When I was a project manager for a project with a large automobile
manufacturer in Detroit as en employee with another large firm, the
following appeared, at least to me, to be standard practice:
1. Set a budget
2. Go out for bids
3. Open bids, see what's lowest
4. If it matches or is less than the budget, inform everybody what the
target price (the lowest bid) is and rebid
5. If it is greater than the budget, inform everybody what the target is
(the budget) and rebid
6. If a lower price comes in, repeat steps 4 or 5.
Low prices certainly were achieved. So was cost cutting, minimal quality
control, difficulty achieving goals and all that you might expect from a
frustrated, penny-pinched contractor working with the objective of not
having a loss on the job.
That was also, by the way, how the firm I was with got the job as the
consultant. I shared a hotel room for one person with two others who then
moved in with me to a short-lease apartment (also for one person) for four
months while in Detroit to keep costs down.
Ethics? You can all decide. There was, however (to the best of my
recollection) never any discussion of a possible violation of law.
At least, that is my opinion.
Personally, I don't recommend it. Give the project to a contractor for a
fair price and the contractor will, hopefully, give you a fair performance
within their ability. Give the project to a contractor after knocking them
down to a no profit job, or less, and you will have a nightmare of change
orders, inadequate supervision and other cost-cutting measures. In the end,
the client will pay more for your fees, shortened lifetime and possible
litigation costs for non-compliance with project specifications by the