Commercial Construction: Negotiated Vs Competitive Bid
When planning to build a commercial construction project, there are many variables involved and decisions that need to be made. And one of the most important decisions is deciding whether you are going to solicit a negotiated bid or a competitive bid.
Generally, the construction client will begin a relationship with an architect who will create the plans for the project, whether it is a parking garage, restaurant, bank, shopping center, or other commercial construction project. After the architect draws the plans, the project owner can submit the documents to one or more general contractors for a negotiated or competitive bid.
The negotiated bid is the most common method of bidding for commercial construction projects. It is a more straightforward, less formal process that is applicable for most projects. Also, most project owners prefer to negotiate price and terms directly with the general contractor of their choice. Since project owners work directly with the general contractor, there is less risk of leaving out important details that could affect the bid estimate. Also, consulting directly with the client gives the contractor the ability to make recommendations regarding materials, delivery method, value engineering principles and other variables that can significantly reduce construction costs with higher quality work. Another advantage of using the negotiated bid process is that it allows the client and contractor to solidify their relationship. The mutual goal for both parties is the successful delivery of the construction project that is within established budgetary guidelines.
Public construction projects and major corporations often solicit competitive bids from at least three prospective contractors for large-scale construction projects. It is a long, formal process that requires the client to have in-depth knowledge of the construction industry to write the Request for Proposal (RFP) that contains the detailed project specifications. The client needs to give contractors ample time to complete the proposal, submit questions and present their bids. The process can take several weeks or months to complete. Contractors will use the RFP to seek bids from any required sub-contractors and respond to the proposal with their estimated bid.
A competitive bid is a legal contract. If the contractor needs clarification for one or more specifications like materials or types of doors or windows, for example, they will either make assumptions or ask the client to clarify. The clarifications are then sent to the other bidders and will become part of the bid. Contractors are only bound to the estimated price and terms of the specifications outlined in the RFP. Any additional construction work is outside the scope of the project. The client will review the competitive bids that were submitted and make an award. Most clients using the competitive bidding process generally award the proposal to the general contractor with the lowest price bid. But in cases where the client believes there is a lack of experience or other anomalies in the bid, such as a bid that is much lower than other submissions, they may choose to award the project to another, more competitive contractor even though they were not the lowest bidder.
New Horizons Construction Services is a full-service general contractor. We work with clients the way they want to work whether it is a negotiated bid, competitive bid or another delivery method. Let us bring your vision to life. Call us today to discuss your commercial construction project.