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Several weeks ago I received a phone call. Someone wanted to know how to calculate the premium for quality because he had a client who wanted to know. My answer was to have the client read Philip Crosby’s book Quality Is Free or its sequel Quality Is Still Free. My response might seem flippant to some, but that was a serious answer.

“Quality is free. It’s not a gift, but it is free. What costs money are the unquality things—all the actions that involve not doing jobs right the first time.”

—Quality Is Free

But what is quality? Crosby defines it as “conformance to requirements.” In other words, it’s not a comparison between granite versus plastic laminate countertops, but an evaluation of whether the item selected was installed correctly in conformance with the requirements. However, quality goes beyond bricks and mortar; it includes the services and the relationships among the contractor, the architect and the client.

When owners use high-performing contractors, they obtain quality for free. First, instead of wasting dollars hiring someone, whether an in-house team or an outsourced version to monitor the contractor, they focus on selecting a high-performing contractor that understands the importance of using high-performing people who have the ability to look ahead and minimize risk of nonconformance.

This approach is more cost effective because it’s more efficient. Instead of hiring someone to make sure someone else does the job correctly, it’s better to hire a company capable of managing its own performance to ensure the job is done right the first time. Often the fee paid to the overseer is greater than the difference between the low bidder and the best performer. Somehow this approach doesn’t make sense.

If you need surgery, would you hire another doctor to manage your doctor? If you go to court, would you hire a second attorney to manage the first attorney? I doubt it, so why do people think it’s necessary in construction? Hire the best-valued contractor; then get out of the way and allow them to perform like other professionals.

In essence, make the high performer responsible for his performance. When the contractor is at risk for its performance, the contractor will take the appropriate actions to minimize the risk by ensuring that things are done right the first time, which is in the contractor’s best interest. However, when the owner attempts to manage the contractor through some form of oversight, the owner actually places himself at greater risk. In this mode the contractor merely responds to directions, and as long as it does what it’s told, it has no liability. This results in lower quality because the high-performing contractor is best qualified to manage the quality process. Further, the high-performing contractor does it more efficiently.

Quality is free because it eliminates waste. It always costs more to do it a second time. Unfortunately for owners in the low-bid environment, the owner pays for the rework in the form of change orders. In contrast, in a high-performance or quality environment, the contractor is made responsible for performance and quality and, therefore, works in its own best interest to minimize that risk. The high-performing contractors include the necessary management effort to look forward and properly plan the project to minimize rework and other project risks. While this effort raises the contractor’s initial bid, it provides a payback by eliminating or at least reducing change orders. Dr. Dean Kashiwagi’s research at the Performance Based Studies Research Group at Arizona State University demonstrates this fact. In their best-valued projects, they showed 98 percent of their projects finished on time and on budget with no contractor-generated change orders. One percent finished late because the contractor didn’t want to sacrifice quality, and in only 1 percent of the cases did they experience problems. But in the problem cases, the client selected the low-cost provider instead of the best-valued contractor.

When Toyota instituted lean manufacturing, it experienced a similar result. While it paid a small premium to each of its vendors, thus raising the cost of each of its car parts, the cost of the car as a whole came down. Instead of merely telling vendors what to do, Toyota provided the parts requirements and made the vendors coordinate their designs with the other vendors. The result was minimal assembly problems, reduced warranty costs and lower overall costs.

Toyota followed Edwards Deming’s advice, namely, identifying the best vendor for a particular part and allowing it to use its expertise and knowledge to produce the best possible part for the car through a coordinated effort with the other vendors. This process allowed Toyota to approximately double its productivity. Similar rewards would be available to the construction industry if this approach were adopted.

Of course, there are those who argue against this approach from both sides. Contractors that have built their business models around beating up on subcontractors, minimizing their responsibility and passing all problems on to the client find this approach threatening. Suddenly, they would have to be responsible for the quality and performance of the project. Since they can’t compete based on performance, they tell owners they are paying more by using the other contractors. Too often owners don’t look beyond the initial bid and agree.

Some owners also feel threatened by this approach because when they select based on price, they can hide behind the process instead of being responsible for the actual selection. However, Kashiwagi has documented that even when things go wrong, high-performing contractors step up to the plate to protect the client. Again, the contractors do this because if they don’t deliver what they promised, they will lose that client. In contrast, the low-bidding contractor promises only to be low on bid day. The good news is that Kashiwagi’s best-value process provides a methodology to allow owners to objectively evaluate contractors based on performance and price, therefore reducing the owner’s risk in selecting a high-performing contractor.

What many owners don’t seem to understand is that in the low-bid environment, the contractor is often forced to remove his profit or set it at unsustainable levels to get a project because there is too much low-performing competition. Therefore, the contractor looks for problems so it can charge for change orders. So the question to owners is this: Do you want contractors on your team looking for change orders, or would you rather a contractor seek solutions that minimize or eliminate change orders? Of course, they charge for that service, but did you expect to get that service for free? Keep in mind that those who seek something for nothing usually get nothing for something.

I also understand that some government agencies are forced to accept nothing but the lowest price. However, many agencies do have more flexibility than they realize. Further, the laws can always be changed. When I interviewed Colonel Mouton of the Louisiana National Guard on New Construction Strategies, he explained how they got laws changed after hurricanes Katrina and Rita, so he could perform the massive repairs on more than 200 damaged Guard buildings. Based on their fantastic results, the Guard and Louisiana are delighted to continue based on this performance approach.

Quality is free because the little extra that it takes to do it right the first time saves money in the long haul. These savings can match or exceed the extra initial cost. To properly evaluate the savings, though, owners must look at all project costs, not just the direct construction costs. Don’t be one of those people who thinks they can’t afford quality or doing it right; you really are just kidding yourself. The most costly way is not doing it right. Just keep telling yourself, “quality is free, quality is free”. Maybe after a little while, you, too, will become a disciple of the idea.

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