Most project owners use the traditional hard bid method to select contractors, especially if public projects are involved. You hire an architect, who designs the project. Then you advertise for contractor bids, with the lowest bid typically winning the project.
While this approach remains the industry go-to, the negotiated approach is becoming more popular. Project owners who favor this method find that lower bids do not always ensure the best value. Contractors who work with you in a negotiated situation are even in a position to save you money by identifying cost-saving opportunities.
If you’re planning to negotiate your next contractor relationship, here are some tips for achieving best results.
Confirm That You Are Getting Multiple Bids
Accepting multiple bids sends the message that you’re looking for a reasonable price and sets the stage for the negotiation process. While you’re not necessarily looking for the lowest bid (you want to hire the contractor with the best reputation and work history) competing for your project will result in more reasonable prices.
Ask For Separate Line Pricing
Quotes that are broken down according to labor and finish materials costs can prevent misunderstandings over anticipated quality levels. For example, the contractor might present a quote that specifies a 12” gray tile, but it could be a low-cost porcelain tile or a more expensive imported tile. Without additional details, you could assume you’re getting a higher quality product than you actually are. Detailed bids will also provide a general idea of the markup on materials and give you a base for negotiating less expensive options.
Look Closely at Unusually Low Bids
Be wary if a contractor’s bid seems to be unusually low. There’s more to negotiating a good deal than low price. Contractors that are licensed, insured, and working in accordance with approved industry practices have more overhead. You want to be sure that they are insured and paying subcontractors and vendors who would file a lien against the project if they are not paid.
Go Over Job Closeout
Most project completion forms are both generic and inadequate. If you do not want the project to be considered complete until a certain inspection is successfully passed or an occupancy permit is received, state the fact. Discuss conditions for provisions of project manuals, construction lien waivers, and other conditions for completion and retainage release.
Establish Forms of Dispute Resolution
Discuss and finalize provisions for dispute resolution. The platforms you agree upon should provide a balanced basis for resolving instead of inducing a construction claim.
When you negotiate a project delivery, you are making a contractor part of your team. They will align their objectives with yours from the beginning of the project onwards and will even look for ways to add value. It’s an attitude seldom seen in the hard bid situation, where contractors focus on their bottom line because their services have been bought like a commodity.
Project owners should, of course, seek counsel from a construction attorney when negotiating construction agreements. At Rosen Law LLC we provide contract negotiation support designed to make your project both transparent and compliant with applicable regulations and laws. For more information, please call (516) 437-3400 today.