Tuesday, May 12, 2009

Stimulus Will Backfire in Places

I read a recent state report concerning how excited SC was that stimulus projects bids have been coming in well under budget. This is happening in other states as well. It has actually been going on for the last year, before the stimulus package was even a concept. I am in the commercial/industrial construction field. The decline of the housing market has resulted in a dump of residential contractors into the commercial/industrial pool. Compound that with a decline in construction across the board and you now have what equates to a feeding frenzy.

Many of these contractors are bidding below cost just to slow down the bleeding. I see it frequently. Contractors trying to at least make a marginal profit losing to contractors bidding the project below cost. Our bureacratic sytems in place at all levels from local to national governments generally take the low bid, as long as there is a p&p bond. The stimulus plan was well intentioned and I would love to see it work as intended, but what I fear we will see is a large number of businesses going by the wayside because they continued to try to make a profit (albeit small), while a number of businesses will also fall along the way because they will find out too late that you cannot survive by losing money (unless you are so big that the gov. steps in to give you more money to lose).

Instead of preserving the small business owners while sticking it to the big mega firms we are all supposed to hate so much because they make so much money and pay so little in taxes, the victim in the stimulus plan will be the smaller company without the capital and cash reserves to weather the storm. The only way my firm can get a school project or other stimulus related project is to bid well below our cost. Every bid we have lost was well below our cost, some below material cost alone (so it is not just a matter of our cost being too high, there is a floor on material prices). We choose not to do that for what I believe to be the right reasons. But the next time I write to you, I may be one of the many unemployed people sucking on the government teet and looking for a job.

And to add insult to injury, you do get what you pay for. Many of these projects will not live the full length of their intent and require a rebuild sooner, or costly repairs along the way. Mark my words. Not all will as ethical businesses will still perform ethically, but many will. And who is going to pay for that?

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