My strategy with bid negotiation was to only solicit bids from subcontractors who were highly recommended by trusted sources. That way, I could hopefully focus on price without worrying I was getting bids from guys who do shoddy work. In most cases, I adhered to this strategy, although occasionally I got a bid from someone brought in by a related subcontractor (e.g., a heating guy who got a bid from a plumber friend).
In most cases I got at least three bids. I plotted the results of this bid process for the major subcontractors involved in the first phase of my project. These are the costs to do the work, including materials (except for framing, which is labor only). My house is about 3,700 sq-ft of living space with a 600 sq-ft garage. The flatwork quote includes all the concrete floors in the house, a concrete driveway, tinting the concrete, and applying acrylic sealer.
The results reveal why it is imperative that you get multiple bids. The difference between the total cost of this phase of work taking all the low bids and taking all the high bids is about $110,000, or more than half of what I’ll pay for this phase. That is, there can be a 50% difference in the total cost of the house depending on who you contract with. Again, in most cases, all of these subs are considered high-end guys and come highly recommended. The exception is the low bidder on excavating, on whom I had no information. I did not find the bid credible, which is why I didn’t take that bid. In some cases, I wanted to work with someone who was not the low bidder, but I negotiated with them to do the work for the low bid. In a few cases, I negotiated a price that was not as low as the low bid. This was the case for the electrical work. I honestly think the low bidder made an error in his bid. I just don’t see how he could do the electrical work for this house for $10,000 (which would end up being something like $25/box…a crazy number). I gave the low bid to another electrician and he worked his bid down to the point where he said he just couldn’t go any lower, and I left it at that. (It still seemed a very aggressive price to me, and so I was happy with the outcome.) In the case of the flatwork, I got only one bid. The flatwork guy was highly recommended and the flatwork is tricky on this house. The bid came in right at about what the RS Means guide said it should, so I didn’t get any further bids.
Soliciting and negotiating bids with subcontractors is probably the most important task the owner builder can take on for controlling costs. This is mostly, or especially, true in a recession environment. When times are booming, the owner builder probably can’t even get the subcontractors to return phone calls. In a recession, the owner has a hard time fending off the phone calls.