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Master The Construction Bidding Process

You have the best team with the suitable skill set and commitment to excellence- but why are your construction bids not working?

A good bidding strategy will increase your probability of landing the best projects and clients successfully. If your construction bids are hit or miss, you will not get as much work as you want. To come up with winning bids, you need to understand the construction process and refine your approach.

The five critical steps of the bidding process

The bidding process is like a job application or a resume. It gives an overview of your capabilities to complete the work. If your first impression is impeccable, you will likely move to the interview phase. 

As a contractor, you can find bid invitations from various sources.

The bidding process is highly regulated for government projects but can be less formal for private projects. However, it more or less follows the same procedure. The necessary steps are:

  • Bid Solicitation
  • Bid Submission
  • Bid Selection
  • Contract Formation
  • Project Delivery

We will now discuss each of these points below.

1. Bid Solicitation

This is where the project owner sends out a Request for Proposals (RFP) or an Invitation for Bid (IFB). For public projects, they are generally large and open invitations. This is when the project owner lays out the project requirements, specifies the contract type, and defines the delivery method.

The pricing heavily determines the awarding of the contract. However, the bid solicitation phase requires more information, such as the Request For Qualification. (RFQ). In retrospect, it is the method used to get as much information as necessary on the prospective contractors’ company history.

2. Bid Submission

The next step is the bid submission. This should include all the relevant company information. It has all the company’s previous projects, management plans, and track record for completing tasks on time. The bid should be as accurate as possible.

It should also include a cost estimate based on the bill of quantities and blueprints. You can arrive at accurate costs using estimation software. Other things to include are overheads, labor, equipment, and materials. The best reasonable price influences the winning bid. It is important to note that a bid differs from an estimate, as discussed later.

The bid submission needs to have a professional touch. It is the face of the company.

3. Bid Selection

There are rules, especially in government projects, to ensure that the lowest bidder wins the contract. This rules out any fraud or biases in awarding the contract so that price is eventually the ultimate equalizer.

However, there is more leeway to consider other factors when choosing a winning bid on private projects. The price always acts as a tie-breaker when contractors have equal bids.

4. Contract Formation

After the owner selects a bid that meets their requirements, the parties involved must form and sign a legally binding contract before pre-construction. This is also an opportunity for final pricing negotiations by the company that wins the bid. Any other unclear contract clauses can also be discussed and finalized.

construction project delivery

5. Project Delivery

After forming the contract, the project is ready to roll based on the project delivery method used.

What happens before the bidding process?

Before bidding, a company must perform proper due diligence to see if a project is right for them. Do you have the capacity to handle the new contracts? Is your backlog too much for you to take up a new deal? These are some of the queries you need to answer before submitting a bid.

One of the most critical decisions is considering the method of delivery to be used on a project. The delivery method is determined using the budget, building design, and schedule. Each delivery method has its roles and responsibility obligations.

There are four significant kinds of delivery methods. These are:

Design-Build (D-B)

The contractor submits a contract covering both the project’s design and construction phases in the D-B method. Here one cost covers both phases of the construction. The design-builder is held accountable for both aspects of the project.

Design-Bid-Build (DBB)

This is arguably the most common method, especially in non-residential government projects. The project owner hires a designer independently. The hiring is done by the contractor who manages the project. Once the designs are completed, the bids are submitted to the owner through the contractor for execution to start.

Integrated Project Delivery (IPB)

This is one of the new methods used, and the owner employs the architect, owner, and contractor together as a team. They share the risk equally.

Construction Management at Risk (CMAR)

This is an alternative to the DBB method, and it reduces costs. Here design and construction are handled by different entities. The construction manager is involved from project inception. The construction manager may assist in choosing an architect, and they will work together throughout the project’s design phase.

This approach is mainly employed in complex projects. Unlike other delivery methods, where the construction manager is chosen using the lowest price criteria, the construction manager is used based on qualifications and experience.

The owner’s important decisions when issuing a contract are the procurement method and the delivery type.#

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Types of construction bids

An effective tendering method ensures the right contractor is chosen and the ongoing relationship is mutually beneficial for both parties. Effective bids and tender management processes improve the quality of the finished product and manage the risks.

The increasing complexities of procurement routes led to the rise of different tender procurement methods. These are:

Open Tendering

This is the main tendering procedure used by both government and the private sector. It allows anyone to submit a tender for a construction project. It is the most competitive as it gives equal opportunity to applicants. It also provides opportunities for new emerging suppliers. It might need more time to evaluate the tenders as not all bidders might be suitable for the contract.

Selective Tendering

In selective tendering, bidders are allowed to submit tenders by invitation. This is an opportunity for contractors to leverage their track record. Contractors are chosen based on their suitability to handle the size, scope, and nature of work. Clients have more confidence that their requirements will be met in selective tendering, but this excludes new entrants from tapping into the market.

Negotiated tendering

These tenders are used extensively from project commencement to dispute resolution. The owner negotiates with one contractor from beginning to project end. These tenders are helpful for highly specialist contracts or when the owner wants to extend the scope of work. There is better communication, and information flow since the contractor is a part of the project team.

Serial tendering

In serial tendering, the tenders are based on the work schedules of bills of quantities. The rates are used to value results over a given number of projects, and with time the procedure can be repeated for different projects.

construction procurement

Types of construction procurement

The procurement method is how construction services are obtained. Procurement methods are primarily grouped into four, as we will discuss below. They are:

The Best Value Source Method (BVS)

In the Best Value Source method, the contractor is awarded the contract based on price and past performance. Other indicators such as qualifications, time management, and staff robustness are also considered.

A contractor with a good reputation on his past projects can leverage his position using a track record of success to win. To win projects utilizing this method, a contractor must sacrifice his commercial construction profit margin and improve the bid-hit ratio. 

Low Bid Method

The low bid method selects competitive bids based on the procurement method’s lowest bid. Government and public construction entities use this method.

Direct select or Sole Source Method

Direct selection is a single-source method that uses only one provider to satisfy all the project requirements. This method is also a non-competitive procurement method that can benefit contractors.

Negotiated Method

In the negotiated method, the contractors are selected without any advertisement. A contractor is chosen and deals with the owner per the price and technical requirements. A contractor’s bid will likely be chosen as the selection criteria are based on goodwill and previous successful relationships. This is one of the best ways a contractor can win more jobs.

Types of construction contracts

There are no two construction projects alike, which creates the need for diversified contract types to meet all the involved parties needs. Settling on the best contract type for a project manages risk and ensures the project sails as smoothly as possible. When choosing a contract type, one should assess the contract features, the kind of project, the contract’s troubles, and the benefits and drawbacks of the agreement. In construction, there are five primary types of contracts. These are:

  • Lump-sum contracts
  • Time and materials contracts
  • Cost Plus Contracts
  • Unit Price contracts
  • Guaranteed Maximum Price Contracts

Lump-Sum Contracts

These are the most common contracts, also referred to as fixed-price contracts. They outline one price for all the work to be done. These contracts simplify bidding for a contractor to quote a fee instead of submitting multiple bids. Finishing the project under budget also ensures high-profit margins. However, one should carry out proper cost estimations. Among the benefits of cost estimation is that it minimizes losses caused by miscalculations.

Time and Materials Contracts

These kinds of contracts best work when the scope of work is not correctly defined. Contractors are paid hourly or by the cost of materials used. These contracts can be challenging because tracking the time and materials can be time-consuming. Doing a thorough job can mean spending more time jotting down numbers than doing the work. Considering the unpredictability of construction projects, the owner can spend more than they planned since they have to pay the contractor for any changes and unexpected costs.

Cost Plus Contracts

In these contracts, the owner pays the contractor for all costs incurred plus a profit determined as a percentage of the total project price. The costs involved include both direct and indirect costs. These contracts are flexible, and miscalculations are not as devastating.

Unit Price Contracts

In unit price contracts, the project is divided into units known as measurement contracts. The contractor uses the construction unit database to price the work units. He then provides cost estimates of the work units, not for a project as a whole.

These contracts are outstanding, especially for projects which have repetitive work. 

Guaranteed Maximum Price Contracts

For these kinds of contracts, the owner has a maximum contract price for the project. Any costs beyond are to be covered by the contractor. These contracts are a common feature in construction contracts with a few unknowns. These contracts incentivize savings and reduce costs, and contractors finish ahead of schedule.

construction bid tips

Eight tips to win construction bids

Winning more bids is what success in the construction industry is all about. But while keeping your costs low is important, there’s a thin line between being competitive and staying profitable. That’s why it’s a mistake to simply increase bidding volume, a potential waste of your time and money. The better way? Focus on winning more bids (with fewer proposals) following the eight proven tips below. By understanding the bidding process, knowing your competition, demonstrating your value and being selective about the projects you pursue, you’ll be in a good position to win more bids and close out jobs that turn a profit.

1. Bid early

Timing, as they say, is everything. It’s always a good idea to submit a bid ahead of the competition. Why? It’s simply a matter of math: the more proposals a project owner receives, the higher the probability yours won’t win. When you submit early, you may be one of three companies under consideration; later on, you could be competing with thirty. You don’t need special skills to find projects before your competition gets wind of them. As for finding projects to bid on, construction bidding networks and marketplaces are a useful way to learn about jobs before others can—and you can even include a company profile that is included in online bid searches.

2. Accurately estimate your costs

Clients are never happy when you misquote, underquote or overcharge. Underbidding makes the evaluation team question your experience and expertise. Quoting too high usually means that your bid will be out of contention. The better way is to provide a line item cost estimate based on material takeoffs along with anticipated labor and supply costs. After proper cost estimating, review your profit margins. Your bid can be considered fair and reasonable if they fall within acceptable limits.

3. Bid on the right projects

Just because a job is available doesn’t mean you should bid on it, but it can be a tough decision for contractors actively seeking work. Consider every element carefully before submitting a bid; the wrong job can lead to frustration, profit erosion, and poor client relationships. Take your time to research each project type, location, and competitors, then develop your bidding benchmark. That will help you bid strategically and increase your chances of success.

4. Leverage your expertise

It’s often said that “you can’t be good at everything, but you can be good at something.” That’s certainly true of construction projects. Before you bid, think about past projects that were the most successful and which ones led to repeat business. When you stick to what you do best, you’re more likely to deliver a job on time and within budget. Concentrate your efforts on the projects that fit your company’s specific parameters and skip the rest.  

5. Understand the RFP

RFPs are very specific, and a thorough understanding of terms, scope, and other project details are essential to bidding success. Even a slight deviation from the request can be grounds for disqualification, so plan to adhere to the specified format and page count—a gesture of professionalism and respect that the project owner will appreciate. Bottom line: the RFP should not be so detailed that it hinders the contractor’s creativity and decision-making, but not so vague as to leave out critical information.

6. Differentiate your brand

When your company brand lacks presence and professionalism, you automatically lose any competitive advantage you might have had. On the other hand, if you have developed a distinctive and recognizable brand for your organization— one that includes characteristics such as quality control, responsiveness, customization, and expertise– you are less reliant on a simple cost-to-cost comparison and more likely to win the bid.

7. Nurture trust with decision-makers

Even if you make it to the final in-person interview with project owners and other decision-makers, if the stakeholders don’t feel that you are the right match, you’re unlikely to win the bid—even if your costs are competitive. And while it’s never wise to force a relationship, you can build trust with open and ongoing communication, indicating your willingness to discuss, collaborate, or even compromise to come to mutually agreeable solutions.

8. Don’t forget the details

Breaking down your bid helps project owners feel that you’re meeting their expectations. When you avoid giving a lump sum figure but instead specify labor, equipment, and material costs, you show your potential client that you are well-equipped to do the job. 

All prospective clients need to see an investment return, so be prepared with hard data that backs up your numbers. Historical data and case studies can provide helpful support.  

Frequently Asked Questions

How long should I spend on a proposal?

This is tentative and depends on the complexity and requirements of the contract.

Are there other evaluation criteria used apart from the ones in the specifications?

No, the panel can only use the evaluation criteria provided in the RFP.

Can I provide a credit letter as bid security?

In most cases, the law only allows for bonds in construction contracts. They may be in money orders or certified cashier’s checks.

How do I know the bid results?

After winning a bid, a call or email is sent to the address provided in the solicitation.

Can I be reimbursed for my proposal preparation expenses?

The proposal preparation process is costly, but you cannot be reimbursed for the costs.

If I have concerns regarding the fairness of the process, who should I contact?

If you have fairness concerns, you can talk to the contact person in the tender document.