Negotiating bids for public construction is generally frowned upon. The projects should be awarded to the responsible bidder with the lowest responsive bid. However sometimes the public agency awarding the project experiences budget woes resulting in negotiating before OR after awarding a project. Another problem public construction agencies encounter are problems with poor scope of a project resulting in a lack of competitive prices, not allowing participation by more contractors as well as auditing woes.
Budget woes can occur for the public construction agency whose project budget is not sufficient for the lowest bid. When low bids exceed funds available, sometimes agencies will take one of two inappropriate actions:
1) Negotiate before awarding: Public agencies MAY NOT do this unless specifically authorized by law. Washington State agencies are authorized to negotiate within the confines of RCW 39.04.015.
2)Negotiate after awarding: Sometimes agencies are tempted to go ahead and award a bid knowing very well they don’t have the funds available. When they do this, immediately after signing contracts they’ll negotiate a deductive change order bringing the amount of the contract within their budget.
To avoid either of these inappropriate actions and the scenarios that necessitate them, it’s a good idea to include additive bid amounts as part of the bid form. This is a good protection tool for managing higher than expected bid amounts.
Poor scope of a project leads agencies to add significant or unrelated change orders to a project. Change orders are often the “nature of the beast” as there are always unforeseen conditions. However, if the change orders could be bid as a separate project instead, one or all of three problems can occur:
1) Public agencies cheat themselves out of competitive prices. The whole point of public bidding is to obtain competitive prices, but when you negotiate on a current project with a change order instead of bidding a separate project you experience a lack of competitive prices that could have been an option to you.
2) Contractor participation is limited. The wider contracting community does not get opportunity to bid on a project when it is presented on a change order for another project.
3) Audit finding happen. When a public agency adds unrelated work to a project through change orders, auditors frequently issue audit findings noting that it violates the intent of competitive bidding laws.
Be safe and always plan ahead! You can do this by having proper scope of a project that fits with the budget and additives designed to ensure you have enough funding to meet the basic necessities of the project.