look out for, visit Proposabid.com. And if you have property management marketing or reputation questions, contact us at Fourandhalf.
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