The basic structure of the bidding process in the state of Ohio includes the formulation of fully detailed plans and specifications of a facility on the basis of the objectives and requirements of the owner, and the invitation of eligible contractors to bid for the right to implement the project. A contractor becomes qualified to bid only if he can offer minimal evidence of previous experience and financial stability. Owners, in the private sector are free to select the bidders through open competition to the limitation of bidders to some favored contractors. But in public sector all qualified contractors are placed on the same level of competition. Rules are strictly enforced to restrict collusion among contractors and illegal or unethical actions by public officials.
The unit price bidding is basically employed in projects for which the amount of labor or the quantity of materials involved in some key tasks is specifically not certain. Here the contractor is allowed to present a list of unit prices for those tasks, and the final cost used to decide on the lowest bidder is on the basis of the lump sum price computed by multiplying the quoted unit price for each particular task by the corresponding quantity in the owner's estimates for quantities. The total payment allotted to the winning contractor is according to the exact quantities multiplied by the respective quoted unit prices. The detailed plans and specifications used for the Competitive Bidding are prepared by engineering or architectural firm which manages the bidding process on behalf of the owner and the bids are submitted on both unit price basis as well as lump sum as per the specification of the owner. The entire price for which a contractor provides to complete a facility as per the detailed plans and specifications is represented through the lump sum bid.
However, various private owners, instead of calling competitive bidding, opt to award construction contracts with one or more selected contractors. Negotiated Contracts is a flexible type of pricing arrangement used for large and great complexity projects or for projects which substantially duplicate earlier facilities sponsored by the owner. The main reason for employing negotiated contracts is that owner can estimate the expertise and sincerity of a specific contractor with a good reputation and has worked successfully for the owner in the past. At times, to meet the deadline for completing the project, the construction of a project may start without waiting for the completion of the detailed plans and specifications with a contractor that the owner can rely. It is very essential that the staffs of the owner precisely evaluate contractor proposals and are competent to monitor subsequent performance.
The negotiated contracts require the reimbursement of direct project cost along with the contractor's fee determined by the process including:
It is at the outset of the project that the fixed fee or fixed percentage is determined, though the variable fee and target estimates are used as an incentive to minimize costs by sharing any cost savings. If the maximum cost arrangement is guaranteed, it can pose a penalty on a contractor for cost overruns and failure to deliver the project within the deadline. With a confirmed maximum price contract, amounts that are below the maximum are typically shared between the owner and the contractor, while the contractor is accountable for costs above the maximum.
The contractor's Bid Estimates represent the desire of the contractor to ensure the job and the estimating tools at its disposal. Not all contractors have well established cost estimating procedures and since in most bidding contests, only the lowest bidder wins the contract, any effort given to cost estimating is useless to the contractor who is not a winning bidder. Hence it is suggested that the contractor put in the least amount of possible effort to develop a cost estimate if it is believed that has least chance of success.
Whenever a general contractor intends to use subcontractors in the construction of a facility, it can solicit price quotations for various tasks to be subcontracted to specialty subcontractors. This enables the general subcontractor to shift the responsibility of cost estimating to subcontractors. In case the complete or part of the construction is carried out by the general contractor, a bid estimate can be created as per the quantity takeoffs from the plans rendered by the owner or as per the construction procedures developed by the contractor for implementing the project. Various items including labor, equipment and material required to perform different tasks can be used as parameters for the cost estimates.