There are three common work agreement structures homeowners can choose from when working with a building contractor. Two of these are negotiated bid pricing and competitive bid pricing. Working on a time and materials basis is the third, but will not be addressed here.

Below are brief descriptions of each with some of the advantages and disadvantages of each. Kodiak Construction works using either of these agreements.

1. Negotiated Pricing

The contractor is chosen during the design process, and they work with the homeowner and design team to refine the project scope and pricing including the permit process and then transition into construction. This does not mean that the homeowner should interview only one construction company, just that the decision who to hire is made earlier rather than later during the design process rather than after.

Advantages

• Pricing updates are provided during the design process so the homeowner does not get stuck at the end of the design phase having paid for a full design and possibly permits only to realize the project is over budget. It happens more than it should. Having the builder give updated costing allows time to adjust the design and/or project scope before going too far down an expensive design path.
• Homeowner experiences first-hand how the contractor works and communicates before actual construction starts. If there are striking personality or communication conflicts it might make sense to separate before construction begins. Although there might be financial and time penalties to do this, once construction starts it becomes much more difficult, costly and emotional to dissolve an in progress relationship and then try to complete the project.
• Estimating the design process and current permit timing, the contractor can block time in their construction calendar well in advance. This can save significant time between having completed construction documents and the start of construction. Most quality contractors are booked at least 6 months in advance.
• If there is a good working relationship between the architect and the contractor, every aspect of the project does not need to be drawn in detail in order to create complete, working drawings.
• Avoids the time consuming and difficult process of collecting numerous estimates and sorting them. They will all be produced in different formats and it can be difficult, even with the architect’s assistance (often for an additional fee), to parse out what is included and what might be missing from the agreement.

Disadvantage

• There will not be multiple bids from which to choose from. If price is the number one concern and decision factor in choosing a contractor, a Negotiated Bid Agreement may not be the best choice.

2. Competitive/Fixed Bid Pricing

Homeowner waits until a full set of construction documents is prepared and then gets bids from multiple contractors.

Advantages

• Comparison pricing is based on a complete set of drawings that all the contractors have access to
• If price is one of the most important factors in choosing a contractor, this might be the best approach
• Allows insight as to how a contractor presents themselves, thoroughness of their written estimate and general communication style. This information would also be gathered during the Negotiated Pricing process, but the bid process would allow for direct comparisons of other contractors based on the same information

Disadvantages

• The drawings produced must include a much higher level of detail to protect the homeowner from contractors in the competitive bidding process that may “low ball” the estimate and then come back with change orders to make up the difference between their bid and what the project should cost. Although the detail has value, it can increase the design fees substantially.
• It is a time-consuming process to find contractors, follow up with them and collect bids, particularly during busy construction times
• The homeowner, often inexperienced in understanding construction, is left to sort through the estimates to make sure comparisons are “apples to apples”. Estimates will come in different formats requiring careful reading to understand what is and is not included in each.
• After deciding on a contractor there will likely be a considerable time gap between the hiring decision and their availability to start construction. During busy times, this wait can be 6 months to a year or longer depending on the scale of the project.