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Bidding/Negotiation: A Breakdown of the Process

March 30th, 2022 | 5 min. read

Bidding/Negotiation: A Breakdown of the Process

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Bidding/negotiation can be an exciting and nerve-racking portion of a building project. On the one hand, you get closer to starting construction and seeing your project come to life. On the other, you may be confused about the process and worried about the result.  

In our experience, the bidding process runs most smoothly when clients know what to expect. We aim to advocate for your interests and create a fair and competitive bidding process for contractors. 

In this article, you will learn about the three primary steps of the bidding process: 

  1. Hosting a pre-bid conference 
  2. Issuing addenda 
  3. Accepting bids 

Bidding differs depending on the project delivery method. This article will discuss the process for a typical design-bid-build project before diving into alternative routes you can take. 

The Bidding/Negotiation Process for Design-Bid-Build Projects 

The bidding/negotiation process will look different on each project, but design-bid-build projects will follow a similar pattern. With this project delivery method, you hire an architect to complete the design, and after bidding, a contractor to complete the construction. 

After your architect completes the necessary contract documents, contractors receive plan sets and determine a bid amount by consulting subcontractors. 

Iowa law usually requires publicly funded projects to use this delivery method. Contract documents are made publicly available, allowing any contractor to bid. Private building owners that use this delivery method can select a group of contractors to bid. 

Pre-Bid Conference 

The first step of the bidding process is usually a pre-bid conference. Although a conference is not a requirement, we recommend hosting one to get everyone on the same page. 

During the conference, your architect will outline the instructions for submitting bids. Your architect will also review the project’s requirements, especially those related to commissioning, funding, and sustainability. An MEP engineer or another consultant may even join the discussion to provide a more detailed review of the building’s systems. 

Ultimately, your architect should aim to create a fair and competitive bidding process and outline requirements to help prevent anyone from being disqualified on a technicality.  

For some projects, the contractors will tour the building site or the existing building. By touring the site, the contractors can better estimate the scope of work. 

Throughout the pre-bid conference, your architect and their consultants will answer any questions they receive from contractors. All questions and answers will be recorded and added to the contract documents in the form of an addendum. 

Issuing Addenda 

Contractors usually have four to six weeks to review the contract documents and submit bids, though time frames depend on the project’s size and complexity. During this time, your architect will issue addenda—formal corrections or clarifications to the documents. 

Multiple factors can lead to addenda, including: 

  1. Corrections to the contract documents after the bidding process begins 
  2. Owner-requested changes 
  3. Contractor-requested clarifications 
  4. Product substitution requests 

Regardless, your architect will record each change or clarification and make it available to the contractors bidding on the project. Keeping everyone in the loop helps ensure a fair and competitive process. 

Accepting Bids 

Once you have received all the bids, you will choose a contractor. Generally, you will accept the “lowest responsible bidder,” the contractor who can complete the work at the best cost. 

Bid Bonds 

To help ensure bids are accurate and responsible, contractors will submit a bid bond with their bid. A bid bond is a legal document signed by a third-party surety company that ensures compensation if the bidder fails to begin the project. If the contractor cannot honor the bid terms, you can claim the bid bond and hire the second-lowest bidder. 

Although this is a rare situation, it helps to know you are covered if anything goes wrong. 

High Bids 

In some cases, the lowest responsible bidder may be outside your initial budget. Typically, high bids within a tight range indicate that construction costs escalated, not because the contractors did not understand the provided contract documents.  

If this occurs, you can either adjust your budget or return to the design phase of your project. By removing or minimizing programming elements, your architect can help reduce the cost.  

This situation is far from ideal, and your architect should estimate costs throughout the design process to keep the project within budget. If the architect is concerned about the bid coming in over budget, they may factor a bidding contingency into your budget or plan alternates. 

An “alternate” is a separately priced portion of the project that provides an option if you are still determining the scope. After receiving bids, you can determine whether you want to include the alternate. 

Bidding/Negotiation for Other Project Delivery Methods 

A formal bidding/negotiation process does not occur on every project. If you use a design-negotiate-bid delivery method, your contractor will be involved earlier in the project. After your architect completes the contract documents, your contractor may solicit bids from subcontractors. 

In other cases, your contractor may bypass the bidding process and work with preferred subcontractors.   

If you have a Construction Manager, the process may differ even more. Construction Managers may break the project into separate scopes (also known as bid packages) and bid out to separate prime contractors, multiplying the number of agreements you will have. If you use a Construction Manager At-Risk method, the Construction Manager may even self-perform some portions of the work. 

Learn more by reading about the pros and cons of each project delivery method

What Happens Next? 

Initially, the bidding/negotiation process may seem overwhelming. A quality architect will guide you through the process and communicate with the bidders involved. Your architect should aim to create a fair bidding process and help ensure the contractors have the information to compete. 

We want the process to be successful for everyone, which is why we work to establish clear expectations related to instructions and project requirements. 

Now that you better understand the bidding process, it’s time to prepare for construction. Read our guide to contract administration to learn what you can expect from your architect during the construction process.