Pitfalls of Bidding to Attain a Fixed Price Contract

By Robert C. Foreman, Architect, AIA, LEED AP

 

In another article we wrote about the pitfalls of negotiated cost-plus contracts. In our opinion, bidding is not the best means of project delivery for many of our clients because bidding has the most potential problems of any means of construction delivery. Only government agencies are required to bid. There are better options available to everyone else. 

1. Although many Owners believe bidding will assure the lowest price, this is not necessarily true. Depending on market conditions at the time of the bid, bidding may result in a cost which is higher than other means of project delivery.
2. The low bidder is often the bidder who has left important items out of his price. The low bidder who has left the most out of his price spends the rest of the job trying to make up for his omissions by cutting corners or “beating on” his subs and suppliers to get them to lower their prices. This is not to the Owner’s benefit.
3. Bid jobs often have more change orders because the Contractor is trying to find ways to make up for whatever he failed to include in his price. Change orders often cost more, for the same reason. Contractor’s profit on a bid job often depends on the change orders.
4. Bid jobs are more likely to result in disputes and claims and the Architect sometimes finds himself in an adversarial relationship with the Contractor. This can create more headaches for the Architect who would like the Contractor to do reasonably good quality work, and to follow the Contract Documents. Some Architects will increase their fee if the Owner decides to bid the project.
5. Bid jobs tend to have lower quality workmanship. If every sub and every supplier is the one with the lowest price, then lower quality work is the inevitable result.
6. Bid jobs tend to take longer to construct. Bidding itself can take 4 to 5 weeks, followed by several weeks before contract execution and then several more weeks before actual construction begins. Construction can take longer than it should if there are disputes and claims.
7. The Owner sees no cost savings after a bid job gets started. Any cost reductions achieved by the Contractor do not benefit the Owner. The Owner may not get the full advantage of cost savings from deductive change orders, usually not getting back full value for work that is deleted from the contract.
8. A bid job is more likely to go into default when the Contractor is unable to complete the job. This is usually because he or his subs run out of money due to their bid price being too low or prices having increased for materials for which they were unable to lock in the lower prices before increases occurred.

Most of our clients choose not to bid their project because they are aware that bidding increases the possibility of lower quality, increases change orders, increases construction time, creates an adversarial climate and can result in higher design fees. They have learned that there are less stressful project pricing and delivery methods with many positive benefits not available through bidding.