Negotiated contracts are most commonly used in the private sector, where the owner
wants to exercise a selection criterion other than low price alone. The negotiated contract is
used only in special situations in the public sector since it is open to abuse in cases in which
favoritism is a factor. Private owners are also partial to the negotiated format of contracting
because it allows the use of phased construction in which design and construction proceed
simultaneously. This allows compression of the classical ‘‘design first-then construct’’ or
design-bid-build sequence. Since time is literally money, every day saved in occupying the
facility or putting it into operation represents a potentially large dollar saving. The cost of
interest alone on the construction financing of a large hotel complex can run as high as
$50,000 a day. Financial costs generated by delays on large power facilities are estimated at
between $250,000 and $500,000 a day. Quite obviously, any compression of the designbuild
sequence is extremely important.
Large and complex projects have durations of anywhere from to 2 to 3 up to 10 years.
For such cases, cost-plus contracts are the only feasible way to proceed. Contractors
will not bid fixed prices for projects that continue over many years. It is impossible to
forecast the price fluctuations in labor, material, equipment, and fuel costs. Therefore,
negotiated cost-plus-fee contracts are used almost exclusively for such complex longduration
projects