What type of contract primarily favors negotiated pricing with lower bids?

The Stipulated Sum contract, often referred to as a lump-sum contract, primarily favors negotiated pricing with lower bids because it establishes a fixed price for the overall project before work commences. In this type of agreement, the contractor and the client agree upon a specific amount to be paid for the completion of the project, which encourages contractors to provide competitive bids.

This type of contract incentivizes contractors to manage costs efficiently and offer lower bids to secure the project, as they benefit directly from controlling expenses while still delivering the agreed-upon scope of work. Once the stipulated sum is determined, any savings achieved by the contractor often accrue to them, promoting cost-effective project execution.

In contrast, the other contract types involve different pricing structures that may not necessarily incentivize lower bids in the same way as a stipulated sum contract. Value Engineering often focuses on optimizing project costs and enhancing value rather than strictly on bid pricing. Cost Plus Fee contracts involve the owner reimbursing the contractor for costs plus a fee, which may lead to less incentive for competitive bidding. Unit Price contracts pay per unit of work completed, which can be suitable for projects where quantities aren’t fully known at the outset but doesn't emphasize overall bid pricing scale like a stipulated sum does.