An Argument for Negotiated Bidding

We are often asked by our clients to bid the project to multiple contractors. The argument for this is that they will be able to compare the price offered by the different contractors and go with the lowest price. This is more complicated than it seems because you are not necessarily getting the lowest price when you sign up with the lowest bidder as we will explain below.

Multiple bidding seems logical because our culture is product oriented. We are conditioned to think that objects are a fixed price. for example, an Ikea table costs less than and Ethan Allen table. Not so. Construction projects are complicated. They are compilations of labor and materials, the passage of time, and complex multipliers. There is so much of a human factor involved in construction pricing, it just can’t be compared to product pricing.

A negotiated bid results when a contractor is selected early in the design process and is retained to advise on budget and construction issues during the design phase. The contractor gets to know the project early and is selected based on reputation and references, rather than contract price.

Here are some points that illustrate how signing up with a contractor early in the design process will actually help you, an owner, save time and money and will result in a good quality project.

When a contractor is selected early in the design process, a team is formed of architect, owner and contractor working together. You now have the trust of the contractor when you are signed up early, and he will spend his time getting accurate numbers during the design phase. As a team, we then work to get the price to where it needs to be.

At the time of issuance of the construction contract, their pricing is educated since they’ve been paying attention to the progress of the design early on rather than coming in at the end with bid quality drawings and having to look only at the drawings to figure out what to charge.

Also note that there really is plenty of room for pricing variety since your general contractor will bid subcontractor work competitively.

On that note, bidding is more involved on the part of the architect since it is work for us to make sure the drawings are very complete. There will always be questions, and many times one contractor will ask a question that another will not. It also takes time to set up a meeting time, then explain the project  multiple times and then wait for each of them to respond. Because of the human factor, it never feels like contractor prices are apples to apples with each other.

When a contractor knows he is bidding against another contractor, the his relationship with you, the owner, becomes adversarial and they are not looking out for your best interest. You may not be comparing apples to apples, since they are all different people and how they work is different. They may offer lower numbers just to get the job and then put change orders in later, in other words, they tell you what you want to hear.

Finally, you should ask yourself, is it only about price for you? Time is also money. If you choose a contractor only based on price it may be more effort to keep the project in line and you may have signed up for more than you can handle. Hiring a contractor early in the design process will create a trusting relationship and will result in a more thorough and accurate construction contract price.

A quick update to let you know Matarozzi Pelsinger Builders has put this same subject into their own words in their blog here.