In my last post, I promised to discuss three (3) popular business models used in the remodeling industry today. These represent very different alternatives - each having good points and bad. At Mills Builders, we find that many homeowners are acquainted with only one such model - "competitive bidding". My goal for this series is to acquaint homeowners with all three.
Today, I'll review the "Negotiated-Bid" method and wrap up in a few days with a third post that points-up the pros and cons of the popular Design-Build option. With this said, let's get started!
In the first installment of this series, we learned that the "competitive bid" model - is being challenged as inefficient, subject to abuse by unethical contractors and flawed in that it makes "apples to apples" comparisons of bids very difficult.
Even worse is the fact that many of the best contractors will no longer bid on a competitive basis. The preparation of a good bid takes time and money. The bigger the project, the greater the resources consumed in preparation of an accurate estimate. Given the competitive disadvantages associated with the process - especially large numbers of competing bidders and those who submit "lowball" bids - there is often no good reason for a quality contractor to participate.
Negotiated Bidding provides a reasonable alternative to the many problems associated with Competitive Bidding.
The Negotiated Bid process proceeds from the assumption that the contractor is highly qualified and well-suited to build the project. Moreover, it assumes that the homeowner has prequalified the contractor (usually from a short list of excellent contractors recommended by friends, neighbors, architects, and others) and that the homeowner and contractor believe that a "good fit" exists between the parties. Having done so, the homeowner takes a small "leap of faith", chooses her contractor and moves ahead.
By working hard to develop a short-list of contractors who are extremely well qualified, checking references, seeing the contractor's recent work, and otherwise whittling down the list, a contractor can be engaged even during the "pre-construction phase" where he can be a most valuable resource in developing the budget and advocating for sound design. More importantly, homeowners can rest assured that only the price and schedule remain to be negotiated. This can be a real source of security.
It is no secret that quite a few projects - particularly higher-end projects fail. Negotiated Bidding helps to reduce the risk of such an outcome. The homeowner who understands that incentivizing contractors to cut corners to save money is inconsistent with any notion that value lies in price rather than quality. Thus, Negotiated Bid process will appeal to those homeowners who would rather spend a little more at the outset and enjoy all the benefits that high quaity craftsmanship and materials confer. That is, they are prepared to work hard to associate with a top-notch contractor who will provide value and peace of mind that will persist long after the excitement of saving a few dollars has passed.
Making a Negotiated Bid arrangement work requires a great deal of work on the part of the homeowner to identify the best contractor for his or her project. By the same token, the Negotiated Bid model works best when the contractor is among the most highly qualified in the area, enjoys strong working relationships with high-quality sub-contractors and is experieced in bringing projects in within required constraints of time and budget.
Competitive bidding is associated with price-driven projects, and not so much "value". As time goes by, it will more often attract contractors who are prepared to deliver low-cost work. Negotiated Bidding is quite different. It promotes trust between the contractor and homeowner. It is certainly more pleasureable to work within and atmosphere of trust rather than one characterized by adverse interests.
In the end, the Negotiated Bid model seeks to create a "win-win" scenario. I predict that it will become increasingly popular in years to come.
Thanks for reading my post! I welcome your comments. I hope you will visit again soon to read the final post in this series.
Comments