Does Bidding the Project Yield the Lowest Cost? (Scenario 3)

Scenario 3:The Investor Hires Both an Architect and a Contractor Prior to Bidding

In this system, the investor works with an architect and a contractor during the design of the project. Like the other two common bidding approaches, scenario 3 has some pros and cons. Unlike its counterparts though, it’s a value-oriented approach that takes steps to check the inherent flaws of the low-bid process.

If conducted properly, these steps have the potential to virtually eradicate threats such as high design costs and subpar quality. This method sets up an early budget that fits the investment decision before design, measures costs along the design path, controls the quality and scheduling capabilities of subcontractors, and speeds up construction of the building, which results in sizeable savings. Ultimately, this model has the potential to yield a higher value process and product, which translates to greater utility for every party involved.

When it comes to the design phase of a construction project, competency is probably best ensured when the investor joins forces with both an architect and a contractor early in the process. Having experts in cost and design involved in a process which consists of both cost estimation and design tends to be less risky than scenarios 1 and 2. Throughout the design process, this model improves the likelihood that the highest value is reached throughout each of the following steps:

1)    Site Selection: Before the investor buys land to build on, the contractor assists in evaluating its suitability, soil capabilities, and site conditions. For more on what this entails and its significance, check out our site selection blog post.

2)    Conceptual Estimate: The contractor helps the investor establish a budget based on the size, interior functions, and exterior attractiveness required for the prospective building to maximize efficiency. These factors have substantial implications on the building’s cost and must be determined before a budget can be drafted. Comprehension of the building’s purpose sets the stage for a detailed conceptual estimate, or “program,” in which they establish a preliminary design budget and benchmarks for each individual element of the building.

3)    Preliminary Design and budget estimate: Utilizing the program and conceptual budget, the architect begins working on the design. Through the weekly meetings, the team measures design progress against previously set estimate benchmarks. At the end of this step, the conceptual budget is updated into a project budget. While this budget is more concrete than its predecessor, it is still subject to change. Its creation necessitates a line-by-line evaluation and an analysis relative to the projects goals set forth in the conceptual estimate.

4)    Working Design and Budget Evaluation: Expanding upon the approved budget, the design team creates a working design. They take the drawings to the point in which they can be bid on by specialty contractors.

5)     Design Completion and Bidding: Based on the contractor’s recommendation, several specialty contractors are selected to bid on specific parts of the project. They are nominated based on their capability to meet the projects expectations for quality and time. The drawings and designs are sent out to this preselected list, and they are given 2-3 weeks to devise a bid, which provides them with sufficient time to get quality quotes on their materials. After the bids come in, the contractor reviews the results with the stakeholders by measuring the bid prices against the estimate benchmarks and discussing the value of each contractor’s offer. Having the contractor’s input here helps ensure the bid with the best value is chosen, because as we know, the lowest bid does not always provide the best value.

Furthermore, hiring a contractor prior to the design process allows for a swifter completion of the project, which lowers overall costs. In this contractual model, construction can begin before the design’s completion. The time saved by this process is effectively illustrated in the diagram below, which can be found in Jack Miller’s Rules You Should Know Before You Build Your Important Project: A Guide for the Buyer of Construction Services.

As you can see, we’re a little bit biased. While they both have pros and cons, our experience tells us that scenarios 1 and 2 don’t allow an investor to maximize the value of his or her investment. Instead, we feel that the best way to do this is through trust and experience, both of which are evident in scenario 3. If you’re considering an investment in a new building, we would recommend that you consult with various contractors and architects early in the process, and select one of each prior to design. Figure out who you trust, who you like, and how much they charge for their services. Build a relationship with them founded in trust and teamwork. If trustworthy, a contractor can be a valuable ally in the design process. Based on our experience, this comradery pays dividends in making an investment fruitful, as it yields a fair price and a high quality structure.

Sources:
Miller, Jack. Rules You Should Know Before You Build Your Important Project: A Guide for the Buyer of Construction Services. Houston, TX: Group Communications, 2006. Print.