What’s a negotiated contract in construction?


A negotiated contract in construction can be the best way of achieving a brilliant build for an appropriate cost. It’s all about finding the right building partner then working together to deliver a project that meets everyone’s needs. Trust and relationships built on mutual respect are vital  – architect, property owner and builder understanding each other’s role in achieving the same goal.

Galower renovates and builds new luxury residential properties where the negotiated contract is often preferred by architects and their clients.

This blog examines the negotiated contract in construction and how it works for us and our clients.

Open, selective and negotiated tender options

There are three tendering options in the UK: open (or ‘competitive’), selective and negotiated. The reasons for choosing one over the other are based on various needs, at the heart of which are cost and compliance. Here’s an overview:

1. The open tender

Often called ‘competitive’, this tendering process invites ‘everyone’ (through OJEU) to submit a tender proposal. On public projects, or where an element of public funding is involved, open tendering is usually the preferred option. It stimulates competition, minimises discrimination or favouritism, and aims to achieve the most cost-effective option.

Open tendering is also a slow and costly process, as it attracts the attention of a large number of suppliers. A pre-qualification process is necessary to ‘shortlist’ the most appropriate bidding firms. While under-priced tenders may seem appealing, there’s the danger of a price vs quality trade-off: a lower price may involve low-quality material, low quality of work, and other factors to cut corners.

2. The selective tender

This option allows the client to invite a much smaller number of suppliers (generally no more than six) to bid on the contract. It’s a procedure best suited to complex contracts involving specialist capabilities which, by default, filters the nature of the bids involved. Invited companies generally have a track record in similar projects in terms of complexity, size and nature. Galower Build works on high spec projects for independent educational establishments as part of the selective tender process.

Clearly selective tendering is a much faster process than open tendering. Getting on the tender list in the first place is the difficult bit and criticisms of collusion and favouritism at the selection stage are common.

3. The negotiated tender

The negotiated tender involves reaching out to a single contractor, one who is highly suited to the project. It’s usual for a relationship to exist between the contractor and client – either the property-owner or architect.

Having just one contractor involved means the tendering process is shortened significantly, especially if the parties have worked together before and know how the other operates. The downside is the lack of competition for comparison which could result in higher than necessary costs, and complacency on the part of the chosen contractor.

Accurate costing evolves through the life of a project

We’re not going to say one tendering option is better than another because, as indicated above, circumstances might dictate which one you have to go for. However, the more accurate the brief and spec, the better the basis for costing out a project, whatever the option. On larger projects, a quantity surveyor will put together early cost plans to give a snapshot of the likely costs involved.

Accurate costs evolve through the life of a project, developing in detail and accuracy as more information becomes available about the nature of the design. This is what happens on a negotiated tender: the contractor is able to understand the detail of a project as its scope emerges. This means costing is undertaken in ‘packages’, allowing you to get the big ticket items right.

We often participate in selective tenders (eg in the education sector) but never in open tenders because of the nature of our specialism. We’re never the cheapest in selective tenders; sometimes we rank in the ‘middle’. Often our experience will mean our quote is at odds with those of our competitors. However, we often end up being the most cost-effective because we take a 3600 view on buildability, and apply our experience to likely outcomes and possible hidden costs.

The negotiated tender relies on trust

Once we’re working on a project, we don’t relax and we certainly aren’t complacent with our costing. Our own calculations for steelwork will often reduce the initial volume specified. We regularly recommend an option that’s less expensive than originally specified. We find suppliers who can meet the high standard expected but with a simplified spec, thereby bringing the cost down – often by a significant amount.

Our planning and logistics are designed to keep a project flowing irrespective of delays or changes. We even plan around phased stages of work. For example, working on the upper storeys of a property while excavating a basement.

Or consider the landscaping stage; usually left to the end of a project when there’s less chance of boots and machinery ruining any planting. However, we would plan any garden foundation work early on in a project to take advantage of, for example, access through a gutted property rather than risk delay and extra cost because plant and materials have to be craned in.

Cost and its impact on quality

Maintaining high quality throughout a project is our sole focus so any rise in costs have to be managed to avoid a negative impact. Generally, there are three main reason for costs rising:

1. Materials shortages

Pandemics, wars and major disruptions to international trade agreements lead to material shortages which in turn cause prices to rise. Being prepared with reasonable and logical contingencies is more important than ever.

2. Changes to brief

As a project progresses, changes to brief are normal. Some are major in nature (structural, flooring, etc) others less so (lighting spec). In every case, the cost impact has to be proportionate.

3. Delay

All the above can lead to delay which in turn will increase costs. Then there’s the weather. We aren’t delicate little souls but some work is impossible in extreme conditions for both people and materials. Time management implies contingencies which is why it’s such a skill.

Negotiate with a trusted contractor

In our experience, a negotiated contract in construction will be successful once all parties are fully behind the project. Negotiating with one contractor calls for trust and that’s where we excel. We put the wealth of our experience at the disposal of both the architect and their client, ensuring the project culminates in the best outcome for all parties.

Cost matters whatever the level of luxury we’re building; it becomes the key to maintaining the highest quality. We’re acutely aware of the time, money and quality of life a home-owner might be wasting on renting a property while we build them a home.

We’re equally aware of the excellent reputation we want to maintain for ourselves and our client, the architect. We like this work; the challenges and clever thinking involved. We want things to go smoothly and we want to be rewarded for our expertise. It’s as simple as that.

Get in touch if you’re interested in how a negotiated contract might work for your building project.

How does a negotiated contract work?