Basically, the two bidding procedures by which the contractor gets to build a project for owners are as follows:
1. Competitive bidding
2. Negotiated bidding
Competitive bidding involves each contractor submitting a lump-sum bid or a proposal in competition with other contractors to build the project. The project may be awarded based on the price or best value.
When the project is awarded based on the price, the lowest lump-sum bidder is awarded the contract to build the project as long as the bid form and proper procedures have been followed and this bidder is able to attain the required bonds and insurance.
When the project is awarded based upon the best value, the proposals from the contractors are rated based on specified criteria with each criterion given a certain percentage of the possible points. The criteria may include review of the capabilities of the assigned project team, the company’s capabilities and its approach to the project (including schedule), proposed innovation, method of mitigating risk, and price.
The price is often withheld from the reviewers until the other criteria have been evaluated to prevent the price from affecting the ratings of the other criteria. Most commonly, the bids must be delivered to the person or place specified by a time stated in the instruction to bidders.
The basic underlying difference between negotiated work and competitive bidding is that the parties arrive at a mutually agreed upon price, terms and conditions, and contractual relationship. This arrangement often entails negotiations back and forth on virtually all aspects of the project, such as materials used, sizes, finishes, and other items that affect the price of the project.
Owners may negotiate with as many contractors as they wish. This type of bidding is often used when owners know which contractor they would like to build the project, in which case competitive bidding would waste time.
The biggest disadvantage of this arrangement is that the contractor may not feel the need to work quite as hard to get the lowest possible prices as when a competitive bidding process is used.
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