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Pros & Cons of Negotiated Bids
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Some contractors state flat out, especially when times are good, “I don’t do competitive bids.” Can you blame them? After all, spending 20 to 100 hours on a highly detailed bid that they have maybe a 20% chance of winning can seem like a big waste of time. Furthermore, some contractors have the philosophy that the winner of the low-bid competition is probably the loser in terms of profit. “What did I forget in my bid?” is their first reaction. On some architectural jobs, no one gets the job because all the bids are too far above the owner’s budget. The design turns out to be pie-in-the-sky, but not a building on the ground. In this situation, either the design must be significantly scaled back or it simply doesn’t get built.
One way to avoid this type of sticker shock is to get cost input from a builder earlier in the process. There are several variations of this approach. All are based on a collaborative, rather than an adversarial, model and depend on a lot of trust among the parties. In general, the contractor shows the client a fairly detailed cost breakdown – and may show their overhead and profit as a separate line item (rather than being buried within individual cost categories). Some transparency of pricing helps build trust that the client is getting a fair price.
Contractor recommends architect: In one version, the customer approaches the contractor early in the design process. The contractor then recommends an architect he has a good working relationship with, and works collaboratively with the client and architect to develop a project that fits within the client’s budget. The contractor’s role is to keep the design on budget by suggesting materials, structural systems, and details that are economical to build – sometimes called “value engineering.” The contractor may charge for his time as a design consultant – or may agree to waive that fee if the client chooses the contractor to build the project at a negotiated price. The client is free to take the plans elsewhere, but usually ends up working with the original contractor, who was selected based on his reputation and quality of work. This is very similar to the design-build approach, except that the designer is independent of the building company.
Architect recommends contractor: In a similar approach, often used for high-end projects — the architect recommends to the client a builder with whom he or she has a good relationship with and who he feels is a good fit for the project. The architect will get some input from the builder regarding the budget, and may leave some of the final details up to the owner and contractor to negotiate. The client and contractor proceed based on a negotiated price.
One company both designs and builds: This variation is called Design-Build and typically costs less than hiring separate companies to design and build. But you lose the benefit of having an independent designer.
PROS & CONS of NEGOTIATED BIDS
Pros of Negotiated Bid:
- Client gets to choose favorite contractor (or architect’s favorite).
- You avoid wasting a lot of time and money on a design you cannot afford.
- Design balances the architect’s vision with the builder’s knowledge of cost and construction.
- Contractor’s costs and pricing are more transparent.
Cons of Negotiated Bid:
- Design may be less creative
- Lack of competitive bidding may drive up cost.
- Depends heavily on trust in contractor.
Look at other projects completed by the builder/designer team you are considering. If the design and quality suit you, you are off to a good start. Check the contractor’s references. Find out, early on, if your budget is realistic for the project you have in mind. Make sure you get a set of detailed plans and specifications, so you know exactly what is included (and excluded) in the contract price. Don’t start construction without a completed plan and price. Also, don’t be afraid to ask a lot of questions. To help keep everyone honest, retain the right to purchase the plans and get bids from other contractors.