Construction projects are secured through the construction bidding process, where a project owner seeks to build and contractors offer their services to fulfill the job.
While navigating the construction bidding process can be complex, mastering it is essential for securing projects and growing your construction business. A well-prepared bid showcases your expertise and sets you apart in a highly competitive market.
However, winning bids isn’t just about offering the lowest price—it requires a strategic approach that combines accurate cost estimation, clear communication, and a deep understanding of the client’s needs.
This blog will guide you through the key steps of the construction bidding process, from bid solicitation to project delivery and provide practical strategies to help you enhance your bids and improve your win rate.
What Is Construction Bidding?
Construction bidding is the process through which contractors submit proposals to secure a construction project, either directly from a client or through a general contractor. This process is crucial for acquiring new projects and subcontractors seeking work from the primary contractor once a project is awarded.
Knowing how to bid on construction jobs can make the difference between success and bankruptcy for a construction contractor. An effective bid must strike a delicate balance: it should be competitive enough to attract the client while ensuring the contractor can achieve a reasonable profit.
Often referred to as the construction tender or RFP process, construction bidding is a balance between cost estimation and showcasing expertise. While many construction bids prioritize the lowest price, other factors, such as the contractor’s qualifications, experience, and ability to meet the project requirements, can be equally critical.
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Steps in the Construction Bidding Process
The construction bidding process typically consists of five main steps: bid solicitation, bid submission, bid selection, contract formation, and project delivery. However, we’ve added four steps you won’t want to overlook: due diligence, bid preparation, bid creation, and bid evaluation and leveling.
Here is what the bidding process for construction jobs looks like:
1. Bid Solicitation
The bid solicitation phase is where a property owner or their representative invites contractors to submit bids for a project. This invitation may come in several forms: an Invitation for Bid (IFB), a Request for Quote (RFQ), or a Request for Proposal (RFP).
For public projects, agencies must typically issue an open invitation to qualified contractors registered for government construction work. Private project bids may be more selective, sent only to a small group of contractors, or managed through a bid management platform.
The solicitation package provided by the project owner includes crucial details, such as:
- Construction specifications
- Project requirements
- Contract type
- Project delivery method
- Bonding and insurance requirements
Additionally, it may request information about the contractor’s professional qualifications, past project experience, and other relevant details to prequalify contractors and ensure they can fulfill the project’s demands.
Furthermore, keep in mind that submitting a bid takes time and resources, so carefully review the project requirements during the solicitation phase to determine if they align with your business strengths and objectives. This approach can improve your success rate and prevent wasted effort on unsuitable projects.
2. Due Diligence
This brings us to our next step: performing your due diligence. If your due diligence shows that the project isn’t a good fit or threatens your profitability, it’s best to respectfully thank the client for the opportunity and decline. Pursuing a bid that doesn’t align with your strengths is a disservice to both parties.
After examining the bid details, it’s important to visit the site to conduct an analysis and fully grasp the project’s scope. Site visits provide an opportunity to physically assess the project location, evaluate site conditions, and identify any potential issues or restrictions that could affect project execution.
Moreover, due diligence is a crucial step all parties in the project should perform. Clients conduct due diligence on general contractors (GCs), while GCs do the same for subcontractors. This process helps evaluate the suitability of potential partners and ensures that everyone involved is capable of meeting the project’s demands.
Additionally, before submitting a bid, it’s essential for contractors to assess whether the project aligns with their current capacity and resources. Key considerations include evaluating whether you have the workforce, equipment, and time to handle a new contract and whether your existing backlog could impact your ability to take on additional work.
Proper due diligence allows all parties to make informed decisions and avoid overextending their commitments.
3. Bid Preparation and Getting Information With Subcontractors
With the details provided in the solicitation package, contractors meticulously prepare their bids. This process involves developing cost estimates, project schedules, proposed construction methods, materials, and any other requirements specified in the RFP.
Subcontractors who wish to participate in the bidding process will access the relevant project documents and begin preparing their bids.
If they encounter any unclear details or missing information, they submit their questions to the general contractors (GCs) bidding on the project. The GCs then review these queries and forward them to the design team if necessary.
GCs often coordinate with subcontractors to gather bids, proposals, or Requests for Information (RFIs) for specialized work. These subcontractor bids are then combined into the GC’s final proposal to the property owner. During this phase, subcontractors may submit additional questions or requests for clarification to ensure accuracy.
Bid dates may also shift due to incomplete information or delays in receiving design documents. It is the responsibility of the GCs to communicate any changes in deadlines or requirements to the subcontractors involved in the bidding process.
4. Bid creation
Once we have thoroughly reviewed all project specifications, we create a comprehensive bid package that outlines our approach, showcases our capabilities, and demonstrates our commitment to delivering the project successfully and on time.
To further strengthen our bid, we use the Request for Qualifications (RFQ) process to identify and evaluate potential subcontractors.
This process allows us to invite qualified subcontractors to submit their credentials, highlighting their experience, expertise, and past performance on similar projects. This ensures that we select the best team to execute the project effectively.
Make the bid creation process easier with a Digital Asset Management (DAM) solution like OpenAsset. OpenAsset enhances our proposal creation by serving as a centralized repository for all digital assets—such as project photos, RFP response employee resumes, and marketing collateral. This allows you to quickly access and integrate relevant content into your proposals.
5. Bid Submission
Bid submission is a critical step where contractors present their formal proposals to the project owner. This submission should be comprehensive, professional, and well-organized, serving as the “face” of the company.
It should include all relevant company information, such as previous projects, management plans, and a proven track record of completing tasks on time. Accuracy is essential, and all aspects of the bid should reflect the contractor’s capabilities and expertise.
Key components of a bid submission include:
- Cost Estimates: Detailed estimates based on the bill of quantities, blueprints, labor, materials, equipment, overhead, and profit margins. Using estimation software can help ensure accuracy.
- Company Information: Information on the contractor’s experience, past projects, and management approach.
- Bid Bond: If necessary, a bid bond may be included to guarantee that the contractor can complete the project according to their proposal.
Moreover, contractors must adhere to submission deadlines and present their bids in a clean and organized format. The best bids represent the highest quality work at a reasonable price. While the lowest bid often wins, demonstrating experience, reliability, and strong relationships with the general contractor can increase the likelihood of selection.
To increase the chances of winning a bid, contractors should pay close attention to all project details, coordinate effectively with subcontractors, and submit all required documentation promptly.
6. Bid Evaluation and Bid Leveling
Once contractors submit their bids, the bid solicitor engages in a process known as bid leveling, which is a critical part of the overall bid evaluation. Due to the variety of formats and price ranges in which bid submissions occur, bid leveling standardizes these submissions, allowing for a more straightforward comparison.
During bid leveling, the project owner reviews each bid to align the formats and details, ensuring that all proposals can be assessed on a like-for-like basis. This process helps the owner compare the bids accurately to determine the most suitable contractor for the project. By leveling the bids, the owner can make a more informed decision that considers both cost and the contractor’s qualifications.
7. Bid Selection
During the bid selection phase, property owners typically choose the bid with the lowest or most competitive price. For public projects, government regulations often mandate that the contract be awarded to the lowest bidder, ensuring fairness and transparency in the selection process.
However, in commercial or private projects, owners consider multiple factors beyond just price, including:
- Project Experience: The contractor’s track record with similar projects.
- Safety Record: The contractor’s commitment to safety standards and practices.
- Scheduling Philosophy: The contractor’s approach to project timelines and scheduling.
While price remains a significant factor, especially in public projects where the lowest bid wins, private project owners have more flexibility. They can evaluate additional criteria, such as experience and reliability, to determine the best fit for their project’s needs. When bids closely match, the final decision may still come down to price as a tie-breaker.
A carefully managed bid that meets all these expectations increases the likelihood of selection, particularly in competitive bidding environments.
8. Contract Formation
Once you select the bid, the project owner and contractor move to the contract formation stage, where they finalize the terms of the construction contract.
While the bid itself can sometimes serve as a legally binding document, it is more common for the final terms to be negotiated and formalized in a comprehensive contract that both parties sign. The contract formation phase represents the last opportunity for the contractor to negotiate and finalize terms, making it a critical step in the construction bidding process.
This agreement establishes the legal framework for executing the project and protects the interests of both the owner and the contractor. It is essential not to feel pressured into signing a contract without fully understanding or agreeing to its terms.
While the type of contract (more on this later) is often predetermined by the owner, the contractor still has an opportunity to negotiate specific provisions and the final pricing structure.
During this phase, both parties work together to draft a formal agreement that outlines all project details, responsibilities, timelines, costs, and other critical terms. Even when using a standard contract, contractors should carefully review the document and suggest any necessary changes to ensure that all terms are fair and feasible.
9. Project Delivery
While not technically part of the bidding process, the project delivery method significantly impacts how bids are solicited, submitted, and evaluated. Before bidding begins, the property owner determines the project delivery method, which defines the roles, responsibilities, and risks of all parties involved in the project.
Common project delivery methods in construction include:
- Design-build (DB)
- Design-bid-build (DBB)
- Integrated project delivery (IPD)
- Construction management at risk (CMAR)
- Construction Management Multi-Prime (CMMP)
- Public-Private Partnerships (PPP or P3)
The chosen delivery method determines how the bidding process unfolds and can also influence contract negotiations. We will take a look and provide examples of each project delivery method in more detail in the next section.
Moreover, understanding the project delivery method is crucial for contractors, as it affects every stage of the bidding process. Contractors often specialize in certain delivery methods, allowing them to tailor their bids effectively and focus on projects that align with their expertise.
The quality of project delivery directly impacts future bidding opportunities, as potential clients will often assess a contractor’s recent work to understand the accuracy and reliability of their bids.
Lastly, after the contract wins, the project moves into the execution phase, where the contractor mobilizes resources, sources materials, and begins construction.
Before the Bidding Process Begins: Construction Project Delivery Methods
While we’re on the topic of project delivery methods, it’s essential to explore each method in detail.
In the construction industry, choosing the right project delivery method is critical to a project’s success, influencing every aspect from design and planning to cost and timeline. Understanding the specifics and applications of each method will help you select the one that best aligns with your project requirements.
Design-Build (DB)
The Design-Build (DB) method streamlines project delivery by consolidating both design and construction services under a single contract with one entity. This approach often results in faster completion times due to the overlap of design and construction phases and can lead to reduced overall costs. However, since DB involves a single point of responsibility, it is crucial to select a provider you trust.
In a Design-Build project, the owner contracts with a single firm that handles both design and construction, either led by the architect or the contractor, depending on the agreement.
Architect-led agreements are generally more suitable for projects with complex design requirements, such as new buildings or remodels. In contrast, contractor-led agreements are more suitable for projects with less complex designs, such as infrastructure or road work, where repeatable construction processes are necessary.
The Design-Build method is ideal for projects where a fast-track schedule is a priority or where past experience between the owner and the design-builder ensures a smooth process.
What to Leverage in Your Bid:
- Highlight Experience in Similar Projects: Emphasize your experience in handling both design and construction under a single contract, particularly for projects similar in scope to the one being bid.
- Showcase Collaboration Skills: Detail your team’s ability to work collaboratively across design and construction disciplines. Point out past projects where this collaboration resulted in time and cost savings.
- Emphasize Efficiency and Cost Savings: Focus on the benefits of streamlined communication, reduced delays, and minimized change orders. Highlight any processes or tools you use that facilitate efficient project delivery.
- Use of Progressive Design-Build: If applicable, mention experience with Progressive Design-Build, a two-stage approach that allows for flexibility and risk management during the design phase.
Advantages of Design-Build:
- Increased Efficiency: The overlap of design and construction can shorten the project timeline.
- Cost Control: Improved collaboration between the design and construction teams often leads to cost savings.
- Simplified Communication: A single contract simplifies financial commitments and communication for the owner.
Design-Bid-Build (DBB)
Design-Bid-Build (DBB) is the traditional project delivery method where the project owner contracts separately with a design firm and a construction company. The design team collaborates with the owner to develop contract documents, including drawings, specifications, and other exhibits.
This method is characterized by its clear structure and well-defined phases: the design phase is completed first, and then the project is put out to bid to select a construction contractor.
The owner, along with the design team, evaluates these proposals and selects the contractor who best fits the project’s needs. Once the contract has the necessary signatures, materials and equipment are on their way, and construction begins.
DBB is typically better for traditional construction projects where design integrity and in-depth specifications are a priority over a fast-track timeline.
What to Leverage in Your Bid:
- Competitive Pricing: Since DBB often involves a competitive bidding process, focus on presenting a clear, detailed bid that outlines cost-effective solutions while ensuring high-quality work.
- Highlight Relevant Experience: Emphasize past projects where you successfully collaborated with a design team and delivered a project on time and within budget.
- Transparency and Communication: Showcase your ability to work transparently and communicate effectively with both the design team and the owner to avoid conflicts and ensure a smooth project flow.
- Attention to Detail: Highlight your commitment to adhering strictly to design specifications and maintaining quality control throughout the project.
Advantages of Design-Bid-Build:
- Lower Costs: The competitive nature of the bidding process can often result in lower project costs.
- Reduced Conflicts of Interest: Separating the design and construction teams can help minimize conflicts of interest, ensuring that both parties focus on their specific roles.
Integrated Project Delivery (IPD)
Integrated Project Delivery (IPD) is a collaborative project delivery method that unites all key stakeholders—owners, contractors, architects, and engineers—under a single contract. This approach fosters teamwork, shared responsibility, and mutual risk and reward, encouraging innovation and efficiency throughout the project.
IPD is particularly valuable for complex projects where diverse perspectives are necessary from the start. This method is built on the principles of collaboration and shared responsibility, aligning well with lean construction management practices.
To further promote collaboration, owners often set performance-based incentives for both the design and construction teams.
IPD is an ideal choice for construction firms that thrive in collaborative settings and are already utilizing lean construction management techniques to drive innovation and efficiency.
What to Leverage in Your Bid:
- Highlight Collaborative Experience: Emphasize past projects where your team worked effectively in a collaborative environment, particularly in complex or innovative projects.
- Showcase Proficiency with Digital Tools and Lean Methods: Demonstrate your experience with digital tools and lean methodologies that enhance communication, coordination, and efficiency.
- Stress Commitment to Shared Goals and Risk Management: Highlight your ability to manage shared risks and align your goals with those of other stakeholders, ensuring a cohesive approach to project delivery.
- Focus on Innovation: Provide examples of innovative solutions or processes you’ve implemented in previous projects, showcasing your ability to think creatively within a collaborative framework.
Advantages of Integrated Project Delivery:
- Shared Risk and Reward: All stakeholders share the risks and rewards equally, fostering a strong team-oriented approach.
- Enhanced Collaboration: Early involvement of all parties enhances teamwork and promotes innovative solutions.
- Improved Efficiency: The use of lean construction practices and digital tools can significantly improve project efficiency and reduce timelines.
Construction Management at Risk (CMAR)
Construction Management at Risk (CMAR) is a delivery method where a construction manager (CM) acts as a consultant during the design phase and then transitions to the role of general contractor during the construction phase.
The CM provides a guaranteed maximum price (GMP), offering the owner financial security by capping the total project cost. This method promotes owner involvement and often leads to higher-quality outcomes due to its collaborative approach.
In this method, the construction manager engages early in the design phase, primarily to control costs and oversee the project as it moves into construction. The CM takes on the responsibility and risk for meeting both the project deadline and the owner’s cost requirements, as stipulated by the GMP.
If construction costs exceed the GMP, the CM must cover the excess, reducing their profit. Conversely, if costs are lower than the GMP, the CM may benefit from the savings unless the contract specifies that savings are shared.
CMAR is an excellent option for owners who prefer to not have involvement in every aspect of the construction project, provided they find a capable CM to represent their interests.
What to Leverage in Your Bid:
- Emphasize Cost Management Expertise: Highlight your experience in managing costs effectively and meeting project deadlines, especially under a GMP arrangement.
- Showcase Collaborative Skills: Demonstrate your ability to work closely with both the design team and the owner, contributing to cost-effective decision-making and streamlined project delivery.
- Focus on Risk Mitigation: Highlight your strategies for risk management and your ability to deliver projects on or under budget, providing confidence in your ability to adhere to the GMP.
- Detail Experience with Similar Projects: Provide examples of previous CMAR projects where you successfully managed costs and met project deadlines, reinforcing your qualifications.
Advantages of Construction Management at Risk:
- Cost Control: The GMP provides a financial cap, potentially keeping costs in check and reducing risk for the owner.
- Improved Communication: Early involvement of the CM fosters better communication between the owner, design team, and contractors.
- Owner Flexibility: Owners benefit from direct interaction with designers and a hands-off management approach, as the CM oversees every project phase.
Construction Management Multi-Prime (CMMP)
Construction Management Multi-Prime (CMMP), also known as Multi-Prime (MP), is a project delivery method where the owner acts as the general contractor and directly contracts with each member of the design team and major trade contractors.
In CMMP, like the Design-Bid-Build (DBB) method, there are three phases: design, bid, and build. However, under CMMP, the owner establishes separate contracts with general and trade contractors for specific aspects of the project, such as plumbing, architecture, and electrical work.
The owner manages the plans, specifications, and overall design details, taking on the responsibilities typically held by a general contractor.
CMMP is a strong choice for owners with substantial construction management experience who want to maintain a high level of control over the entire project. It is also a requirement in some states for public sector projects.
What to Leverage in Your Bid:
- Highlight Direct Experience with Trade Work: Emphasize your experience in working directly with owners on multi-prime or similar projects, showcasing your expertise in specific trades or specialties.
- Demonstrate Flexibility and Adaptability: Showcase your ability to coordinate effectively with multiple contractors and manage dependencies across different project elements.
- Focus on Payment Reliability: Assure owners of a clear and straightforward payment process, highlighting your experience in projects where subcontractors have direct contracts with the owner.
- Showcase Collaborative Approach: Illustrate your willingness to work closely with the owner, respecting their direct involvement and decision-making authority.
Advantages of Construction Management Multi-Prime:
- Direct Control for the Owner: The owner has comprehensive control over the project through individual contracts with all trades and contractors.
- Direct Relationships: Subcontractors have a direct contractual relationship with the owner, which can minimize payment delays or issues.
- Enhanced Owner Involvement: Suitable for owners with experience who wish to have involvement in every aspect of the project.
Public-Private Partnerships (PPP or P3)
Public-Private Partnerships (PPP or P3) combine the strengths of both public and private sectors to deliver projects such as affordable housing, infrastructure, and other public-benefit initiatives.
These projects result from a collaboration between a private company and a public entity, leveraging private-sector efficiency and expertise while benefiting from the stability and funding of public ownership.
P3 projects can offer the efficiency and innovation of private construction with the steady ownership and reduced payment risks typical of public projects. However, contractors and suppliers must understand two critical aspects: compliance with prevailing wage provisions and payment protection rights.
Publicly funded projects are subject to federal or state prevailing wage laws, while privately funded projects generally are not.
Regarding payment protection, contractors should be aware that mechanics liens are typically for use on privately owned properties, while bond claims are necessary for collecting on publicly owned projects.
Additionally, on P3 projects, it is possible that neither type of claim is available, although bonds are usually necessary to protect payment rights.
P3 projects are ideal for initiatives that require both public funding and private-sector expertise, particularly when a project serves a significant public benefit and needs robust risk management.
What to Leverage in Your Bid:
- Emphasize Experience with P3 Projects: Highlight any past experience working on P3 or similar projects, demonstrating your familiarity with both public and private project requirements.
- Showcase Compliance Expertise: Detail your knowledge of prevailing wage laws and payment protection mechanisms to assure both public and private stakeholders of your capability to meet regulatory requirements.
- Highlight Collaborative Skills: Focus on your ability to work effectively with diverse stakeholders, including government entities, private partners, and community representatives.
- Stress Financial Security and Risk Management: Explain how your processes and practices help ensure timely payments and project stability, even in complex partnership arrangements.
Advantages of Public-Private Partnerships:
- Combined Expertise: The public benefits from government funding while leveraging private-sector innovation and efficiency in construction.
- Payment Protection: Projects are generally protected by bonds, ensuring that all parties working on the project are paid.
Determining Which Contract Is Right for Your Construction Project
After a bid is selected, the owner and contractor enter the contract negotiation and formation stage, where they formalize the agreement and outline the project’s terms. Every construction project presents its own set of challenges, making it essential to choose the right type of contract for the specific circumstances.
There are several types of construction contracts, each designed to fit different project needs:
Lump-Sum Contracts
Lump-sum contracts, also known as stipulated-sum or fixed-price contracts, are common in the construction industry due to their simplicity. In a lump-sum contract, the contractor agrees to complete the project for a preset total price rather than bidding on individual deliverables.
This type of contract is ideal for projects with a well-defined scope and straightforward work that does not require detailed estimates. It simplifies administration and cash flow management.
Advantages
- Simplicity: The contract provides a clear, fixed price, making it easier for property owners to compare bids.
- Ease of Administration: Fixed total costs simplify financial planning and invoicing.
- Potential for Profit: General contractors who provide accurate estimates and manage costs effectively can achieve a strong profit margin.
Disadvantages
- Higher Risk for Contractors: Contractors bear the risk of cost overruns or changes in project scope, which can threaten financial viability.
- Potentially Higher Costs for Owners: To mitigate risk, contractors often include a markup, resulting in higher overall costs.
- Lack of Transparency: Since lump-sum contracts do not require itemized invoices, there is a potential for dishonest contractors to misrepresent their profit margins.
While lump-sum contracts offer benefits during the bidding phase, they can create incentives for general contractors to come in under budget, which may lead to cost-cutting that affects quality. For this reason, some owners choose to hire a construction manager as a representative on-site.
Lump-sum contracts are a staple in the construction industry, particularly among specialty contractors, and are beneficial for projects with clearly defined scopes where both parties seek a straightforward agreement.
Time and Materials Contracts
Time and materials (T&M) contracts are used when a project’s scope is not clearly defined. Under this contract, the owner reimburses the contractor for material costs and pays an agreed hourly or daily rate for labor.
T&M contracts simplify negotiations, particularly if the contractor has accurate labor cost calculations, but they do not inherently incentivize quick completion. To encourage timely work, some clients offer bonuses for early completion.
T&M contracts offer flexibility and protection for contractors, assuring that their costs will be covered throughout the project.
However, they can be less appealing to property owners due to the uncertainty of the total cost. To address this, many T&M contracts include “not-to-exceed” clauses that set a maximum price or cap on labor hours, promoting efficiency and cost management.
Advantages
- Flexibility: Suited for projects with undefined scope or expected changes, allowing for adjustments.
- Reduced Risk for Contractors: Ensures contractors are reimbursed for actual costs.
- Simplified Negotiations: Easier to negotiate when precise estimates are unavailable.
- Fair Compensation: Ensures contractors are paid for all labor and materials.
Disadvantages
- Uncertain Total Cost for Owners: The overall project cost is unknown, which can deter property owners.
- Lack of Incentive for Quick Completion: No inherent motivation for contractors to finish quickly.
- Administrative Burden: Requires detailed tracking of labor hours and materials.
- Limited Profit Potential: Profit may be limited by “not-to-exceed” clauses.
For contractors, T&M contracts reduce the need for perfect estimates, allowing profitability despite risks and changes. However, profit potential may be more limited than other contract types.
Cost-Plus Contracts
Cost-plus contracts are often highly favorable for contractors. There is minimal risk of losing money on materials, and contractors are assured a profit. Cost-plus contracts are particularly useful when there isn’t enough information to provide a thorough estimate or when the project scope is not well-defined.
Additionally, they prioritize quality by allowing for flexibility in materials and workmanship without sacrificing profitability.
Advantages:
- Flexibility and Risk Reduction: For contractors, cost-plus contracts mitigate financial risk by ensuring reimbursement for rising material or labor prices.
- Incentives for Performance: Some cost-plus contracts include performance bonuses or incentives for completing the project ahead of schedule and under budget.
Disadvantages:
- Uncertainty for Owners: The total project cost remains uncertain, although this can be managed with a maximum reimbursement cap.
- Cash Flow Management for Contractors: Contractors must effectively manage cash flow, as they are often necessary to front costs before reimbursement.
Cost-plus contracts are beneficial for projects where costs are difficult to predict or may fluctuate. However, contractors must accurately calculate both direct and indirect costs to ensure their profit margin is not consumed by overhead expenses.
Unit Price Contracts
Unit price contracts are commonly used for projects that are modular in nature, where work can be divided into distinct, repeatable units (e.g., time, phases, length of a highway) with a fixed cost assigned to each unit. This type of contract allows for easy project scaling; if more work is necessary, the client pays the agreed-upon rate per unit.
For example, consider a contractor hired to install 5,000 square feet of flooring in a new commercial building. The unit price contract sets a fixed rate per square foot, covering all materials, labor, and overhead costs associated with the installation.
If the project scope changes and the owner decides to add an additional 1,000 square feet of flooring, the contractor simply bills for the extra square footage at the same agreed-upon rate per unit.
Advantages
- Simplifies Contract Negotiation: For property owners, unit pricing simplifies contract terms by clearly defining the cost per unit.
- Reduces Administrative Burden: Contractors benefit from less administrative work by billing for units rather than tracking individual labor hours or material costs.
- Scalability: Projects can scale easily without renegotiating the entire contract.
Disadvantages
- Unpredictable Total Costs: The total cost can be difficult to predict if the number of units required is unknown.
- Potential for Hidden Scope: Owners must ensure they understand the approximate number of units needed to avoid unexpected costs.
Unit price contracts work well for projects that can be divided into clearly defined units and involve repetitive tasks. For contractors, they provide simple invoicing and shared risk, but it is essential to ensure that unit prices cover all costs, including overhead, and yield a profit.
Guaranteed Maximum Price (GMP) Contracts
A Guaranteed Maximum Price (GMP) contract sets a maximum limit on the total cost of a project, ensuring the client will not pay more than a specific amount unless there are substantial changes to the project’s scope. This type of contract is often used for projects with clearly defined parameters and minimal expected deviation from the original plan.
Under a GMP contract, the contractor provides a detailed estimate, including all costs for labor, materials, overhead, and a profit margin. The contract establishes a maximum project cost, and any expenses that exceed this amount are the responsibility of the general contractor.
As a result, the contractor must absorb any costs beyond the agreed maximum unless the additional expenses result from specific criteria outlined in the contract, such as changes in the project scope requested by the client.
Advantages
- Cost Control for Owners: The maximum price is set, reducing the risk of budget overruns.
- Potential Cost Savings: If the final project costs are below the GMP, the owner may retain all savings or share them with the contractor.
- Clear Budgeting: Owners know the maximum they will pay, making financial planning easier.
Disadvantages
- Risk of Cost Overruns for Contractors: Contractors bear the risk of any expenses that exceed the GMP unless they are due to scope changes requested by the owner.
- Administrative Burden: Open-book clauses require detailed documentation and financial transparency, adding to project management costs.
GMP contracts are ideal for projects with well-defined scopes and minimal expected changes, offering cost certainty for owners while placing the risk of cost management on the contractor.
Understanding Which Type of Construction Tender You’re Bidding On
Choosing the right tendering method is essential to ensure the selection of the most suitable contractor and to foster a mutually beneficial relationship between both parties. Effective tender management improves the quality of the final product while minimizing risks.
With the increasing complexities of procurement, various tendering methods have emerged to meet different project needs. Understanding these types, methods, and procedures is crucial for facilitating a transparent and fair selection process. These include:
Open Tendering
Open tendering allows any contractor to submit a bid for a project, making it the most competitive method of procurement. This approach is common in government projects and is often necessary by law to promote fair competition, and transparency, and ensure the selection of the best contractor for the community’s needs.
The primary benefit of open tendering is the ability to gather multiple bids, providing decision-makers with a wide range of options—from the lowest cost to the most experienced contractor or the best price-quality ratio. By encouraging competition, open tendering tends to drive prices down, making it ideal for public projects where cost efficiency is critical.
In the U.S., city and state governments frequently accept bids for public construction projects through open tendering. These opportunities are often listed on government websites or authorized construction bidding platforms, offering comprehensive details for contractors to submit their bids.
Negotiated Tendering
In negotiated tendering, the property owner selects a single contractor to perform the work and directly negotiates the contract terms, including price, specifications, and conditions. This method is typically for highly specific projects where the owner has already made a decision on a preferred contractor with the necessary expertise.
While negotiated tendering allows for a more tailored agreement between the owner and the contractor, it may be viewed as anti-competitive due to the limited pool of qualified contractors considered.
Selective Tendering
Selective tendering offers a middle ground between open and negotiated tendering by inviting a small group of predetermined contractors to submit bids on a project. Also known as restricted tendering, this approach eliminates the need for a pre-qualification process, making the tendering process faster and more efficient.
Selective tendering combines the straightforwardness of negotiated tendering with the broader scope of open tendering, giving owners a better understanding of potential costs without sacrificing quality or suitability.
Overall, this method balances competition with simplicity, streamlining the bid selection process while ensuring a variety of bids to choose from.
Serial Tendering
Serial tendering is used when a property owner solicits bids for a series of similar projects over a period of time. For example, a housing developer building hundreds of residential homes over three years may use serial tendering to streamline the bidding process.
This method reduces the burden of repeatedly soliciting bids for similar projects, though it may also limit competition.
The primary benefit is that it allows both the property owner and the contractor to leverage economies of scale for materials, equipment, and other resources, while also simplifying the bidding process.
Serial tendering is ideal for clients with multiple projects that are similar in scope and can be managed by a single contractor, making it an efficient choice for ongoing or phased development.
Align Your Bid to the Appropriate Type of Construction Procurement
The procurement method refers to the process used to acquire construction services. These methods generally fall into four main categories, which we will explore below. They include:
1. The Best Value Source Method (BVS)
In the Best Value Source (BVS) method, the contract is awarded based on a combination of price and past performance, along with other factors such as qualifications, time management, and the strength of the contractor’s team. This method allows contractors with a strong track record to leverage their success to win new projects.
BVS enables contractors to compete not only by offering a competitive price but also by showcasing their history of successful projects. Winning a bid through BVS allows contractors to maintain profit margins while optimizing their bid-hit ratio.
It encourages contractors to focus on jobs where they can highlight both their pricing and their proven expertise. Builders should consider using the BVS method as a key factor in deciding which projects to pursue.
2. Low Bid Method
As the name suggests, the Low Bid method is a competitive procurement approach where the contract is awarded to the contractor who submits the lowest bid. This method is commonly used by government and public construction entities but is also frequently chosen by private owners for building projects.
While this method focuses solely on cost, contractors can improve their bid success rate by carefully selecting which jobs to pursue and avoiding those that rely solely on competitive bidding.
3. Direct Select or Sole Source Method
The Direct Select or Sole Source method is a non-competitive procurement approach where a single provider is chosen to meet all project requirements. Similar to a negotiated tender, this method involves selecting one contractor to handle the entire project, without considering multiple bids.
Contractors can benefit from this approach by focusing on opportunities where sole-source procurement is preferred, as it eliminates competition and often results in a more straightforward negotiation process.
4. Negotiated Method
The Negotiated Method is a non-competitive procurement approach where contractors are selected without formal advertising or a competitive bidding process. A contractor is chosen to negotiate directly with the owner regarding the project’s price and technical requirements.
Selection is typically based on goodwill and a history of successful past relationships.
In this method, a contractor has a higher likelihood of winning the bid since the decision is often influenced by previous positive experiences. The negotiated method can be a key strategy for contractors to secure more jobs, highlighting the importance of building strong relationships and being included on the right bid lists.
Selection Criteria and Construction Bidding Strategies
When preparing a bid, it is beneficial to understand the criteria that owners use to evaluate proposals. Keep the following in mind:
Cost
A successful bid relies heavily on accuracy. It involves calculating a realistic project cost, which includes materials, labor, and other expenses, while also accounting for a profit margin. Unlike a basic cost estimate, a bid outlines what the contractor can deliver, its value, and how much it will cost.
Owners aim to maximize their investment, so pricing is often a significant factor in their decision-making. If you find it challenging to win bids, pricing could be part of the problem. Misquoting, overcharging, or underbidding can all raise red flags. Quoting too high may lead to sticker shock while quoting too low might suggest a lack of expertise.
The base bid price is the most critical figure on a bid tabulation sheet, reflecting the total amount the contractor has calculated for the project. In some cases, additional columns may be included for alternate pricing options.
When presenting your costs, itemize them line by line to demonstrate how your pricing aligns with the owner’s goals and provides value for the investment.
For example, if the owner is considering an optional addition to the project, they may request alternate pricing. Responding bidders would then submit their base bid price and a separate price for the alternate.
Costs to factor in your bid include:
- Direct Costs: Expenses for materials, labor, and equipment directly tied to construction activities.
- Indirect Costs: Expenses such as administrative fees, quality control, permits, utilities, and other overhead not directly linked to construction tasks.
- Labor Costs: Compensation or hourly rates for the team, projected expenses for each task, and potential overtime.
- Subcontractor Costs: Estimations for subcontractors’ expenses, including labor, materials, and equipment.
The goal is to provide a transparent, detailed cost breakdown that clearly explains the value you bring to the project.
Establish Strong Relationships
Successful construction companies rely on strong relationships, especially with those who have the authority to award projects to your company. Identify key decision-makers and focus on building trust with them.
Owners seek to minimize risk and are more likely to choose contractors with a solid reputation, proven track record, positive reviews, and strong references. Taking ownership and reaching out shows potential construction clients (or general contractors if you’re a subcontractor) that you are reliable, communicative, and proactive.
Remember, construction professionals prefer working with contractors and subcontractors who make their jobs easier, and showcasing these qualities can help you stand out in a competitive market.
Leverage the Right Tools and Software
Using the right construction tools and technology is crucial to the success of any construction project. In your proposal, be specific about the digital tools and software you plan to use or have used on past projects.
However, ensure these tools align with the owner’s expectations and industry standards. Owners may have prior experience with certain bid management or project management software and may prefer contractors who are familiar with these technologies.
Moreover, remember to stay current on the latest innovations in construction software, such as Digital Asset Management (DAM) tools tailored to the AEC industry, like OpenAsset, to enhance your AEC proposals. Integrating OpenAsset into the RFP response process allows construction firms to work more efficiently and increase their chances of winning competitive bids.
| Hand-picked related content: Stay up to date on the construction industry trends that matter by reading our blog on The Top 23 Construction Industry Trends for 2024. |
Showcase the Value You Bring to the Project
When evaluating contractor bids, owners often prioritize similar project experience. Therefore, to strengthen your bid, always include proof of your relevant experience.
If an RFP includes questions about past projects, it’s a clear indication that experience will play a key role in the selection process.
During the construction bidding process, confidently highlight the unique qualities that make your business the best choice for the customer. Showcase your team’s expertise and emphasize your capability to deliver the project successfully.
Remember, sometimes the value you offer is more important than just the price. Owners will look beyond costs to assess how qualified a contractor is. They will review your past projects and expertise to determine if you are the right fit for their needs.
Meet Turnaround Time Deadlines
In the bidding process, every minute counts. If you can’t meet a simple deadline at the start, clients may doubt your ability to adhere to a project timeline that spans years and impacts budgets.
Therefore, always allow ample time to navigate potentially inefficient and slow bidding systems before submitting your construction proposal. The bottom line: to win construction bids, make sure you meet the deadlines.
Have Robust Safety Records
Minimizing risk is a top priority for any project owner, and no one wants to deal with a safety crisis. As a result, many owners evaluate the safety practices of the general contractors they consider hiring. Ensure that your safety compliance is thorough and be prepared to answer questions about how you maintain a safe jobsite.
A strong safety record translates to less risk and lower costs, which are critical factors for clients. If your safety record is poor, your chances of winning the bid diminish significantly.
If you’re concerned about your safety record, it’s crucial to adopt a new approach. Focus on creating a culture that prioritizes safety by developing a comprehensive safety plan and educating your employees on best practices for maintaining high safety standards.
Find the Right Subcontractors
General contractors often need to outsource specific parts of a project to third parties, a process known as subcontracting. For specialized tasks like plumbing or electrical work, the general contractor assigns these areas to subcontractors with expertise in those fields.
Even when subcontracting, the general contractor maintains responsibility for the overall project and continues to coordinate directly with the owner.
Finding the right subcontractors to meet project needs is one of the biggest challenges general contractors face today. Surveys show that low bid coverage is a primary reason contractors lose bids; the best subcontractors are often too busy and not actively seeking new opportunities with unfamiliar GCs.
However, your bid’s success relies on securing available, high-quality subcontractors. To overcome this challenge, leverage subcontractor networks that help you find subcontractors actively looking for project opportunities in your region.
Follow up on Construction Bids
Following up on construction bids is a critical step that can often make the difference between winning and losing a project. It’s not just about submitting a bid and waiting for a response—it’s about taking proactive steps to gather feedback and refine your approach. This is key to optimizing your bidding strategy and increasing your win rate.
Here’s what an effective follow-up process looks like:
Leverage Feedback to Refine Future Contractor Bidding
Feedback from previous bids is a valuable tool for continuous improvement. After each bid, reach out to clients or stakeholders to understand why you won or lost. Ask for specific insights on your proposal’s strengths and weaknesses, such as pricing, scope, clarity, or presentation.
Then, use this information to identify patterns and make targeted adjustments in future bids. By learning from feedback, you can refine your approach, enhance your proposals, and increase your chances of winning the next time around. Prioritizing this process ensures that each bid is stronger and more competitive than the last.
Review the Bids You Didn’t Win
Successful bids require contractors to strike a balance—pricing high enough to ensure a profit, yet low enough to remain competitive. While losing bids is inevitable, it’s important to track and analyze them to gain insights and improve future efforts.
Review your past bids to uncover patterns in wins and losses. Analyze the feedback you receive, assess the strengths and weaknesses of your proposals, and identify areas where you can enhance clarity, pricing, or presentation. This continuous evaluation process will help refine your approach, making each bid stronger than the last.
Make sure to keep a record of all your bid submissions and their outcomes to spot trends and make informed decisions. Understanding which types of projects, clients, or bidding methods yield the best results enables you to fine-tune your strategy over time. This allows you to optimize your efforts and improve your overall bid-hit ratio.
Focus Your Efforts on the Right Opportunities
As mentioned during the solicitation phase, thoroughly evaluate the project requirements to ensure they match your business strengths and objectives.
Responding to every RFP that comes your way can stretch your team’s resources too thin and reduce your chances of success. Instead, implement a Go/No-Go process to assess the strategic potential of each opportunity and focus on those with the highest likelihood of winning.
Doing so, allows you to maximize your success rate by concentrating on bids that align closely with your expertise, resources, and past performance. Therefore, moving forward, evaluate each opportunity based on your strengths and the client’s needs, and prioritize those with the highest chance of winning.
Focusing your efforts on the most promising projects allows you to allocate your time and resources more effectively.
Why You Didn’t Win Bids
So, you followed the construction bidding process and still didn’t win bids? That’s okay because you can’t win them all. In fact, the average RFP win rate is 44%. However, learning why you didn’t win is just the first step in learning what needs to be changed for future bids. This is all just part of the construction bidding process to help you improve.
Here are some reasons why you may not be the number one bid choice:
Your Pricing Strategy Was Wrong
A common reason for losing bids is pricing that doesn’t align with the client’s expectations or market rates. While your bid needs to be high enough to cover costs and ensure a profit, it must also remain competitive.
Consider whether your pricing reflected the scope of work and industry standards. Review how your price compares to winning bids and look for ways to optimize costs without sacrificing quality or value.
You Missed Required Documents
Incomplete submissions are a frequent cause of lost bids. Missing documents, incorrect forms, or incomplete information can make your bid appear unprofessional or careless. Double-check that you provided all the necessary documentation, such as certifications, financial statements, insurance details, and references.
Moreover, creating a checklist for each RFP can help ensure every requirement is met, improving your chances of success.
You Didn’t Completely Read and Address the RFP
Many bids fail simply because the contractor didn’t fully understand or address the RFP’s requirements. Carefully review the RFP to ensure you responded to every detail and included all necessary information.
Did you answer all questions and align your proposal with the client’s needs and specifications? Take the time to thoroughly read each RFP and tailor your bid accordingly. Missing or overlooking details can cost you the job, so make sure your proposal is as comprehensive and responsive as possible.
Optimize Your Construction Bidding Process With OpenAsset
Optimizing your construction bidding process is crucial to standing out in a competitive AEC industry. One effective way of doing this? Leverage OpenAsset. This allows you to streamline the creation of winning RFP responses.
With its top DAM features, OpenAsset allows you to easily access and showcase your best projects, maintain brand consistency, and quickly assemble compelling, high-quality proposals. OpenAsset enhances efficiency and ensures your bids reflect your expertise, helping you win more projects and drive your business forward.
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