The Negotiated Bid Strategy

The Negotiated Bid Strategy allows the Owner to select a contractor and negotiate the cost and terms of construction without competing bids.

This approach can be useful when qualified contractors are limited, the Owner has an established relationship with a contractor, or early contractor involvement benefits the Project.

Unlike Competitive Bidding, which uses market competition to establish pricing, Negotiated Bidding relies more heavily on good faith, transparency, and accountability.

Good Faith and Transparency

Negotiated Bidding requires the Owner and contractor to operate in good faith.

Both parties must understand and agree upon the Scope of Work, pricing expectations, and how construction costs will be determined.

Without competing proposals, the Owner has fewer independent ways to verify pricing or identify questionable assumptions.

Trust is important, but transparency makes trust verifiable.

Understanding the Cost

Negotiated contracts can establish a fixed price or calculate payment using actual costs plus agreed overhead and profit.

The Owner should understand:

• What costs are included.
• How overhead and profit are calculated.
• What insurance and other contractor-carried costs are included.
• How changes and unforeseen conditions will be priced.
• How costs can be verified.

An open-book arrangement gives the Owner access to relevant estimates, invoices, and supporting documentation.

Pricing methods and expectations should be established before signing the contract, not after disagreements arise.

When Price Drives Scope

Because of the general lack of competition, this strategy may not produce the lowest price and can result in the price driving the Scope of Work.

Contractors have minimum acceptable margins below which they may be unwilling to negotiate.

When that happens, the Owner may need to reconsider the Scope, Budget, or choice of contractor.

This does not make Negotiated Bidding inherently unfavorable. It means the Owner has fewer market comparisons to determine whether the proposed price is reasonable.

The Scope drives the Price — The Price does not drive the Scope.

Advantages and Limitations

Negotiated Bidding can provide continuity between Planning and Construction. Early contractor involvement can improve constructability, identify potential problems, and inform cost decisions.

However, without competition, the Owner has less independent information to evaluate pricing.

Even parties acting in good faith can disagree over costs, allowances, exclusions, and changes.

A clearly defined Scope and transparent pricing arrangements help reduce these risks.

The CIY Approach

CIY generally favors Competitive Bidding because it provides independent market comparisons and helps identify inconsistencies in contractor proposals.

Negotiated Bidding remains a legitimate alternative when circumstances justify it and the Owner understands the arrangement.

Both strategies depend on good Planning.

Competitive Bidding uses Planning to establish fair competition.

Negotiated Bidding uses Planning to establish transparency and accountability.

In either case, the Owner must establish the conditions for an informed purchasing decision before entering the marketplace.