What are the ramifications of “competitive pricing”

I don’t normally report press releases from architects or contractors who are starting new projects. It seems counterproductive to rub it in the face of the firm’s competitors and of no interest to those at the other end of the country. But an exception with this one as it raises an interesting question.
   The announcement is that R.D. Olson Construction, Irvine, CA, has started building the 129-suite Homewood Suites in Oxnard, CA. Olson is on the fast-track to complete the project by early 2010 after offering its client, T.M. Mian & Associates, Dallas, exceptionally competitive pricing. “Customers are expecting competitive pricing in order to justify building in today’s tough market,” said Joseph Cervantes, Olson’s senior executive vice president operations. “We provide that without compromising quality and schedule.”
   The all-suite extended stay hotel, part of the Hilton brand, features a number of in-room amenities geared for vacationers and businesspeople. Those include kitchens, refrigerators, cook-tops, and microwaves. The approximately $10.5 million project was designed by RYS Architects of San Francisco.
   The question this announcement raises is in the two statements from Cervantes. Just how much are architects and contractors having to discount their work to get jobs and what is the breaking point? Cervantes claims that they are cutting pricing “without compromising quality and schedule.” Assuming that their work was competitively priced to begin with, and I’m confident it was, something has to give if the project cost is reduced and quality and scheduling maintained. Are the suppliers taking the hit? Are architects and contractors simply working on smaller margins? What is this recession doing to the overall cost structure of commercial construction and will those changes remain in play as the economy recovers? It’s an interesting dynamic and it will be more interesting to see what ramifications result.—Gary L. Parr

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