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.