Bidding Versus Negotiation

Competitive Bidding: Construction bidding is the process of submitting a proposal (tender) to undertake, or manage the undertaking of a construction project. The process starts with a cost estimate from blueprints and take offs.

The tender is treated as an offer to do the work for a certain amount of money (firm price), or a certain amount of profit (cost reimbursement or cost plus). The tender which is submitted by the competing firms is generally based on a bill of quantities, a bill of approximate quantities or other specifications which enable the tenders attain higher levels of accuracy, the statement of work.

 

For instance, a bill of quantities is a list of all the materials (and other work such as amount of excavation) of a project which have sufficient detail to obtain a realistic cost, or rate per described item of work/material. The tenders should not only show the unit cost per material/work, but should also if possible, break it down to labor, plant and material costs. In this way the individual who is selecting the tender will be quite confident that the tender is feasible. Bids are usually, but not always chosen on cost alone.

 

 Negotiated Contract: This method differs from the competitive bid system.  Usually a general contractor and/or an architect are selected at the project’s inception. These firms work together throughout the design phase. When design documents are complete, the final construction costs are negotiated by the general contractor through bids from subcontractors on various scopes of work.  A large proportion of the annual work volume of many contractors is now made up of negotiated contracts.  This can be interpreted as a sign that owners are increasingly finding that negotiated arrangements are in their best interests.