Why Consider Negotiated Construction Contracts

The Breakfast ClubMembers Spotlight

Have you or someone you know ever received the plans to your project back from the architect and thought, “perfect”, just to find out not a single bid came close to your budget? It’s time to consider a negotiated contract.

For those of you that are not familiar with construction, the usual process that is commonly practiced is called “design-bid-build.” It goes like this: the owner hires an architect to complete the plans. Once completed, the plans are distributed to the general contractors for bidding. The bids are tabulated to the best of the reviewers’ ability to see if they are “apples to apples” and the contract is awarded. This is the process required for most government entities and projects with government funding.

While this process has been used for years and multiple drawbacks can be discussed, one issue seems to be prevalent. Often, after the owner and architect have spent thousands of dollars and months working on the design, bids are received only to find that the price is significantly more than the budget. At this point, the owner can try to see if a larger budget for the project will work or the architect must get busy re-designing.

Negotiated contracts can ease the pain! The problem is most people don’t know where to begin and they are afraid of getting taken advantage of. With a little help these types of contracts are easy to do. There are many ways to structure negotiated contracts so let me narrow it down to a particular style that works well.

  • All management fees are agreed to at the beginning of the process.
  • The contractor, architect and owner work together through the process.
  • The contractor can review the drawings at a specified stage of completion to establish a budget. Typically, +/- thirty percent is common.

Working together, the team can make sure the project is completed within the budget. There are always surprises big or small during construction, however, good communication and planning will minimize them along the way.

This process will still allow the owner and architect to be a part of the bidding process and take advantage of competition between pre-qualified subcontractors. At the end of the day, we all want to work with people we like. Assembling a management team that works well together will make the building process seamless and everyone’s life easier.

For more information about Commercial Contracting,  www.grindstoneco.com