The Main Bidding Strategies

There are three main bidding strategies:

• Competitive Bid Strategy
• Negotiated Bid Strategy
• Lowest Bid Strategy

The Competitive Bid Strategy

The Competitive Bid Strategy aims to have the project scope drive the price and take advantage of competition to reveal the best bidder with the lowest price.

It works like this:

• Create a scope of work, plan, budget, schedule
• Provide multiple contractors with you bid package
• Hold a pre-bid walk-through meeting
• Answer questions and provide clarifications
• Collect bids, evaluate and compare bids
• Objectively select the best bidder

Every contractor bids on the same project package, and given notification of any changes or new information, so they can adjust their bid as needed.

The Competitive Bid Strategy can generate bids under contingency, and within 30% from lowest to highest.

The Negotiated Bid Strategy

The Negotiated bid strategy is useful when you have a great contractor that you want to use, or there aren’t enough contractors for you to get competitive bids from.

It works like this:

• Select your contractor
• Discuss desires and budgets
• Define the project scope of work
• Agree on a price
• Contract

The goal is to come to a mutually agreeable contract amount. You can benefit by knowing what everything costs. Contractors benefit by knowing costs are covered and they can predict profit.

Contractor’s often provides estimating services as part of the negotiation, but you still want to know what things really cost, so do your own research.

Make sure there is a clear scope of work, with minimal allowances, and an agreement to the contractor overhead and profit, or you may get sticker shock when you get the first invoice.

The best way to proceed with this strategy is to sit down and develop the scope of work, then find a contractor you think you can trust and sit down with them.

TIP: Use caution with this method, because it does not guarantee the lowest price, a fixed price, nor does it eliminate changes orders.

This strategy is ineffective when applied to multiple contractors because each contractor’s price per scope item can vary drastically. Use the competitive bid strategy when negotiating with multiple contractors to find the ‘best-lowest initial price.’

TIP: Be cautious if a contractor calls their “bid” an “estimate,” this means no number is fixed. It means costs will increase after contract signing.

The Lowest Bid Strategy

The lowest bid strategy is the fastest and easiest way to get to the lowest starting construction price. In the lowest bid strategy, there is only one goal: find the absolute lowest starting price.

It works like this:

1. Put the project out for bid.
2. Take the lowest price of the bids offered.
3. Secretly disclose the lowest price to the higher bidder(s).
4. Ask high bidders to beat the low bidder’s number.
5. (In most cases) Go back to the original low bidder and repeat steps 2 – 4.
6. Asking for the lowest bid can be as subtle as telling a contractor, “Another bidder gave me a bid for $___________ but money is really tight, and I really like you more. Can you see what you can do to beat that number?” – Or – Asking can be as blatant as providing a hard copy of the lowest bid to other bidder(s) and saying, “If you beat this number, I’ll give you the job.”

Generally, people want to use the lowest bid strategy when they:

• cannot find enough bidders,
• don’t want to go through the ‘trouble’ of finding more bidders,
• think the bids received are too high, or
• don’t know how else to proceed.

It might seem like a good way to get the lowest price, but there are consequences.

The second you ask a contractor to beat a lower bid, they’ll know what your doing. At Best, the higher-bidder that wants to be lowest includes lower cost materials and allowances and the bid stops reflecting your vision. At Worst, the honest and competitive contractors get disinterested, withdraw, and leave you to deal with whoever is left.

Either way this method will result in you asking for additions and upgrades during construction because the contractor reduced or eliminated things to give you the lowest price. This drives up the total completed project cost.

This strategy will get you the lowest starting price for your project, but it won’t be the lowest overall completed cost.

This strategy usually generates expect 50% – 100% like some recommend or the 100% + swings between bids that often result.

Which Bid Strategy is best?

The best strategies are — the competitive bid and negotiated bid strategies, in that order. When you start with the competitive bid strategy, you always have the option to convert to the negotiated bid strategy.

Determining which strategy is best for you is a personal choice that involves questions:

• How many bidders are available?
• How well do you know the contractors?
• How comfortable are you with any one bidder?
• How trustworthy is the bidder?
• How fast do you need the project completed?

The Lowest Bid Strategy is the worst of the three since it neither results in the lowest finished construction price nor ends with owner satisfaction. We’ve included it here because it’s the one that most people default to becasue they know a contractor or got a referral. We never recommend it.

Whichever you decide, never tell the contractor which strategy you are using until you are absolutely committed to going down that road; even then, carefully consider the advantages and disadvantages of each strategy.

TIP: Little good comes from telling a contractor they are the only bidder, since most contractors will only give you their best price when they believe they are competing for the job.