Construction Bid Process: a Master Guide
July 22, 2022
Published by:Andrew Ardianto
Is the tendering process not working for your construction firm as you would hope? There are many reasons why your bids might not be turned into actionable business. A bid contractor can help, but there are things you can also do on your own in your business to get better.
What Is Bidding in Construction?
Wondering what the bid meaning in construction is? Basically speaking, construction bidding is a process where you submit a proposal to the potential project owner or client where you would manage the construction of their desired structure. Subcontractors also submit these to general contractors to sell their solutions and services.
A construction bid is generally a proposal that includes three elements. The first element is specific construction. The second element is the given price the construction will cost. The third and final element is the given date that the construction will happen.
Your first instinct might be to try to offer the lowest bid, but contractors face seriously complicated situations these days. Under-bidding is a real risk that would result in financial loss. Bids and estimates aren't interchangeable, so successful bidding involves more than just being the lowest-possible bidder.
Why Contractors Are Doomed to Lose in Many Construction Bids
The very phrase "bidding procedure" should tell anyone that the process involves no guarantees. Construction bidding seems simple in theory, but the actual practice is far from that. Theoretically, a contractor locates and then reads bid packages with job descriptions so they can develop estimates and proposals to win jobs.
Unfortunately, quite a few things can go wrong. They also do it very frequently. Contractor estimates might not match actual costs, or they might craft proposals for jobs they're not qualified for. Incomplete and inaccurate bids can waste time.
The bidding process in construction is a balancing act. You need to pick the right jobs, but you also need to craft proposals that are persuasive and still make you money.
Learning how to navigate all of this is crucial to finding success in this part of the industry.
Common Bidding Process Challenges
Many builders wind up encountering numerous challenges when they seek projects they might bid on.
- They're not able to locate bid packages they can bid on.
- When they do find bid packages, they can't come up with winning proposals.
- They bid on jobs that are wrong for them or just a bad match.
- They don't read or meet the RFP requirements and wind up getting disqualified.
- They have incomplete bid coverage which means they can't find the necessary subs to accurately finish a bid.
- Even if they find projects they might bid on, they just don't have time to either bid on them or come up with something compelling.
- They lack the confidence they need.
Just knowing the potential challenges can help you address them, but you can also learn more things to do further below.
5 Steps to the Construction Bidding Process
The tender process steps don't change much even though contracts can vary wildly. Contracts might include government work, where a request for proposal, or RFP, is necessary. There might also be long-term contract work.
1. Planning Based on Research
Contracts don't just go to the business with the best cost proposal. They go to a team that has a proven track record and can handle the work involved. You have to do your due diligence on every proposal. You always have to ask yourself certain questions.
- Is my business properly equipped for this particular contract?
- Do we have enough open capacity to take on more contracts?
- Is our backlog too much to add new deals?
One big thing you need to decide is what method of delivery a project might use. A delivery method is usually going to be determined based on schedule, building design, and budget along several different specific methods.
- Design-Build or D-B: This method involves the contract submission covering both the project design and construction phases with one cost. A design-builder is then held accountable for each of these project phases.
- Design-Bid-Build or DBB: This is the most common method, particularly for non-residential projects with the government. The designer is hired independently by the project-managing contractor.
- Integrated Project Delivery or IPB: This is a rather new method. The owner would employ an architect and contractor at the same time. All three would equally share the involved risks.
- Construction Management at Risk or CMAR: This is a cost-reducing alternative to the DBB method. Construction and design would be handled by two different entities, and the construction manager works with the project from inception to conclusion.
2. Bid Preparation
Calculate your costs in terms of material, labor, and time. Be sure you are accurate in each of these categories. Clients taking bids aren't going to automatically choose the lowest bid, and they are going to look into your results.
While they want to save money, they also want someone who can get the work done honestly and correctly. Someone cutting corners on their bid or being too rosy in their estimates isn't someone who will engender trust. They won't say it publically, but some companies and clients won't even take the lowest bids for any reason.
You want to win the client's business, but you need to also remember that it's about more than just the money.
3. Bid Submission
Digital delivery of bids is becoming the norm, but it's not always the case. Government agencies usually have specific online portals that you need to submit your RFP or RFQ through. The Small Business Administration has tools that can help you with that.
When dealing with private companies, always ask how they prefer their bids so you can get to know the tools you will have to use. Lack of familiarity with them can mess up how your bid looks, and one bad impression is all it takes to ruin your bid, no matter how thoroughly you crafted it.
Estimation software is good to use if you want to calculate and total all the potential costs of a bid or project, from materials to labor.
4. The Presentation Platform
Even after you submit a bid, you might be invited to do a presentation. This might seem like an extra hoop to jump through, but it can also be a chance to win them over. In either case, know what kind of platform you will do the presentation on.
You might be doing an in-person presentation in an office or conference room, so you need to know the technology available. On the other hand, you might be invited to do a virtual presentation in an online meeting. Many offices do this now for the sake of convenience or just to minimize how many people are in their office at one time to maintain social distancing.
5. Landing the Contract Award
Know when the decision is going to be made on any contract that you bid for. If you win it, you want to know it right away so you can start getting ready for the work, even though they're unlikely to expect you to start right that moment. If you don't win it, then you should also know that, so you can get moving on to other bids and potential projects.
The one thing you never want to do is waste time. Don't waste your own time or that of your business, but also don't waste anyone else's time. You might hold up your own clients while waiting to hear about other contracts.
Types of Construction Bids
There are different types of bidding in construction. The most effective ones make sure that the best possible contractors are lined up with projects appropriate to their skills and abilities. Forming long-term relationships means everyone can win.
The private sector and many levels of government both use this as a primary tendering procedure. This lets anyone submit for projects. With all applicants being equal, it's very competitive. New and emerging suppliers get more opportunities this way. However, more time is necessary for evaluation since not every tender or bidder might be suitable for a contract.
Selective tendering happens when bidders get invited. Contractors with a proven track record can leverage that here, and they are likely chosen based on how suitable they are to handle the nature, scope, and size of a project. New entrants have a tough time cracking a market, but clients who use this method have more confidence in getting their needs met.
Negotiated tenders see extensive use starting with project commencement and lasting all the way through dispute resolution. An owner will negotiate with a single contractor from start to finish, and these are effective tools when highly specialized contracts happen or if an owner would like to expand the work scope.
Serial tendering happens when tenders get based on work schedules from the bill of quantities. Rates are utilized to value results delivered over a set number of projects assuming the procedure is repeated for various projects.
Construction Contract Types
No two projects are alike, and contracts need to reflect that. Choosing the right one minimizes risk but helps make sure the client's needs get met.
Also known as fixed-price contracts, these are very common and outline a single price for all the work to happen. They simplify bidding for contractors who get to quote a single fee. Finishing one of these under budget should mean a high-profit margin, but carrying out appropriate cost estimates is crucial.
Time and Materials Contracts
These contracts are useful when the work scope isn't defined right. Contractors get paid hourly rates or by material costs. However, tracking everything can be tedious and make this kind of contract challenges. A thorough job might mean more time recording numbers than actually working.
Cost Plus Contracts
These contracts have owners pay contractors for every cost as well as a profit percentage from the total price. Costs would involve both direct and indirect sums. These contracts can be very flexible to minimize how consequential miscalculations are.
Unit Price Contracts
Unit price contracts divide projects into units called measurement contracts. Contractors would use a construction unit database to price work units and then estimate the costs of work units instead of the whole project. These contracts often work out really well. That's particularly true of projects with a lot of repetition to them.
Guaranteed Maximum Price Contracts
In a contract such as this, the owner's project has a maximum price. Any costs that happen past that are the responsibility of the contractor. Construction contracts with minimal unknowns might use these, as they incentivize contractors to reduce costs, save money, and finish the project ahead of the intended schedule.
Types of Construction Procurement
Construction services typically get procured through specific methods. Four of them are far more common than others.
The BVS Method
BVS stands for best value source. This method awards a contractor based on past performance and price, as well as staff capacity, time management, and other qualifications. Contractors with great reputations for previous projects can leverage their track record of success for another win.
The Low-Bid Method
In these cases, competitive bids get chosen simply on the lowest bid involved. Public construction and government entities often employ this particular methodology.
The Sole-Source or Direct-Select Method
In this situation, only a single provider is utilized to satisfy every single project requirement. Contractors selected to do this kind of work enjoy a non-competitive project that benefits them greatly.
The Negotiated Method
In this method, contractors are chosen devoid of any kind of advertisement. Contractors are picked and work with the owner based on technical requirements and price. A contractor's bid is likely to be chosen based on prior successful relationships and personal goodwill. It's a very ideal and successful way for contractors to land more jobs.
Top 11 Tips to Win Construction Bids
Boosting your bid volume might not be the way to win construction bids. Instead, you might just be wasting time and energy. Focus on actually coming up with winning bids instead of just sending out more of them. Find quality over quantity with these tips.
1. Comprehend the Whole Bidding Process
When you comprehend the whole bidding process, you're more likely to win bids and do so with ease. Know your competition, but also know the kinds of jobs that you should be bidding for. Winning bids are more than just thorough job applications. They need to actually advertise your value and what you add to the project. Don't just offer a price. Offer yourself and make them believe you have the best services of all their bids.
2. Bid Promptly
Whenever possible, put your bid in ahead of your competitors. You're more likely to win a bid if you're up against three competitors than when there are two dozen. As a project owner gets more bids, your probability of losing also goes up. Be sure you find projects prior to your competitors discovering them. Marketplaces and construction bidding networks are great places to discover jobs before others do. Create a business profile that makes it easy to find in bid searches.
3. Make Your Bid Accurate
Clients will never be pleased if you misquote them, whether it's over or under. If you underbid, anyone evaluating you will have questions about your expertise. Overbidding makes you look greedy. Quoting too low or high in either direction sets off warning signals. Explain every cost in explicit detail so you can demonstrate your value proposition. This is true across materials, labor, time, and supply costs. Check your potential bids against acceptable profit margins to see what is reasonable.
4. Bid on Projects that Are Right
You shouldn't go for every job that's actually available. If you're new and looking for work, it can be tempting. However, many bid and no-bid decisions are based on contract terms, experience, and the kind of work.
5. Avoid Bids You're Unlikely to Win
If you're not within the specified project requirements, then don't bid on a project. Research each project based on location, project kind, and competitors to develop your benchmark for bidding. This will help you make calculated bids on work you can handle and avoid disqualifications and a bad reputation.
6. Stay in Your Niche
You might want to be great at many different things, but you also likely have one or two things that are your bread and butter. Stick to the projects that you do best, especially if they can lead to repeat business. Bid as often as you can on projects such as those. Opportunities will come after you build up a trustworthy reputation with many satisfied clients, even if you did the same thing over and over.
7. Read the RFP and Understand It
Read the RFP as thoroughly as you can. They're typically very specific. Even the slightest deviation from them can disqualify you. Know the bid documents for construction they require. The honor page counts for professionalism but includes everything they ask for. That list might vary, but it usually has some common elements.
- Completion timelines
- Years you have been in operation
- Your expertise with related construction projects
8. Make Your Value Proposition Clear
You need to make your value proposition clear to yourself before you can convey it to anyone else. If you're an undifferentiated brand, then you have no competitive advantage. Alternatively, a premium brand might not get caught up in cutthroat bidding wars as the only way to win. Consider potential value proposition angles, such as expertise, customization, responsiveness, and quality control instead of just low prices.
9. Engender Trust with the Decision Makers
Don't force relationships if stakeholders think you're not a good match after in-person interviews. Be your best self, and you'll eventually impress enough people to form relationships. Always highlight your ability to compromise and collaborate with others for amicable situations.
10. Make a Good Bid Presentation
Do your bid well. Break it down into easy chunks so owners know what you're talking about but are also able to fulfill their expectations. Don't go for a lump sum quote. Show them cost breakdowns across materials, equipment, and labor. Potential clients are looking for a return on their investment, so show them what's possible with hard data. Case studies are effective tools in your favor.
11. Develop Your Winning Bid
Still not sure how to develop a winning bid? You just need to follow the right process.
- Overview: Start with the fundamentals. That would be your company name, logo, and contact information. Also, address the bid to the specified individual and their address or contact information.
- Scope: Use the specs and details from the job proposal to craft a total summary of each element of the work to be done. Include details, strategies, photographs, and illustrations.
- Concerns: Evaluate the RFP to come up with risks or concerns you have about the construction, and then communicate them explicitly. Mentions possible adjustments or code requirements that you might feel necessary.
- Timelines: Being under budget is crucial, but you also need to make sure you finish on time. Potential clients might wind up paying for each day a project gets delayed. A detailed schedule and timeline within the proposal help you instill owner confidence.
- Equipment List and Assets: List all the things necessary to finish the job. Will you rent things? Or do you own all the tools and equipment you would need? If you will rent, number the costs and days you need for that equipment.
- Cost Estimate: Be sure your cost estimate is detailed enough to handle indirect costs, variances, equipment, labor, and material takeoff. Include costs for multiple components if they're involved, such as painting, electrical, and HVAC.
- Pricing: In your estimate, you need to include the total costs. That's more than the fees, allocation, contingencies, and mark-ups necessary for the total project to happen.
- Summary: At the end of the proposal, recap the crucial aspects of the entire thing, particularly your estimate. Keep in mind that the owner is getting multiple bids, so remind them of your value proposition and why they should choose you.
- Supporting Documents: Attach copies of agreements you have with any subcontractors you are going to hire. Also, include copies of your liability insurance. In fact, include any supporting documentation that makes your potential client feel more comfortable as they evaluate your particular bid.
- Package and Polish: Reinforce your brand imagery in the overall bid. That can help you look more professional and stand out from the pile of competitor bids. Proofread your whole bid at least once. It's better to have multiple people do it.
The Bid Process Simplified
Coming up with the right bids will not only land you more work but land you the right work you can profit from and build more of a reputation with. If you are one of the sectors we serve in the Calgary region, then contact us to get started.
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