ACE Consulting

What is Competitive Bidding vs Negotiation?

In construction, negotiation is less common than competitive bidding. Competitive bidding is the negotiation of price in a “take it or leave it” way and is not specific to large or small projects. Any type of contract can be negotiated, whether it is design-build or hard-bid. A draft primordial agreement creates a substantial basis for negotiation.

A project feasibility study clues the owner into the probable cost of the project. In federal contracting, this could be phase 1 of a 2-phase proposal process. In this model, the owner selects a knowledgeable negotiator. This negotiator determines the objectives for a project focused on cost and quality while being aware of the project’s effect on the community and environment. The owner seeks out a pre-contractor with whom to negotiate. The negotiators’ authority must be clearly delineated and neutral, and the goal must be to create a mutual agreement at a fair price and value.

To start negotiations, the owner provides design information to the pre-contractor. The pre-contractor must know the principals and objectives; and desires to seek common ground: using particulars rather than generalities, and facts rather than assumptions.

Construction risks need to be identified and shared in accordance with the contract price and the owner’s desire to control the project. The largest risks are primarily found in communications failures, whether verbally or written. Risks can be mitigated by identifying the capacity of parties through a qualifications process. In addition, the object of negotiations needs to be clear, the contract amount needs to be fair, the payment method outlined, and an established adequate contract time.

The advantages of negotiations include a greater degree of mutual agreement, better design through collaboration, and a better working relationship between the owner, designer, and contractor. This starts with the owner using a reputable contractor and getting input into the contract type and sum. A disadvantage of negotiations may be that the owner has a sense of not getting the best price. This could stem from the perceived loss of input from other contractors by the owner. Additionally, the contractor may not have negotiating skills adequate for the task.

Negotiation skills should contain a broad knowledge of design and construction. The negotiator should be a generalist rather than a specialist and should have extensive construction cost estimating experience, knowledge of both design and construction organizations, and project administration experience on all construction types.

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