March, 2006
The Negotiated Bid
There are many factors to consider when considering a negotiated bid. Time and money are the biggest factors in deciding whether to go out to competitive bid or negotiate with one contractor. This article is for leased space not for ground up/new construction.
Susanne Slizynski
If you want to get your space open in time for peak season you may want to consider a negotiated bid. Your design team will want to consider potential revenue gained by opening the doors versus the extra cost of construction. It will take more time to put your project out to competitive bid, if your lease requires that you pay rent at a set date you may consider a negotiated bid.
You will always pay more in a negotiated bid, it is a weaker negotiating position. A design administrator can help tremendously by comparing the contractors bids to national averages. If prices are excessive these numbers can be used to shake down the price.
One key to a successful negotiated bid is choosing the right contractor Also just as important is to have the contractor provide a bid on a completed project. A completed project includes the following:
- Fully dimensioned floor plan
- reflected ceiling plan
- lighting plan
- electrical, telephone, CPU plan
- construction details
- cabinet elevations
- hardware and door schedules
- flooring materials plan
- plumbing fixture schedules
- MPE engineered plans (mechanical, electrical and plumbing)
In a negotiated bid the contractor often prepares the mechanical, plumbing and electrical engineering for the permit process. Theses cannot be developed until the design firm has completed their plans.
You do not want to sign a contract until your design is completed and the contractor has turned in a solid price, I refer to this as a “Closed Negotiated Bid”. This project will be “Design Driven”
Floor plan format
If you are putting your plan out to bid in “floor plan format” you are not obtaining bids, you are obtaining minimal budgets. I refer to this as a “Open Negotiated Bid”. The contractor with the lowest number typically wins the bid. This is a “Budget Driven” project. Once you hire the contractor and start work with a designer all upgrades will become change orders and you could become a retail customer paying up to 100% markups. With these high mark-ups it’s likely that you will never be able to achieve the level of design that you would in a “Closed Negotiated Bid” format.
There are many risks involved in Negotiating a bid with one contractor.
The contractor may not submit the bid in the itemized format requested by the project administrator. In this case it may be difficult to decipher the bid, the contractor may resist further breakdowns.
We have noticed that negotiated projects take longer to construct, even when all design is complete. We have had projects that should have taken 3 months to construct take up to 8 months for the contractor to complete. The contractor puts us on his time schedule rather than our time schedule. It’s important to include penalties for project delays.
Negotiated contracts tend to have more change orders. On one project the contractor produced a change order for an additional volume air velocity box for $10,000. It’s always a RED FLAG when contractors produce change orders in even number like $5,000, $20,000 etc. We did some research on volume air velocity boxes and found out that they cost $450.00. We were able to use this information to reduce the change order to $1,250.00.
Often we are brought into a project where the contractor is already on the project. One of our doctors was expanding into the adjacent space. He hired a contractor he knew from church. I was not the project administrator however the doctor wanted to run some numbers by me. The contractor wanted to charge him $18,000.00 for the HVAC system (heating ventilation and air conditioning systems. I explained to the doctor that the systems were already in place and the redistribution and calibration should only cost about $1,500. The doctor went back to the contractor with my explanation and the contractor lowered the price to $9,000. I warned the doctor that the price was too excessive and he went back to the contractor who then reduced the bid to $950.00.
Another doctor used the shell contractor to build his office because he felt they would be faster and more efficient. The project took 8 months to construct rather the the 3 month schedule that most of our competitively bid projects. This doctor mistakenly signed a lease agreement requiring him to use the shell contractor. He agreed a 10% fee of the total construction costs. He had not choice but to use them.
You should not negotiate a lease without an Lease Negotiation Consultant. A lease negotiator can save you up to $165,000 over the term of your lease. We have an established relationship with a lease negotiator that our doctors rave about. Please contact our office for this information prior to giving off the wrong signals to a leasing agent.
So in conclusion a negotiated bid is just what it is; everything can be negotiated for a higher or lower price. This can be uncomfortable for the doctor who is under pressure to sign change orders to keep his project on schedule. Contractors often put in a clause that they shut down the project if change orders are resisted by the doctor, literally holding you hostage.
A negotiated contract can be a good way to go if you find the right contractor.
I have one contractor in California that consistently prices our projects competitively. I don’t even put the projects out to bid any more because he is so trustworthy. I have another contractor in Oregon that I also trust in this way, I have to keep him in check, but he is reasonable. There is one contractor in N.J. that I also trust, but have to verify. These are contractors that specialize in dental office construction and their reputation is important to them, they don’t want word to get out that they are price gouging. You are not likely to get a competitive price from a shell contractor or a contractor that does not specialize in dental office construction as he will pad the bid excessively for the unknown.
You may need to stop the project to keep the contractor in check.
It’s important that the contract be based on the plans and specifications provided by your design team. They need to be listed in the contract so that the project is held to established standards and time lines. If you have your project administrator challenge apparently excessive change orders right up front the contractor may become embarrassed and produce fair priced change orders from then on. You should avoid as much contact with the contractor as possible, all change orders need to go directly to your project administrator/design team for verification and approval.
You need to posture yourself in order to gain sympathy from the contractor.
I provide our doctors with suggestions and strategy on how to present themselves to the contractor. Our doctors have immensely enjoyed employing these techniques. We have some good chuckles, sometimes it’s just fun to get even!
Ultimately you and your project administrator will need to decide the best venue to put your project on the market for construction.
You will need to work closely with your design team to determine the best option for our project. Your new office will most likely be a “Show Case” project that any contractor would want in his portfolio, he certainly will not want it in his competitors portfolio. Contractors will compete heartily for your project.
With a completed project in hand, a design/administration team with a proven track record and good fact finding you are sure to have a successful project.
Contributed by:
Susanne Slizynski
This article written by Green Curve Studio, Inc. for the orthodontic community.
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