As an Owner, one of the very first decisions you face when starting a construction project is selecting a project delivery method. So, what exactly is a project delivery method? In a nutshell, a project delivery method is your initial game plan for turning your list of needs and wants into an actual structure or facility. It determines how you get pricing, how you hire a team to do the work, and how you all work together.
Now, what are your options? There are a number of project delivery formats (which we will discuss in more detail in a future post–stay tuned), but for the sake of simplicity, let’s just divide them into two main categories: Hard Bid and Alternative Delivery Methods, or Negotiated Delivery.
While the traditional hard bid method used to be the go-to choice for construction projects, there are a number of reasons why the negotiated approach has seen a surge in popularity and why it might be a better fit for you and your project.
- Choice – When you elect to negotiate your project, you get to choose who you work with based on qualifications and competitiveness, instead of relying strictly on price alone as you would under the hard bid approach. In addition to choosing the firm you work with, you have the right to interview and meet the people from each firm who will work on your project. This is very important because while the strength of the organization is of value, in this business, it’s the people and their knowledge, experience, skill and commitment to serve you that makes the difference.
- Partnership – In a negotiated delivery, the Contractor is part of your team and will always look for ways to add value to the project. The objectives of the Owner, Architect and Contractor are aligned early in the process. In contrast, the hard bid format can produce adversarial relationships, as the Contractor must look primarily at their own bottom line since their service has been purchased as though it’s a commodity.
- Cost Savings – Managing your project budget begins when those critical design decisions are being made. Bringing the construction team on board early in the design process allows them to maximize value by providing cost input into design decisions. It also allows them to capitalize on early purchasing of any necessary major equipment by locking in lower prices. Additionally, under a negotiated delivery format, any savings are returned to you based on contract negotiations, whereas under a hard bid the Contractor retains 100% of any savings.
- Shorter Schedules – Managing another major element of your project, the schedule, also begins early during the design phase. Including your Contractor in these preliminary steps enables them to fast-track your project and start construction sooner in the process than would be possible in a hard bid situation. Using a negotiated delivery format gives the project team more time to plan for construction operations, analyze the most efficient means and methods, and identify any potential disruptions to your operations and plan for them accordingly.
- Higher Quality – Another significant advantage of bringing the construction team on board early through negotiated delivery is that quality control efforts can begin in the design phase and continue through construction and warranty. As the Owner, you benefit when your Contractor provides input into the best possible means, methods and materials for life-cycle costs. Plus, when working on a partnership basis, you reap the rewards when the Contractor knows his own reputation is on the line. No construction company would want to do poor-quality work and risk losing your recommendation or potential repeat business.
- Fewer Changes – What’s the easiest way to minimize changes during construction? You guessed it: Involve your construction team early during the design phase and prevent changes before construction even begins. Under a negotiated delivery system, your Contractor can provide invaluable preconstruction services, such as reviewing drawings for potential errors ahead of time, thereby reducing the number of changes. Fewer changes means significant savings on any project. In contrast, if you go the hard bid route, you run a higher risk of changes during construction, which stop progress and cost you time and money.
- Increased Transparency – Negotiated delivery is built on the premise of a trust-based relationship between you and the project team. You get to see exactly how your money is being spent–not just a high-level recap, but detailed cost transactions showing where your money is going. Possibly more important than tracking expenses during construction is transparency in the preconstruction phase, which enables you to see and decide where you are going to spend your money before construction begins.
- Competitive Pricing – There is a common misconception that negotiating your project is costly rather than competitive. The truth is that the only thing you are negotiating is the Contractor’s fees; and not only are those fees minimal relative to the overall cost of any project, but with a negotiated approach, you gain the ability to negotiate fair terms for them. Another misconception is that those fees are not included in a Contractor’s cost under hard bid, and that’s not true either. With both methods, the Contractor’s fees are included in the initial pricing and all subcontractor and supplier work is procured competitively. The advantage of the negotiated approach is that the Contractor is able to manage risk on your behalf by prequalifying subcontractors and suppliers before accepting bids. As the Owner, you get the best of both worlds: driving competitive pricing while maximizing quality and minimizing risk to your bottom line.
- Better Information – The collaborative process of negotiating allows you to be much more informed about your project than you would if you went with the traditional hard bid method. With negotiated delivery, you get to be engaged from the very beginning, telling team members what you value most on your project. You get more information about how your money is being spent and the value you are receiving.
- Value – Everyone has their own unique definition of value. When you negotiate your project, you gain the ability to tell your construction team what’s most valuable to you from day one. This empowers the team to provide you with the most value on your project from start to finish; and that is priceless.