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5 Things to Do When Bid Prices Come in Over Budget

Credit: AZBEX

By Rebekah Morris for AZBEX

This five-part series has touched on the specifics of why construction prices have been increasing so fast in the last 12-18 months. This piece summarizes a few options for solutions on how to handle a price that is significantly over the budget price.

  1. Understand the reasons for the overage. It’s now been well documented that every aspect of the construction sector is experiencing high levels of activity and that total prices have increased substantially since the beginning of 2018. Now a year and a half later, budget numbers created before the recent run-up are not keeping pace. Determine if the market has shifted significantly since the budget was created and adjust accordingly.
  2. Consider an alternative contract type. Low bid contracts are ideal when the scope is very well defined, the design documents are clear and unambiguous and risks for unknown conditions are low. Unfortunately, not many projects fit that criteria. Considering an alternative project delivery method such as CMAR, Design-Build, or Job Order Contracting can create an environment that enhances cooperation and the team will work to get back to a reasonable budget for the project.
  3. Choose the right team – from design professionals who stay in touch with the market to general contractors who treat their subcontractors and suppliers fairly so they can get good pricing AND good project execution. It is not wise to assume that all general contractors have access to the same market of subcontractors and suppliers. The reality is that each general contractor has their small pool of subcontractors and vendors they regularly draw from. In turn, each subcontractor has its own limit of resources and capacity. Good general contractors realize that their success depends on the success of their subcontractors. In turn, their loyalty comes back in the form of favorable pricing and proposing solutions that help the overall project success.
  4. Involve parties who impact total price earlier. Give the suppliers a chance to participate as a valued team member by letting them be proactive and negotiating to the budget. However, that means committing to the vendors earlier and not treating suppliers as purely commodities providers.
  5. True Value Engineering – not ‘De-Value Engineering’. Staying true to the design intent while finding significant cost savings is tricky. Selecting the right General Contractor who can do this while maintaining the integrity of the overall project can significantly improve the budget.

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