Many clients assume that competitively bidding construction projects saves money, and, therefore, all projects should be bid. It often does save money, but, if it’s not done correctly, it’s a set-up for accomplishing just the opposite.
If contractors know they are competing for a job, they will propose the cheapest approach they can get away with in order to win the project. This leads to a low-quality project and/or many unforeseen and unbudgeted change orders during construction. If a contract is negotiated with one contractor, even if the scope is not well defined, the contractor will ask the right questions of the owner in order to provide pricing that achieves the desired quality. They will typically NOT do so in a competitive bid scenario, because this approach will result in a higher bid and a job loss. When we try to competitively bid projects without good scope documents, we are shooting ourselves in the foot. This applies to bidding both general contractors and subcontractors.
The solution is to ensure that all of the contractors are bidding on the same exact scope. This means developing comprehensive scope documents such as drawings and/or specifications produced by an architect, MEPS engineers, and an experienced construction manager. Without a good bid package, there are too many variables in methodology, products, and level of finish that a contractor can propose. Moreover, without a bid package, there is no way to argue change orders. A bid package becomes part of the construction contract, and is used as protection against change orders.
The problem with developing a good bid package is that the cost to develop it is often more than the amount saved by competitively bidding the project, especially on small projects. Therefore, on small projects, it is less expensive to simply negotiate with one general contractor who can help define the scope and provide accurately pricing that will not result in a ton of change orders later on or low-quality work.
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