Bulk Tender Pricing By Equipment Suppliers 1

[walkes]

What is your experience with bulk pricing of tender packages by HVAC equipment suppliers?

The supplier can provide equipment considered equal to that specified, some of the products may be more expensive, some less expensive, but they give the contractors one lump number for everything such that the contractor is not able to shop around for better pricing. This may occur where there are one or two pieces of equipment or systems that do not have a lot of competition within the package and other suppliers cannot provide a similar bulk price on a complete package.

Is this a fair practice, are there ways around this to ensure that the owner gets a fair and competitive price on the project? In the above scenario the only competition is on the contractor's labour and scheduling.

 

[Drazen]

i believe that is quite unfavorable for contractor for many reasons, and i even daresay some of contractors who take risk of such engagements are often ones who could be considered unreliable.

for instance, point of transfer is to be considered. suppliers will often accept only ex-works delivery at their manufacturing site, all the rest they would expect from contractor or they themselves will engage transportation company.

so when you say contractor's labor that means, transportation, insurance, site storage etc.

if you push suppler to deliver on site, than things could be tricky if your contractor is not main contractor at the same time (which is not often the case with HVAC contractor). than you are the one to coordinate storage management between main contractor and HVAC contractor and that will be your cost.

in general i do not fully understand your situation. it is to be assumed that you have specs, and than you can hire supervision engineer, and it is his exact job to scrutiny each part of equipment to be delivered on site. that can be easily placed in construction contract.

in developed site administration there is distinction between equals and substitutes and again you can define in contract what part of equipment you need as equals, and where substitutes are acceptable.

it is always desirable that, if you are client's representative, that you install such proficiencies in contract rather than taking some job out of contractor's scope "for better control", which often leads to troubles.

 

[MTES93]

This if fairly common in my neck of the woods. Here we call it 'packaging'. The equipment packages are typically broken up into 'wet' and 'dry' packages. Wet packages usually do not include plumbing. Dry obviously would be the fans, GRD's, air handlers, duct accessories and related. Wet being chillers, boilers, pumps, valving and so on.

Essentially you have to look at the benefits to three parties involved.

1. Owner/Engineer.
2. Contractor
3. Suppliers.

From the owner's/engineers perspective it is cost and performance. I have seen pricing go up due to 'packaging' and also I have seen it go down for reasons I will explain later. Performance is performance and that is OUR job to make sure the owner is getting a suitable substitution. Prices can go up in a package for the reasons you mention. Only supplier A has a particular widget. Knowing that, he can mark up essentially everything he wants if he is certain he is going to get his widget hard spec'd. Supplier A is also very happy to sell his hard spec'd widget to supplier B, C and D but at his asking numbers. So in this situation it is not good. And it will mostly certainly result in inflated costs.

The contractor likes the package bidding environment for several reasons. First, one contract/purchase order to write. One point of contact for issues. If there are system interoperability requirements (can't think of any good examples right now) then the contractor has one source to go to for problems. And quite honestly, his job at bid day is much easier.

The supplier. Number one he can spread his risk. Say he only gets the fans on a job. If his young take-off guy screwed something up, he only has the profit in the sale of his fans to handle any mistakes. But if he had the air handlers, GRD's, fans and fire dampers he could more easily and more importantly.. more readily accept responsibility for his error. Also, by packaging from certain mfgrs' they can get better percentages from the factory. Let's use Loren Cook or Greenheck for example. Assuming the design had ERV's (energy recovery ventilators), fans and roof hoods, getting these as a package could result in a better multiplier for the supplier. Now you don't necessarily have to be in a packaged bid environment to get this deal.. I'm sure the mfgr will offer it if all components are sold together. So between spreading the risk and obtaining better multipliers, the supplier can then submit a lower bid.

For whatever reason my state is a packaged bid environment but I have found successful remedies to get around this issue when required. One is to simply not allow it, which I have done on large projects. I write it in my project specifications and list what packaging is allowed. Ie.. I keep the Greenhecks and Cooks equipment together where it makes sense. Major items... chillers, boilers, air handling units and systems (say raised floor air distribution packages) I make separate items.

For the case where Supplier A has that darn trademarked widget or widgets. I make those items be a line item bid and "allow" packaging of the rest. I'm not really 'allowing' it, I just know it will happen on the rest of the items.

I don't promote packaging or completely reject it. I have just learned to deal with it. Also there are many more nuances involved with it then I can summarize here but I hopefully addressed your question.

Long winded answer for what seems like a simple question. Sorry.

 

[walkes]

Thanks 11241, I think you nailed it. I may try using the line item in the bid forms for those specific "widgets".