There are two primary approaches to the process of developing a budget, selecting a contractor, and starting construction: the Negotiated Sum and the Stipulated Sum. In both scenarios, we provide a guaranteed maximum price for the entire project. Our preference is to use the Negotiated Sum process because we find it delivers a better product, often in less time. However, there are occasions when a Stipulated Sum can be advantageous. There are also strategies for combining the two processes into a hybrid. However, this requires additional management by the architect. The specifics of the two processes are outlined below:
In short, with the Negotiated Sum process, the contractor works concurrently with the architect. The contractor is selected early in the design/permitting phase, develops the project cost, and assists the architect with the building’s technical aspects. Because we are working concurrently with the architect, the design and construction process has the potential to be shorter.
In the Stipulated Sum approach, the design and permitting phase occur prior to contractor bidding. The contractor is brought in after the majority of the architect’s work is complete. The project drawings and specifications are at about ninety percent completion and the bidding contractors are able to provide detailed cost proposals. As the contractor’s involvement is limited in this phase, it is helpful if the owner discusses the budgetary constraints. Several contractors provide complete proposals for the project.
The accompanying chart diagrams our preferred process.