Competitive bidding is used to encourage efficiency and innovation by the participating contractors, thereby providing the owner with a constructed product at the lowest possible price. One weakness is that the bidding process places the owner and the contractor in adversary positions. Competitive bidding sometimes leads to selection of incompetent contractors, excessive claims by the contractor against the owner, disputes and litigation between the two parties, bid shopping, and other problems. Although American projects are awarded to the low bidder, other countries have different philosophies. The low bidder may not necessarily be the best price for the owner.
Some European countries use the average bid as a benchmark for selecting a contractor.
Competitive Construction Contracts Lump-Sum Contract Contractor agrees to perform a stipulated item of work in exchange for a fixed sum of money. The satisfactory completion of the work for the stated amount remains the obligation of the contractor, regardless of the difficulties and troubles that may be experienced in the course of construction activities and even though the total cost of the work may turn out to be greater than the contract price. In the event of construction difficulties or excessive costs, the contractor must rely for relief on the remedies contained in the contract, such as clauses providing for changes or changed conditions. This type of contract is popular with owners for the reason that the total cost of the project is known in advance. However, lump-sum contracts are limited to work that can be accurately and completely described at the time of bidding or negotiation.