The Hidden Cost of a Low Bid in Power Generation Projects

When unexpected infrastructure failures or state-mandated relocations fall outside existing contracts, a low bid can seem attractive. This is especially true when budgets are tight. However, the lowest price often hides serious risks that can undermine both safety and reliability.

According to the Associated General Contractors of America, 70% of construction risk managers in utility and energy sectors reported a rise in subcontractor financial distress or defaults last year. Nearly half experienced delays or cancellations as a result.

In power generation, where safety margins are slim, the wrong contractor is a costly and dangerous choice. A low bid may mask inexperience, safety gaps, unqualified labor, or unrealistic timelines. Once a contractor realizes they have underbid, it is often too late. Scope changes, renegotiations, or even project abandonment can threaten your operations, budget, and workforce.

By shifting from a price-first mindset to a strategic vendor selection process, you can prioritize performance, preparation, and long-term partnership. The following best practices can help reduce contractor risk and protect the safety, reliability, and integrity of your projects.

1. Eliminate Bid Extremes Early

A low bid often signals that the contractor misunderstood the scope, overlooked terrain or access issues, or is deliberately underpricing with plans to renegotiate later. On the other side, high bids may include padded labor costs or unnecessary equipment charges.

Focus on realistic, mid-range bids. These usually reflect the actual cost of completing the work correctly the first time.

2. Issue RFPs That Set the Standard

Weak requests for proposals (RFPs) result in weak bids. Problems begin when contractors must interpret vague requirements or unclear safety standards. In power generation, where every project carries high stakes, unclear direction increases the risk of contractor failure.

Your RFP should include:

• A clear job description and technical requirements

• Labor expectations, including certifications and safety training

• Required documentation, such as drug testing, CDL, or OSHA compliance

• A project timeline with clear deliverables

• Any site-specific or regulatory constraints

When all bidders respond to the same detailed criteria, it is easier to evaluate both pricing and risk fairly. This also reduces the chance of a low bid caused by misunderstandings about the job scope.

3. Vet Vendors Beyond Paperwork

Simply confirming that a contractor submitted a certificate of insurance or safety policy is not enough. You need to know how they perform in the field. Have they handled similar work under similar conditions? Has their leadership met tight deadlines before?

A thorough vendor vetting checklist should include:

• Experience modification rate (EMR) and total recordable incident rate (TRIR) for long-term safety performance

• Certificates of insurance that meet or exceed your minimum requirements

• A history of the proposed superintendent or crew lead, with client references

• Past projects that match your scope, scale, and risk level

Even trusted contractors should be re-vetted periodically. Past performance does not guarantee future reliability, especially if the project scope or risk profile changes.

4. Require Proof of Labor Readiness and Safety Investment

A low bid may look appealing because the contractor is cutting costs on labor. This could involve using underqualified workers, skipping safety protocols, or failing to meet OSHA requirements. These shortcuts often become apparent only after work begins.

To reduce contractor risk, request up-to-date training records for certifications like OSHA, arc flash, and high-voltage work. Require proof of regular drug testing and background checks. When working with energized systems or transmission infrastructure, there is no margin for error. Labor readiness must be verified, not assumed.

5. Build Risk Protection into the Contract

Even a well-vetted contractor can miscalculate project costs. When that happens, they may try to renegotiate mid-project, reduce scope, or abandon the job altogether. These disruptions are especially damaging in power generation, where delays can affect reliability, compliance, and operational continuity.

Protect against these risks by ensuring contracts:

• Tie milestone-based payments to performance

• Define penalties for missed deadlines or scope changes

• Include exit clauses for underperformance or non-compliance

Before executing any contract, make sure procurement, legal, and operations teams agree on the terms. It is also smart to keep a list of pre-qualified backup vendors who can step in if needed.

Raise the Standard to Lower Contractor Risk

Every project reflects your organization’s standards and values. Selecting a contractor is not just about avoiding poor performance. It is about choosing a partner who can deliver when the stakes are highest.

A low bid might meet the budget, but without thorough vendor evaluation, it becomes a gamble that can disrupt operations. By raising the standard for contractor selection, you reduce risk and strengthen your ability to deliver reliable, compliant, and cost-effective results every time.