Sealed bidding is a contracting method that uses both public bids opening and competitive bids prior to the awards. It encompasses five phases namely; the “invitation for bids” (IFB) preparation, publicizing the invitation for the bids, submission and evaluation of the bids. The final part is the awarding of the contract. On the other hand , contracting by negotiation is the term used for any contract awarded using procedures other than the sealed bidding procedures (Allon, Bassamboo & Çil, 2012).
One of the advantages of sealed bidding is that an owner has the opportunity of selecting the contractor with least estimated cost for doing the work. Another advantage is that the problem of unclear or inadequate information provided on the project documents can be easily noticed when there are large differences when it comes to pricing provided by a number of estimates to do the same work. This problem can, therefore, be solved before signing the agreement.
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The major disadvantage of sealed bidding is the requirement to address all inherent difficulties and demands. One of the main one being that all bidders should be given detailed information which must be the same. In case the information in the documents is incomplete, each contractor makes assumptions about construction of the project. This results to different assumptions from different contractor hence inability to compare the prices. The other one is that an individual together with his architect has to spend a lot of time developing a list of the most highly valued contracting firms similar to each other for their bids to be keenly compared.
There are three types of contracts to choose from when you want to do a project. These are “fixed price contracts”, “time and materials contracts” and “cost-reimbursable contracts”. A fixed price contract is a type of contract where the amount of payment is independent of resources used or even time extended. The most appropriate circumstance to use it is when the costs are known well in advance (Reuer, Mayer & Jane, 2014). Its main advantage is that one is aware of the total cost before the work begins.
A cost-reimbursable contract is one where a contractor is payed the exact amount for the work. It is mainly appropriate when there is need to move the risk of contract performance from the contractor to the buyer. The main advantage is that the final cost could be lower than in fixed price contract.
A time and material contract is one where charges are made on the basis of time spent and materials used. It is appropriate when one is not able to approximate the project size. Its advantage is that adding skills and resources to the team is very cost effective.
In conclusion, since both sealed bidding and contracting by negotiation has their own advantages and disadvantages; it is one’s role to choose between the two depending on their taste and preference.
References
Allon, G., Bassamboo, A., & Çil, B. (2012). Large-scale service market places: The role of the moderating firm. Management Sci. 58(10):1854–1872
Reuer, J., Mayer, K., & Jane, J. (2014). Contracts, Negotiation, and Learning: An Examination of Termination Provisions. Journal of management Studies , 51(3): 379-405
