When forming a construction contract, owners and developers are working to create an agreement that maximizes the quality of the project and minimizes the time and cost to complete. While this goal of attaining “best value” may seem obvious, achieving it is challenging, as different circumstances require distinct approaches to create a fully optimized contract.
A key aspect of achieving best value is determining which source selection method one should use for their project. Source selection is the process by which contractors are selected. There are three primary methods of source selection: (1) competitive bidding, (2) non-competitive negotiation, and (3) competitive negotiation.
When to Use Competitive Bidding to Achieve Best Value
For certain projects, particularly public projects, state or local law may require the use of competitive bidding. Along with cases for which it is stipulated by law, competitive bidding should be used in projects that include all of the following circumstances:
- Two or more contractors are willing to compete for the work.
- The owner/developer and its design professionals have time to create plans and specifications, prepare a bid, evaluate submitted bids, and award a contract.
- The owner/developer’s design professionals can provide sufficient detail of the specifications, duration of performance, and quality of workmanship expected for the project such that there is no ambiguity in its requirements.
Note: The overall value and complexity of the project should also be considered, as complex projects may eliminate potential contractors.
When to Use Non-Competitive Negotiation to Achieve Best Value
Non-competitive negotiation should be used in projects that include the following circumstances:
- Contract terms or technical specifications cannot be clearly defined.
- The owner/developer and contractor can evaluate technical proposals and pricing data together to reach an agreed scope and cost of work.
Two-step “competitive negotiations” are increasingly popular in the construction industry. Competitive negotiations can be executed in multiple ways. In one approach, proposals are solicited from selected offerors, with whom the owner/developer subsequently negotiates to achieve best value. In another approach, the owner/developer refines its requirements and scope of work through preliminary negotiations with selected offerors, and those offerors then submit competitive bids based on the agreed upon requirements and scope of work. This hybrid approach can act as the best of both worlds for owners and developers.
Whatever selection method one utilizes to select its contractor, it is crucial that best value is always at the forefront of the owner/developer’s mind.
This article summarizes content from Bruner & O'Connor on Construction Law. For more information on this topic, or for additional citations, see Sections 2:21 & 2.22.