The Pitfalls of Bidding

Today an aura of blue smoke and mirrors surrounds contractual relationships for construction projects. Despite the various methods and modifications, selecting the constructor member of the project team comes down to bidding or negotiating. We believe negotiating delivers the best value for all but the simplest of projects.

Defining the Terms
Bidding: The owner selects an architect/ engineer to accurately and clearly describe the project and all its requirements in plans, specifications and bid documents. The owner, often based on the architect/engineer's recommendation, selects a group of contractors to bid on the project. The lowest qualified bid is usually accepted.

Negotiating: The owner selects a design firm and a construction firm either separately or as a design/build team. The owner negotiates with one or more constructors and chooses the contractor that he feels is best for the project.

The selection decision is usually based on confidence, trust and relationship.

The Bidding Process
Before you decide to have contractors bid on your project, visit a contractor's office and watch what happens during the last hour before bids are due.

Most of the time, quotations for major subcontracts are received within minutes of the bid deadline. Why? A subcontractor or major material supplier doesn't want his price known in advance because it might be exposed to his competitors. With this last-minute strategy, the hour before a bid is due is hectic and stressful, to say the least.

To maximize time to look for discrepancies and errors, it's common for contractors to station the person delivering the bid as close as possible to the bid receiving location. The carrier will have a mobile telephone and bid forms signed and filled out except for the bid price. The price is entered at the last possible moment.

During that last hour, the contractor must deal with not only requested subcontractor bids, but many unsolicited bids as well. Sometimes he gets bids from subcontractors he doesn't even know. He must make a quick decision. If he wants to be low bidder, should he use their lower prices?

The bidding process provides numerous opportunities for errors in judgment and calculations. That's why it's not the best way to get a high quality project. The owner takes a lot of risk when using the low bidder. Did the low bidder make an error? Will a low priced contractor use a lower priced, unreliable subcontractor? Will the low bidder be able to complete the job at that price? Compare the attributes of bidding and negotiating and see which makes more sense to you.

"The Rules" of Bidding vs. Negotiating
Rule: The more bidders, the higher the risk to the owner.
Rule: Visit a contractor's office before you decide to use the bidding process. Watch the process yourself, then decide. You may not like it.
Rule: Expect to pay the architect/engineer more to produce detailed plans and specifications and to provide contract administration.
Rule: Choose your architect/engineer very carefully if you plan to use the competitive bidding process. You will pay for change orders if your architect/engineer produces inaccurate documents or omits something you need in your project.
Rule: Be prepared to accept minimum quality when you deal with the lowest bidder.
Rule: When you use the competitive bidding process, you can get what you pay for if you insist on thorough and timely inspection by your architect/engineer or construction manager.
Rule: You will usually get a high quality project if you choose your contractor based on confidence, trust and relationship... not just low price.
Rule: The lowest price doesn't necessarily translate to the best price.