Add and deduct alternates are a very useful tool which allow the architect and owner to use the marketplace of bidders to help them assess how much scope they can add to or subtract from the project to best utilize their budget. Although both are similar in nature, add and deduct alternates have some fundamental differences beyond the obvious.
One warning: Contractors will often ask during the bid period for a prioritized list of which alternates the owner will accept first. Such a list is often required for publicly-bid projects but is optional for private projects. Contractors are concerned about this issue for two reasons: 1) They want to ensure they are competitive on the add alternates the owner is most likely to select, and 2) They are concerned that the owner and architect will use selective groupings of alternates to slant the bid toward the contractor they truly want to obtain the work. In private sector work, this second issue is a red herring, of course, since the owner could simply award the work to a contractor of his choosing, or award the work to a higher bidder if he so chooses. Architects and owners can decide if they want to provide bidders with a prioritized list of alternates. In general, there is little reason to do so since the likely result would be for the top one or two alternates to be priced very competitively while the remainder may vary wildly.
Add alternates should be employed for only those aspects of the project that the owner considers desirable, but not essential. Examples could include the installation of an exercise center at an industrial facility or an upgrade from ceramic tile to marble tile in an office lobby.
Another reason architects may use add alternates is to keep a supplier from offering the owner less than competitive prices. Some products are specifically selected for a project by the architect because he believes they best serve the use and the owner's interest. In the instance of a product such as windows or glazing, a large amount of coordination between owner and supplier may take place prior to bidding, with the supplier devoting time and energies to working with the architect to provide him with technical guidance, specification information, and standard details. The product representative does so with the full expectation that his product will be used on the building, and for his part, the architect produces details and specifications focused on this single product. All of this is in the owner's best interest up to the point of bidding. At that point the profit motive of any reasonable businessperson may take over if he recognizes that he is the only specified provider of windows on the project. Contractors complain bitterly about dealing with sole-source providers for any component of a project due to its impact on their ability to obtain competitive pricing, and in general their complaints are understandable. Architects usually address this situation by listing other products as acceptable alternates in the specifications, or allowing "or equal" products to be proposed by the contractor and judged by the architect at a later date. The problem with this approach is that the architect loses control of the specification. Having devoted considerable time and energy to selecting and detailing around a particular product, he throws it all out the window in the name of competitiveness. A better option may be to set up an add/deduct alternate for another product of his choosing that will provide similar quality, as well as the desired competition for the most favored product. The architect may well include a couple of standard details to support the pricing of the alternate, and indicate to all that he is well prepared to accept the alternate if necessary.
Where add alternates are incorporated into the construction documents (and if they are not incorporated into the documents—how is the contractor pricing them?), they need to be clearly identified as alternates to avoid having rushed subcontractors or suppliers including them in their base bid numbers to the contractor. It also simplifies the contractor's job in separating the base bid scope from the alternate scope for all his subs and suppliers.
One way to facilitate this process is for the architect to include a separate line on the bid proposal form for each add or deduct alternate. The architect should also include a separate specification section for add and deduct alternates, describing in narrative form the full extent of each.
Deduct alternates are a way for the architect to build a form of controlled cost-cutting into his construction documents. Deduct alternates are discrete areas of the project carved out and set aside as stand-alone objects to be priced by the contractor. If the lowest bid for the overall project is beyond the owner's budget, the architect can help bring the project back within the budget by helping him to select one or more deduct alternates to reduce the costs. Typically, deduct alternates come in the following two flavors:
1. Non-essential, stand-alone items: These are items that are desired by the owner, but can be removed in total with no serious detrimental effects to the project. Examples include: play structures, fencing, emergency generator, wainscot, or crown molding.
2. Alternate items: Alternate products or construction elements to those specified in the base bid. These normally revolve around finish options, where the architect sees an opportunity to either save the owner money through less-expensive options, or to ensure that the preferred finish provider is more responsible in his bid by setting up a competition with other lower-cost providers. Examples include: carpeting and other flooring products, windows and glazing, and exterior cladding products. Cost-cutting by substituting less expensive materials and systems without cutting the scope is sometimes referred to as value-engineering.
In general, contractors despise deduct alternates. They view them as a form of devious manipulation of the bid by the architect, and a threat to their goal of winning the project outright through the lowest bid for the full scope. As a result, they tend to respond by discounting deduct alternates below their true value, reasoning that the owner wants to build the full project, and consequently does not want to exercise a deduct alternate to remove scope. They believe they will win the competitive bid, and do not intend to give away much beyond that. For this reason, deduct alternates only have value where the architect believes the bids will be very close to the owner's construction budget, and feels that the owner's bud get may require some minor relief. If the architect is concerned that the bids may be well beyond the budget, deduct alternates are not a desirable tool to use in correcting the situation. Deletion of scope from the base bid is the more desirable route, with the option of an add alternate to price out the cost of restoring it.
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