Project delivery discussion - hard bid and negotiated.

[CM1995]

This discussion came about in Oldtankers thread about pricing out a building. It's a discussion worth it's own thread and I would like to get others comments on both types of project delivery and your comments/experiences on the different ways one prices projects.

To kick it off, here is my post from the other thread -

I'll give my perspective on the two different types of project delivery I am involved in which is hard bid and negotiated.

Hard bid - lowest bidder wins the job.

The majority of the work I do is hard bid, mostly due to the economy and the lack of an abundance of work out there. The owners want the most bang for their buck and have a lot of competition to take advantage of, as a businessman I would do the same thing.

In a hard bid situation, any change from the plans, specs and scope of work is a change order - period. There is no "we'll just take care of that" unless it is very minor and the paperwork is more work and hassle than actually doing it. That is the way it should be as the owner has taken the advantage of hard bidding the project and putting the risk on the GC and it's subs. If there is a change in the plans, specs or site conditions, they should bear the cost of the change because they chose the safety net of a hard bid. One can't have his cake and eat it too.

However, this is not a hard or fast rule either as I normally do little extra things on the project for the GC if they are good to work for and have your back. Now if the GC or owner is nickel and dime'ing me to death, there are no freebies and no extras. I play the game according to the rules the other player sets.:cool2

Negotiated work

This is the type work I prefer and not because it is more profitable but you develop a relationship with the owner/GC that leads into a steady stream of work and eliminates the hunt for the next job to bid. If an issue arises in negotiated work it is handled differently as far as change orders go. I am more willing to do a small extra or a change on a project without charging because I have a relationship that is a two way street and more work from this client coming down the pipeline.

In order for negotiated work to be successful there has to be a level of trust between the contractor and the GC/owner, which is something that doesn't happen overnight or with little effort. Now negotiated work doesn't mean "fire up the tractor and start billing hours" either. Estimates and job costs are produced for the project and the owner/GC is expecting it to be within those parameters.

Pertaining to the quality of the project in a bid vs negotiated situation, I think job quality is not nearly affected as the schedule and overall cost of the project. In a hard bid situation if the owner/GC gets an incompetent contractor it is a struggle from the beginning. With a negotiated situation, the owner/GC already knows the capability of the contractor and can plan accordingly.

This is very important with a retail project that needs to be completed at a certain time, if they aren't open they aren't making money. Most of the retail projects I work on have set opening dates and once the building permit is obtained, there are a host of pre-fabricated/manufactured items that are scheduled to be made and delivered. These items are set to be delivered and installed at a certain date come hell or high water. This can become a real issue when the project is behind schedule. Site contractors set the schedule, if you are behind just a few days getting a pad ready it sends shock waves down the schedule.

The smart owners learn quickly the values of negotiating a project and getting proven GC with proven subs to complete the project. As the work load picks up, more projects will move towards a negotiated delivery system to get the projects built.

 

[buckfever]

We do both of those kinds of work and I would like to add one more. Now I'm not sure what you would call it but we do work for a major home builder in our area. They tell you how much they pay for each service you provide. In this kind of work the pay is not as high per job but there is a lot of work to be done. Basically you may only get 1200 to dig a house but you can dig 3 or 4 a week Pluse utilities.

 

[AustinM]

Buckfever, I can see how that could be easier to secure work but my initial reaction is that if a GC is offering that kind of contract to subcontractors there must be an awful lot of competition for it in your market. IE, a lot of guys that do the same thing you do.

I know that where I work that kind of offer wouldn't fly because as soon as a sub you wanted told you he wouldn't do it for that price, you'd be thisclose to doing it yourself. haha there isn't enough subs around here to solicit work that way. But I can see easily that it would work in a bigger market.

 

[buckfever]

AustinM It's a very good way to make a living when your a small company around here. A one or two man crew with a couple pieces of equipment can work all year long. Pluse the fact that they cut checks every two weeks and only hold your bills for thirty days makes it nice for smaller companies that don't have a lot of capital to work from.

 

[AustinM]

I completely agree buckfever. I work for a medium sized company (50-100 employees depending on the season) and sometimes I think it would be so much simpler to be a 1-2 man operation and do similar work to what you describe. Yeah you carry more risk, but you also control more of your own destiny and if it doesn't work out for whatever reason you could always go get a job with a bigger outfit.

 

[CM1995]

I agree Buckfever and it sounds like you have a good thing. Getting paid every two weeks is huge. I am on 45-60 day pay with 10% retainage but the margins are higher and should be because they are using my money to finance the project.

I am just a two man crew as well, me and another operator. Our projects are small retail/fast food jobs. I like these size jobs and we self perform the erosion control, demo (if any), storm drainage and grading. We usually pick up extra work from the GC and other subs who need ditches dug or rock spread.

These jobs are all hard bid and competitive, however the same GC's bid and build these projects over and over again. Once on their bid list they send you any projects in your area they are bidding on. With the current state of the economy, it has worked well considering the circumstances that up until recently there hasn't been much residential work going on, however that is changing.

A real estate developer that I have known for years contacted me a few weeks ago about several residential projects he is currently looking at to develop. The housing market has picked up in our area and the developed lots left over from the housing crash back in '08 have slowly been used up. This work will be totally negotiated, which is something I have been trying to get back too.

One has to build value in your services in order to gain a steady stream of negotiated work. The value I like to bring to the table is the pre-construction phase of the project - creating budgets/estimates and value engineering. This time is not billable per se but can go a long way in creating relationships and thus a steady stream of work. Instead of me spending many hours estimating jobs I don't get, I would rather spend the time helping a client get the most bang for their buck on the project they are considering.

Time will tell. I have bids out on a few projects, some hard bid and others negotiated.

 

[Acivil]

I do both... and have had contact with a residential developer and a waste water treatment authority using the same tactics as buckfever mentioned. So far, I am simply unwilling to work on a price dictated basis. My experience has been that there are often far too many variables in the site phase of a project for the dictator to accurately assess a fair price at which point things tend to go sideways. I can also see how it would be a great arrangement if each site was a slab lot, and the majority of the variables had been addressed in the infrastructure development process (IE mass graded slab lots during the grading of the roads ect) in the sewer business there's simply no way it works, and the entity I spoke of above has been slowly and painfully learning that as the contractors continue to tell them where to shove their price schedule. I pretty much ditto everything you have said CM1995... we have been slammed for the last month on the residential side, and it's piling up more every day. It's just really hard to imagine wanting to grow my business beyond our 3-4 man show after the terror of the last 5 years...

 

[CM1995]

It's just really hard to imagine wanting to grow my business beyond our 3-4 man show after the terror of the last 5 years...

Amen on that! I'm nervous as a whore in church about taking on too much debt and too many employees after going through the collapse of 2008.