Negotiated Bids vs. Competitive Bids in Construction

Negotiated Bids vs. Competitive Bids in Construction

Everyone loves a good deal. That is, as long as the item you receive for that bargain price lives up to your expectations. Typically, however, the old adage holds true: you get what you pay for.

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The same can be said for the typical commercial construction bid. Often, a project owner will invite multiple parties to bid on a building project, pitting several general contractors against each other to get the lowest possible price. All too often, however, numerous change orders are required down the road to get what the owner really wanted, driving up costs and causing potentially significant delays.

A negotiated bid can eliminate costly surprises and make the entire planning process and final outcome much more rewarding. Here’s how a negotiated bid process works and why it’s the best option for your next commercial building project.

What is a Negotiated Bid?

A negotiated bid involves a single general contractor who works on behalf of the project owner. A designated construction manager forms a trusted relationship with a project owner and architect from the very beginning of the planning process through completion, designing and developing an attainable and affordable plan that meets expectations.

For a competitive “hard bid,” a project owner will usually just work with an architect to design a structure and draw up specifications for a bid package. From there, multiple contractors are invited to bid on the project and the lowest bid is typically selected.

Advantages of Negotiated vs. Competitive Bids

Engaging a commercial contractor to partner with a project owner and architect helps ensure that renderings and schemes are complete and that the materials and specifications fall within the project owner’s budget and expectations.

It’s not all that uncommon for a project owner to go through the time and expense of having an architect develop drawings and a bid package, only to have all the bids come in way above the owner’s anticipated budget, meaning no one wins.

A project owner’s dream of having a stone exterior, cantilevered roof, and glass across the entire front elevation, for example, comes with a hefty price tag. An architect will design the project as desired, but the owner may have sticker shock once the bids start coming in. When that happens, it will be back to the drawing board to start the design process all over again and send it out to bid once more, causing significant project delays and frustration for everyone involved.

The scenario above would be very different with a negotiated bid approach as the owner, architect, and construction manager work together very early in the project to discuss needs, wants, and determine constructibility of the project. A construction manager helps identify potential issues along the way as part of their pre-construction services to give owners an idea of what things cost based on real-time estimates, and can recommend alternative materials or design revisions while still achieving the desired look and function.

Value Engineering Keeps Budgets In Check

Owners can understand how costs are determined and select from a menu-of-sorts during the schematic process through value engineering. That stone exterior may not be realistic, but the architect and contractor are likely familiar with available faux options that won’t compromise the visual impact, yet come in at a fraction of the cost. This type of transparent partnership helps make sure everyone’s on the same page and that important details aren’t missed.

This team approach results in far fewer change orders and delays. There’s an understanding and clear expectations between the owner, architect and construction team. That’s not to say there won’t be change orders, however.

At times, an owner may decide half way through a project that they want to change from carpet to a more expensive tile, for example. An experienced contractor will likely include contingencies in the contract for a certain percentage in overages due to change orders. If the owner wants to upgrade finishes or there are other changes, the contractor will verify the numbers with subcontractors and provide quotes to the owner for approval. Once again, transparency is key, and any money that’s not used from those contingencies is given back to the owner.

A negotiated contract approach simply provides more value. In the end, the owner gets a collaborative architectural/construction team and a price they can afford with the materials and look they expect. Plus, they’re much more likely to get their project done on time and enjoy the experience along the way.

Our expert estimators and project managers at The Samuels Group have extensive experience with the negotiated bid process using real-time data and the latest innovations to get commercial construction project owners the results they expect. Contact us today to talk through a better way to bid, and download our guide below to understand other topics you may want to cover during our conversation.

10 questions to ask a commercial general contractor

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