Selecting a Contractor for Your Construction Project

Ok, so you have a construction project—a new building, or perhaps a renovation. You have never done this before, so selecting a contractor is new territory. The traditional scenario often starts with hiring an architect, then submitting the architect’s plans to a few contractors for bidding. The owner assumes choosing the lowest bidder ensures the lowest project price. But does it?

Today, more owners are considering a negotiated contractor selection process, which entails involving the contractor in the project design in hopes of better job cost control and faster, less stressful project delivery. Let’s compare the bidding process and the negotiated selection process to understand the benefits and drawbacks of each.

THE BID PROCESS

How It Works

The most familiar of the two is likely the bid process for contractor selection, so we’ll explore that first. As a general contractor, I am all too familiar with this process. It can be simple and straightforward, and usually begins with hiring an architect who produces a complete set of drawings and specifications. Once that is done, the project is put out to a number of contractors for bidding. On a specified date, interested contractors submit their bids, and typically the lowest bidder is selected for the project.

Costs and Benefits

What are the positives to this approach?  It does usually lead to the lowest initial price for a construction project. If you are unfamiliar with area contractors, the bid approach may also be the simplest way to select a contractor for your project.

However, there are a few potential negatives to this approach. First, it establishes pricing as the single most important criteria for your project. Contractors know this, so they focus the majority of their attention on achieving the lowest responsible bid amount. A business arrangement that starts out based mainly on price usually remains that way, meaning quality of craftsmanship, material selection and customer service can take a backseat to the bottom line.

It’s important to consider that while the initial bid amount may be low, that’s just the starting price for the project. Depending on scope of work changes, design alterations and other potentially variable factors, you’ll likely have to negotiate multiple change orders during the course of the project and that can be troublesome and impact the ultimate cost.

THE NEGOTIATED PROCESS

How It Works

The essential difference from the bid process is that in the negotiated process, the contractor is selected before the project has been designed, allowing the contractor to participate in the design process and provide insight into achieving the desired results for your building within a specified budget.

Costs and Benefits

I can sense the questions swirling around in your mind. If the bid process can result in a cheaper proposed cost, won’t I pay more for construction services if I negotiate? How in the world can I find a contractor I can trust without having the pool narrowed by a bidding process? These are good questions, and as a general contractor who negotiates a large portion of our work, we answer them often.

A key factor to keep in mind is the importance of your project’s final cost, which can often differ from an initial bid. It does little good if the projected price of the project is attractive but due to unanticipated change orders becomes inflated at the end, when it’s too late to make changes.

Contractors who negotiate a large portion of their work understand the process and why they have been brought to the table at an early date. They have a closer understanding of the costs that can be associated with construction. This understanding can be very valuable to the owner and design team during the design phase, as the contractor can recommend cost-effective building systems and provide accurate budget costs for the project before it’s even begun.

When negotiating a contract, you can expect a higher level of customer service from your contractor, which helps to establish trust. This process will also result in fewer change orders along the way, meaning your project is more likely to stick to the projected budget.

THE BOTTOM LINE

What about the trust issue? Owners should be able to get a sense early in the process that their contractor is on their team. As a contractor, we know we have to put the owner’s best interest first. Your contractor should be totally transparent in his or her business dealings with you and willing to provide any information you request.

Whether you decide to bid or negotiate your upcoming project, be sure to pre-qualify your contractor(s). While asking each contractor for client references is important, it’s best for you to do your homework and learn as much as you can about your contractor by researching their reputation, surveying some of their current or previous projects, or consult with your design team on their past experiences with contractors.  Having a building constructed or renovated may be a once in a lifetime event. It’s something you will want to do right the first time