Has lowest-price tendering done more damage to construction than we admit?

Construction has spent years talking about quality, competence, collaboration, building safety, sustainability, social value and whole-life performance, but when a project reaches procurement, one factor can still exert an extraordinary gravitational pull over the final decision – and that is the final price, writes John Ridgeway.

There is nothing wrong with wanting construction to be affordable. Clients have budgets, public bodies are accountable for expenditure and private developers need projects to remain commercially viable. The problem begins when obtaining value for money becomes confused with obtaining the lowest initial price.

Government guidance itself makes the distinction. Current procurement guidance describes value for money as the optimal whole-life blend of economy, efficiency and effectiveness and says that, except for basic purchases, life-cycle cost should be considered rather than initial purchase price. The Construction Playbook makes the same point, that value should encompass quality, performance, sustainability and social value over the life of an asset, rather than minimising upfront capital expenditure. So why does construction still find it so difficult to escape the influence of the lowest number on the tender return?

The Cheapest Tender Has to Become Cheap Somewhere

A contractor cannot repeatedly win work below a realistic delivery cost without the consequences eventually appearing somewhere else. Margins can be squeezed. Risk can be transferred down the supply chain. Subcontractors can be pushed harder on price. Materials can be value-engineered. Experienced people can become harder to justify. Programmes can become increasingly optimistic. Design development can be reduced. Contingencies disappear.

None of these things automatically means a building will be poor quality. Competitive tendering can drive efficiency and innovation. But there is an important difference between removing unnecessary cost and removing the resources necessary to deliver the required outcome. That distinction can become blurred when tendering becomes a competition to discover who is prepared to carry the most risk for the smallest price.

Government-backed guidance on collaborative procurement has explicitly warned about this problem. It says single-stage fixed-price tendering based on incomplete information can create an illusion of low prices and cost certainty, only for the true costs to emerge later through claims and disputes. It also warns that attempts to deliver within an unrealistic tender price can lead to compromises in quality and safety. That should concern an industry trying to rebuild confidence in how buildings are designed, procured and delivered.

Part of the problem is brutally practical. Price is wonderfully easy to compare, because £9.8 million is obviously lower than £10.2 million. There is no debate about it. Competence is harder to justify. So is design quality. How much is a better-maintained building worth? What value should be placed on a contractor that retains experienced people? How should carbon reduction be compared with capital cost? What is the financial value of better coordination, fewer defects or a building component that lasts significantly longer? Procurement teams can create sophisticated scoring systems to answer those questions, but price remains seductively objective.

This can produce an unintended consequence. Quality, competence, sustainability and social value become extensive sections of the tender document, while bidders understand that relatively small differences in price may ultimately have a disproportionate effect on the result.

The Government's Sourcing Playbook recognises the danger of low-cost bias and recommends tools including Should Cost Models, appropriate quality weightings and scrutiny of abnormally low bids. The issue, therefore, is hardly unknown.

What Does Lowest Price Actually Cost?

The bigger question is what happens after the contract has been awarded. A cheaper building is not necessarily a cheaper asset. If saving money during construction produces greater maintenance requirements, shorter replacement cycles, higher energy consumption or premature failure, the initial saving has merely moved the cost into the future. This is why whole-life costing matters.

Consider a roof, façade, heating system, floor finish or piece of building services equipment. Product A may cost less today. Product B may offer greater durability, lower maintenance requirements, better energy performance or a longer service life.

If procurement considers only capital cost, Product A can appear to offer better value. Look at the building over 20, 30 or 50 years and the calculation may change dramatically.

Official procurement guidance recognises exactly this, stating that whole-life cost includes capital, maintenance, management, operation and disposal costs and can therefore be very different from the original purchase price.

Construction nevertheless continues to operate in an environment where the organisation paying to construct a building is frequently not the organisation that will pay to operate, maintain and eventually refurbish it and that disconnect matters.

Lowest-price culture also travels downstream. A main contractor under severe commercial pressure inevitably has to manage its package costs closely. Specialist contractors then face the same pressure. Manufacturers are asked for alternatives. Labour costs are challenged. Programmes tighten.

Each individual decision may appear rational. Collectively, however, they can create an industry where everyone talks about collaboration while simultaneously protecting increasingly narrow margins.

The Construction Leadership Council has previously described poor procurement practices as contributing to a "race to the bottom", linking them with poor quality and unfair payment practices. There is however, another consequence that receives less attention – innovation, which becomes harder when procurement rewards certainty at the lowest immediate cost.

Developing better products, investing in training, adopting digital processes, improving manufacturing and reducing embodied carbon all require investment. A supply chain continually forced to compete primarily on price has less room to make those investments. We cannot demand innovation from businesses while simultaneously removing the margin that enables them to innovate.

Building Safety Changes the Question

There is now another reason why procurement deserves greater scrutiny. The post-Grenfell building safety regime has placed much greater emphasis on competence, accountability and evidence. Procurement cannot logically sit outside that cultural change.

If the industry believes competence matters, procurement must attach genuine value to competence. If product performance matters, procurement must reward evidence of performance. If accurate information matters, procurement must allow sufficient time and resource to produce it. If quality matters, procurement must make it commercially possible to deliver quality.

The Health and Safety Executive makes an important related point when discussing supplier assessment: prequalification or conformity schemes alone are not proof that an organisation can manage the particular risks of a construction project; buyers also need to examine skills, track record and project-specific capability. In other words, competence cannot become another box that everybody ticks before the competition returns to price.

There are signs, however, that policy is trying to push behaviour in a different direction. Under the Procurement Act 2023 framework, the language has shifted towards the Most Advantageous Tender (MAT). Government guidance says this reinforces that contracts do not have to be awarded to the lowest bidder and that price does not automatically need to carry greater weight than quality. That distinction is important, but changing terminology is easier than changing culture.

The challenge is whether clients are genuinely prepared to defend a decision to spend more initially when there is credible evidence that doing so will produce a better outcome. That requires confidence, expertise and accountability.

It also requires procurement teams to understand what they are buying. Construction is not a commodity in which apparently equivalent products can always be compared by price. Buildings are complex systems assembled by interconnected supply chains and decisions taken during procurement can influence performance for decades.

The question construction needs to ask may therefore be different. Instead of “Who can build this for the lowest price?”, procurement should increasingly ask: “Who can demonstrate that they can deliver the outcome we require at a realistic cost and provide the greatest value over the life of the asset?”

That does not mean abandoning competition or giving contractors a blank cheque. Quite the opposite. Good procurement should interrogate costs rigorously, challenge inefficiency and demand evidence that expenditure is justified, but it should be equally suspicious of a price that looks too good. The cheapest tender can be genuinely efficient. It can also be a warning that risk has been misunderstood, omitted, transferred or deferred.

Construction has spent decades discovering that the price agreed at tender and the eventual cost of an asset are two very different things. We now have procurement guidance that talks about whole-life value, legislation focused on better outcomes, a stronger building safety regime and an industry publicly committed to quality, competence, sustainability and collaboration.

The uncomfortable question is whether our commercial behaviour has caught up with our language. Because if quality, safety, competence, social value and whole-life performance genuinely matter, we have to be prepared to give them a value before opening the price envelope – not after something has gone wrong.

10 FAQs: Lowest-Price Tendering And Construction

1. Why does lowest-price tendering remain so common in construction?
Price is easy to measure and compare, while factors such as quality, competence, durability and whole-life performance are harder to quantify. This can give initial cost disproportionate influence during procurement.

2. Does choosing the cheapest tender always mean getting the best value?
No. A lower initial price does not necessarily mean a lower overall cost. Maintenance, repairs, energy use, replacement and operational costs can make a cheaper construction project more expensive over its lifetime.

3. Can low tender prices affect construction quality?
They can. If a tender price leaves insufficient resources to deliver the required outcome, pressure can emerge elsewhere through material choices, labour, programme, design development or other aspects of project delivery.

4. What is the difference between lowest price and value for money?
Lowest price focuses primarily on the initial financial outlay. Value for money considers the wider outcome, including quality, performance, efficiency, sustainability, social value and the costs associated with operating and maintaining an asset.

5. Can lowest-price procurement create problems for the construction supply chain?
It can place additional commercial pressure on subcontractors, specialists and manufacturers, particularly when savings are repeatedly pushed down through successive tiers of the supply chain.

6. Why is whole-life costing important when procuring construction work?
A building's initial construction cost represents only part of its financial impact. Whole-life costing considers factors such as maintenance, operation, management, replacement and disposal, providing a broader picture of the eventual cost of an asset.

7. Could lowest-price tendering discourage innovation in construction?
Potentially. Innovation requires investment in people, technology, research, manufacturing and new processes. A procurement environment dominated by immediate price competition can make it harder for businesses to justify those investments.

8. How should competence be considered when selecting a construction contractor?
Price should be considered alongside evidence of relevant skills, experience, capability, track record and the contractor's ability to manage the specific risks and requirements of the project.

9. Does paying more upfront always produce a better construction project?
No. Higher cost does not automatically mean higher quality or better performance. The important question is whether the additional expenditure can be justified by a measurable improvement in the project's outcome, durability, performance or whole-life value.

10. What should clients ask instead of “Who is the cheapest contractor?”
A more useful question is: “Which tender offers the best overall value for the outcome we need?” That means examining price alongside quality, competence, risk, performance, durability, sustainability and whole-life cost.