March 2022
When is a Negotiated Contract Your Best Bet?
While traditional bid contracts are most typical in the construction world, a negotiated contract may be ideal for your next construction project. How do you know what type of contract will best serve your needs? How do you negotiate the best terms?
What is a "Negotiated Contract"?
If your priorities are project control and quality, a negotiated contract is likely your most attractive arrangement. Most general contractors will be willing to negotiate a contract with you. These agreements typically begin with choosing the contractor most qualified to complete your job based on experience, personal synergy, referrals, or other qualities you determine. Then, you (the owner) and general contractor work collaboratively to develop a mutually acceptable contract.
Terms of the contract are typically “cost-plus-fee” or “cost-not-to-exceed.” In a cost-plus-fee agreement, the contractor is guaranteed a specific fee over project costs. In a cost-not-to-exceed contract, the general contractor agrees to complete the project at or below an estimated final project price. Typically, in this type of contract, any savings realized upon project completion are shared between the general contractor and the owner.
Benefits of a Negotiated Contract
Because of their collaborative nature, negotiated contracts often result in a stronger, more trusting relationship between owner and general contractor. The owner can request an “open book,” where he/she has full access to project costs, including materials and subcontractor fees. The general contractor completes all the subcontractor vetting and invites the owner to be as involved in the process as he/she would like.
This cooperative philosophy also tends to make negotiated contracts more accurate, with fewer change orders than traditional bid contracts.
These agreements also encourage value engineering, where your general contractor provides advice based on their experience that may ultimately provide a better finished project and/or reduce your long-term operating costs.
Negotiated contracts have an added benefit. Because the general contractor is awarded the project prior to reaching out for subcontractor bids, subcontractors are incentivized to provide their lowest bid for their work so they can be awarded the job. This is another way the negotiated contract can actually save you money. For this same reason, GCs are more empowered to select the subcontractor team that will produce the highest quality result for you.
What arrangement is best for you?
Whether you elect a negotiated contract or bid contract depends on what is most important to you. At Peter Schwabe, Inc., we are experienced with both negotiated and bid contracts and are happy to accommodate either arrangement. Given the choice, we prefer to work with negotiated contracts because we feel this type of agreement allows our clients to take advantage of our strengths: relationships, collaboration and experience.
For more information about how we can assist with bidding for your next project, please contact Michael Gilbert, Director of Business Development, at (262) 352-9786 or mgilbert@pschwabe.com.
Project Profile: Mercedes-Benz of Milwaukee North Service Department
Umansky Motor Cars selected Peter Schwabe, Inc. for the remodel of and addition to the Service Department at their Mercedes-Benz dealership in Glendale, Wisconsin.
The project included the addition of new overhead doors and special lifts to accommodate the large Sprinter vans. Peter Schwabe, Inc. was awarded this project after the successful completion of the renovation of Umansky's Porsche Milwaukee North dealership.
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Welcome to our New Employees
Peter Schwabe, Inc. is pleased to welcome two new employees to our growing team:
John Belt has joined us as Superintendent.
Laura Karvala will serve as our new Project Accountant.
In addition, we have several open positions in Marshfield, WI, to help serve our growing clientele in that area. If you know anyone who would be a good fit, please direct them to the job descriptions on our Careers Page. If they are interested, please have them send their resumes to Kadi Nowak and reference your name so we can give them special consideration as a candidate.