Choosing a contracting model: Traditional vs negotiated tendering

Contracting Models COMUNiTI

Choosing a contracting model: Traditional vs negotiated tendering

“Design is intelligence made visible.” – Alina Wheeler, Author

Designing a space that maximises productivity and embodies the values of your business is critical – but great designs only turn into magnificent environments with the help of skilled contractors.

That’s why it’s crucial to understand the basics of contracting out building and design projects so that your business (and your budget) can both benefit.

There are two basic methods of contracting: the traditional tender approach and the negotiated tender approach.

Traditional tender

The traditional tender approach consists of opening up your project to contractors and allowing them to provide you with a complete cost for the project. Your design and project management team will have a select group of contractors that they know and trust to ensure you are getting high quality tender submissions in a competitive market environment.   

The traditional approach requires comprehensive documentation so that nothing is left to chance – and your documentation needs to be so thorough that it could be handed to multiple contractors and they’d each come up with substantially similar results. You want to achieve an Apples to Apples comparison of costs so that a decision is clear, quick and without numerous hours spent going back and forth seeking clarifications. 

This approach can extend the project lifecycle as the level of documentation requires to be more thorough the time required to prepare it is greater.  The tender process then requires a reasonable period subject to the complexity and size of the project, plus time to analyse, compare and clarify the tenderers before entering into contract term negotiations.  Once that’s all locked away the contractor then needs to assemble their team, place orders, collate their gear and establish the site.  This process can add a significant amount of time to the overall program, impacting on your completion date. 

Negotiated tender

The negotiated tender approach involves selecting one contractor and engaging with them until you settle on agreeable terms for the building project.  It doesn’t mean the contractor gets an open cheque book, but rather that they become another member of the team and source competitive, open book pricing utilizing their knowledge and networks, whilst the design is still being developed. 

A variation of this method is sometimes called an ECI or Early Contractor involvement.  This approach sees the contractor submit a proposal with a fixed management fee and other establishment costs to secure the project, before details of what is to be constructed have been fully developed.  It also enables the contractor to be involved in the design development and construction planning stages of the project and supports the team through innovation and planning. 

This process is faster than traditional tendering since you’re starting early on with a contractor whom you or your design team often know and trust.   You will still need to negotiate in order to find terms that suit both sides, and every detail must be clearly spelled out in any agreements drawn up with the contractor.

Negotiated tendering is an ideal approach because the structure often enables you to get to market more quickly, prior to all the documentation being thoroughly resolved. When working closely with a single selected contractor you can get onsite quicker, order materials earlier and find economical ways to achieve building goals as a team.

This arrangement also fosters openness and transparency since you’re working closely with the contractor at each phase.

Ok, let’s now take a look at the pro and cons of both styles.

The Pros and Cons of both tender styles

Ultimately, your needs will dictate which contracting approach makes the most sense for your project.

Ask yourself this question: Do you or your design team have someone specific in mind who can help you with your project, or are you happy to get out to the masses to see what gems you can uncover?

Traditional tendering can be slow and time consuming , but it’s also one of the most competitive ways to find contractors, as they are typically competing on price as the deciding factor and ticks all the probity boxes.

Lastly, you’re forced to build out strong documentation when taking the traditional approach, which ensures complete clarity for all parties involved and provides a reference point for any changes and possible cost variations.

On the other side of the coin is this …

The biggest criticism of negotiated tendering is the claim that it stifles competition. In fact, negotiated tendering is sometimes discouraged (or outlawed) for publicly funded projects.

However, in the case of private projects, negotiated tendering is lauded for being a cost-effective and time-friendly approach. If you can agree on terms with a single contractor and you have a strong relationship, this arrangement can greatly reduce your time to market.

Regardless of which contracting model you follow, it’s critical to build your documentation and find contractors that you trust – those basics are necessary for a beautiful finished product.

And also building a culture with values that shapes the world we live in.

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