Don't bid ... negotiate!

Nov. 1, 2010
To all proponents of competitive bidding as the best way to price a dental project, we say, "Not so!"

For more on this topic, go to www.dentaleconomics.com and search using the following key words: dental office design, bidding, negotiate, Dr. Jeff Carter, Pat Carter.

To all proponents of competitive bidding as the best way to price a dental project, we say, "Not so!" It is time to expose this presumption for its shortcomings and reinforce how you get the best value for a quality project through negotiated pricing. For every client we work with and for most dentists reading this, you want to be sure you have these five things when building your project:
  • Confidence that you have the best general contractor (GC) for your project
  • Great quality craftsmanship for a fair price
  • Minimal or no change orders (see our column in the July 2010 issue of Dental Economics®)
  • Your project built as designed (not morphed during construction)
  • Cooperation between your design and construction team
How you price your project significantly impacts these expectations. Let's compare two pricing options: competitive bidding vs. negotiation.

The 'best' general contractor for your project

Bidding: Your GC selection is based on the lowest price submitted, not on any other qualification. You don't know how your GC got to the lowest number because you don't see a pricing breakdown. Your assumption is that all GCs are the same, and you want the one who is willing to do the job for less. If you need to, you can only reduce the bid price by removing something from your project, and removals are never deducted at full value. You decide to build at the low bid or with things "removed." You sign a bid contract.

Negotiation: You select the GC following an interview geared to a number of project qualifications, including expected overhead and profit. You select your GC based on identifiable advantages over other GCs whom you and your design team interview. Your GC's pricing is submitted with a full breakdown of all subcontractor bids. If needed, cost reductions are discussed, referencing the exposed pricing and may include choosing a lower sub bid, changing a finish, or clarifying design intent. All reductions are negotiated until you arrive at an agreeable final cost. You sign a negotiated contract.

Great quality, for minimal or NO change orders

Bidding: That is your hope. Your "lowest price" GC will build what is in your drawings. Anything not included is a change order (CO) triggered by a GC driven to recoup dollars lost when competing for your project. The less thorough your drawings, the more your exposure to change orders. Your project will probably fit the typical bidding scenario: 20% to 25% CO "adds" by completion.

Negotiation: That is the expectation. All sub pricing was reviewed, adjusted, and selected. Discrepancies were identified and clarified. The GC's overhead, profit, and costs to run your project were established during the negotiation process. You will see the subcontractor's bid for any changes that occur during construction. Your GC is being compensated fairly and is not driven to recoup lost money; rather, he or she is incentivized by your referral for completing the project on time and within budget. Typical change orders on our negotiated projects: 0 to 5%.

Built as designed by a cooperative design and construction team

Bidding: Your project is being built by a GC who has priced it at its lowest "interpretation." Pricing was not a dialogue, but a bottom-line declaration. With no access to pricing, your design team is limited to holding the GC accountable to the drawings and clarifying your design intent. The GC will build what is in the drawings and will charge more for everything else.

Negotiation: Your project is being built by a team that has openly discussed your project's pricing to get to an agreed-upon final price. That dialogue required cooperation - the design team clarifying design intent and the GC seeking competitive pricing so he or she can build the project. A successful negotiation includes a multitude of agreements up front about what is in the project and, by its very nature, promotes cooperation during construction of your project.

Bidding works for simple structures and GCs with decent building skills. As projects get more complex, the advantages of bidding are lost. Dental offices are complex - functionally and often esthetically. Quality construction at a fair price by a qualified GC requires dialogue between a design and construction team. That is negotiation. Don't bid ... negotiate!

Jeff Carter, DDS, and Pat Carter, IIDA, are owners of PDG- Practice Design Group. Located in Buda, Texas, PDG offers a full range of design and consulting services to dentists nationwide. For information, call (800) 511-7110 or visit www.practicedesigngroup.com.

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