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NEGOTIATED-BID APPROACH BUILDING A FOLLOWING

By Dave Bodamer

One developer likens the negotiated-bid approach of project management — which blends the best aspects of more traditional approaches — to a hardworking stagehand who finally works his way into the spotlight. The approach, while not altogether new, has become the dominant project management method for shopping centers in the United States. And U.S. developers and contractors are bringing this successful technique to Europe.

Shopping center design and construction professionals estimate that more than 80% use the negotiated-bid approach, yet it is only now that they are taking the time to break it down and analyze it. Die-hard fans of the approach even call it the "holy grail’’ of project management.

Its advantages include putting the architect, the owner and the general contractor on the same page on day one of a project by having all sides contributing to the design after the bidding. This cuts down on the animosity that can arise between engineers and architects working on sequentially bid contracts. It also reduces the number of change orders. The method also enables project managers to begin ordering construction materials before a design has been completed, cutting down on the overall project time. "Project management is still more of an art form than it is a science. There is no project development approach that works all of the time on every project," said Gordon "Skip" Greeby, president of The Greeby Cos., a Chicago-based construction company. "But the negotiated-bid approach works more often than not."

To understand how the approach works, project managers must understand where it comes from. The three basic project management approaches used in the construction industry — sequential, design/build and fast-track — are the seeds from which the negotiated-bid approach has developed.

At first, all construction projects were completed using the sequential, which is also known as the traditional, approach. In the first step, the owner hires an architect to design the job and create the budget, then selects a general contractor through a competitive bid process based on the architect’s design. Subcontractors are brought in during the construction phases of the work.

The other two major methods are design/build and fast-track. Fast-track is an extension of the sequential method, except here the project schedule is condensed and accelerated. Under the design/build approach, the owner signs the architect and the contractor to separate contracts at the start of the project. The contractor collaborates with the architect on the design and budget. That team then hires the subcontractors and works to deliver the project at the promised price.

A collaborative model

The negotiated-bid approach differs from the other three, but takes elements from each.

Like those, there is still a bid process for the general contractor, but it is not a hard bid. In the traditional approach, contractors receive a set of drawings called bid documents from which they figure out how much it would cost them to complete the job. But in the negotiated-bid approach, bidding takes place before the design has been undertaken. So instead the contractors bid on the parameters of their contract. What this entails is that the contract is formed after the contractor bids on what his fee will be, and on what the general conditions (which include the trailer, the phone lines and other items that the construction manager will need on-site) will be. The contractor will bid on what share of any project savings get split between the contractor and owner (in the sequential approach, the contractor is able to pocket the savings). They’ll bid the markup charges on change orders. If the job is going to be bonded, then that can be bid. The sequential model has fallen out of favor in the shopping center industry for a few key reasons. Because tasks are not overlapped, the design and construction process takes longer. And in this scenario the architect is creating the construction budget, even though it is not his or her area of expertise. Contractors always have to file change orders as construction takes place to alter the design, which delays construction and makes the project more expensive.

"The negotiated-bid approach focuses on the customers," said Richard Tilghman, senior vice president of Chicago-based Pepper Construction Co. "The contractor becomes a team member. We do 90% of our work like this."

The biggest downside to this method is that the general contractor joins the project before knowing what the cost of the project will be. Another is that owners sometimes do not feel like they are guaranteed to get the lowest price on the project. Still another concern is that contractors likely have connections to different subcontractors. The Mills Corp., Arlington, Va., which uses the negotiated-bid approach in all of its projects, addresses that issue by competitively bidding subcontracts.

"While we bring the lead general contractor on board early, he only handles half of the project. The firm does not perform any construction," said James Whitcome, Mills’ senior vice president for capital services. "Architects and engineers are OK at estimating ballpark figures for the budget, but the general contractor has much better information and can nail down a specific cost. That’s why we like to bring them on early.

"However when you’re dealing with the tenant buildout, you’ve got more time to get the design complete, and you can bid that work out," Whitcome added. He explained that Mills also does this to build relationships with new general contractors, and if they perform well, they are more likely to get a chance to lead a Mills project later on. Owners may have concerns about whether the general contractor will be tough enough on subcontractors since they do not have a specific bidded construction cost to work toward. By choosing a general contractor early, owners may cut down on their range of choices down the line. However, supporters of the method think they can allay these concerns.

"Most general contractors are not in the business of trying to win projects; they are trying to win clients," Greeby said. "If they bring in bad subcontractors or get the owner a bad deal with a subcontractor, it’s going to be hard for them to look good to the owner and hard for them to get another job with them. The big general contractors will tell you that what they are after is relationships."

Building relationships

This potential abuse can also be checked simply by the combined experiences of the owners, architects and general contractors heading the project.

"As for owners who feel like they’re losing a level of competitiveness, it’s tough to dissuade them. They are losing some," said Tom Porter, president of Atlanta-based architectural firm Thompson, Ventulett, Stainback and Associates. "But working with groups that have experienced architects and owners and contractors, we’re able to red-flag and find areas where the pricing may be a bit off. We’ve had a lot of experience in flooring and can spot if a bid is out of whack.

"We’ve been doing this for a long time now. You have to develop a level of trust and working relationships with each other. It’s difficult for designers to embrace the construction side and embrace them as equals. But you have to do that to be successful. I prefer to have the contractor on board on day one," Porter said. "Some designers don’t like it because they feel like it stifles their creativity. Personally, I’d rather have the data to design rather than overdesign a project and then go back and redesign it when I find it’s over budget."

The approach also affords the luxury of long lead times. During the early stages of a design, the structural system can be selected and even if the details have not been fully hashed out, the contractor can go ahead and begin making preparations for construction. Steel, for example, requires a long lead time to order. In negotiated-bid, the contractor can order the steel at a much earlier stage.

"In traditional, the contractor won’t order it until he’s hired, which is after the design has been completed," Greeby said.

There are some caveats to using the approach. For one, it’s not for novice general contractors.

"It should be someone that has depth of experience with that process and with retail projects," Porter said. "For example if you’re looking at handrail details, an inexperienced manager just cannot assume uniform conditions and budget it that way. Most people in the industry understand this."

Retail projects tend to be less fluid than others. Owners, merchants and other tenants are constantly changing what they want.

"Sometimes it seems like we’re making design changes until the last day," Porter said. "With a school, on the other hand, you know that once your design is in place it’s really not going to change much. That’s why so many people in our industry favor the negotiated-bid approach."

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