You have the best team with the right skillset and commitment to excellence- but why are your construction bids not working?
If your construction bids are hitting amiss, 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. A good bidding strategy will increase your probability of successfully landing the best projects and clients.
Table of Contents
Construction bidding process: The overview
The bidding process is like a job application or a resume. It gives an overview of your capabilities to carry out the work to completion. If your first impression is impeccable, you are likely to 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 it 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.
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 to be used.
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.
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 is different from an estimate, as we will discuss later.
The bid submission needs to have a professional touch. It is the face of the company.
There are rules, especially in government projects, to ensure that the lowest bidder wins the contract. This rules out any manner of fraud or biases in awarding the contract so that eventually, price is the ultimate equalizer.
However, on private projects, there is more leeway to consider other factors when choosing a winning bid. The price always acts as a tie-breaker when contractors have comparable bids.
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.
After forming the contract, the project is ready to roll based on the project delivery method used.
Before the bidding process
Before the bidding occurs, 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 deciding to submit 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:
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.
This is arguably the most common method used, 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 design phase of the project.
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.
Types of construction bids
An effective tendering method ensures the right contractor is chosen and ensures that 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
- Selective tendering
- Negotiated tendering
- Serial 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.
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.
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 useful 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.
In serial tendering, the tenders are based on the schedules of work of bill 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.
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 taken into consideration.
A contractor with a good reputation on his past projects can leverage his position using a track record of his success to win. For a contractor to win projects utilizing this method, he has to sacrifice his commercial construction profit margin and improve the bid hit ratio.
Low Bid Method
In the low bid method, competitive bids are selected based on the bid 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.
In the negotiated method, the contractors are selected without any form of advertisement. A contractor is chosen and deals with the owner as per the price and technical requirements. A high chance of a contractor's bid being selected as the selection criteria is 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
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 kinds of contracts simplify bidding for a contractor quotes 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 at an hourly rate or by the cost of materials used. These kinds of 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 rather than doing the work. Considering the unpredictability of construction projects, the owner can spend more than they planned for since they have to pay the contractor for any changes and unexpected costs.
Cost Plus Contracts
In these kinds of 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 for the pricing of 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.
Tips to win construction bids
Construction professionals used to employ the lowest bid strategy to win projects. Still, there is a thin line between staying profitable and staying competitive in the ever-increasingly complex construction atmosphere. Having a low bid does not necessarily mean that you are winning on projects. Increasing your bidding volume wastes your time and money. It would be best if you focused on winning bids with fewer proposals.
Understand the bidding process
An easy way to successfully win more bids is by understanding the bidding process, knowing your competition, and knowing the jobs you need to bid for.
A winning bid is not just a detailed job application, but it should be an advertisement of your value addition to the table. Your offer should be more than only the price, and in essence, you are advertising yourself as the one with the better services.
It is always advisable to bid ahead of the competition. It isn't easy to win a bid with thirty competitors compared to a bid with three. The more proposals a project owner receives, the higher the probability of losing the proposal is. You don't need special skills to find projects before your competition gets wind of them.
You can use construction bidding networks and market places to find jobs before your competition. Online market places help you to find jobs to bid on and help you create a company profile that is included in bid searches
Accurately estimate your costs
Clients are never happy when you misquote, underquote or overcharge. Underbidding makes the evaluation team question your expertise. Quoting too high or too low is always a red flag. You need to explain all your costs explicitly and show that you will provide value for the project. A reasonable cost estimate uses the material take-off list for materials. Other prices to consider are labor and supply costs. After proper cost estimation, review your profit margins. If it falls within acceptable profit margins, that is a reasonable bid.
Bid on the right projects
Just the fact that a job is available does not mean that you should go for it. It is always a tough hurdle for new contractors when seeking out work. The American Society of Civil Engineers surveyed in 2011, they found the bid or no-bid decision is influenced by the type of work, experience, and contract terms.
Do not bid for projects that you probably won't win.
Many reasons can decrease your winning probability. If you do not meet specific project requirements, do not bid. Take your time to research a project, the location, competitors, and project type, and develop your bidding benchmark. This will assist you in making calculated bids and increase your chances for success.
Bid on the jobs in your niche.
Matt Cheuvront once stated, "You can't be good at everything, but you can be good at something." Think about the projects that you handle best and the ones that lead to repeat business and bid on those projects.
Understand the RFP
If you do not thoroughly read the RFP, you will be in bad shape. RFPs are very specific. It is best to follow the terms as they are. Any slight deviation can be ground for disqualification. Adhere to the client's specifics and the page count. This shows your professionalism and that you already respect your client's needs beforehand.
The RFP should not be overly detailed because it hinders the contractor's creativity, but it should not be vague and leave critical information.
Have a clear value proposition
When your company does not have an undifferentiated brand, it does not have any competitive advantage. In retrospect, the bidding boils down to price wars where the company has to slash the profit margins to win a bid.
On the contrary, if you have a "premium brand," you will be hired based on the value proposition. Some of the attributes you can sell other than price are quality control, responsiveness, customization, and expertise.
Built trust with decision-makers
While you might make it to the in-person interview, if the stakeholders involved feel like you are not the right match, this could be a deal-breaker. It is not wise to force a relationship, but you can build trust with the stakeholders by being the best version. You can also highlight how best you can collaborate or even compromise to come to amicable solutions.
Present your bid well
Please do your homework well and break down your bid so that the owners feel you meet their expectations.
Avoid giving a lump sum figure in your bid but instead breakdown the costs in labor, equipment costs, and material costs. Remember, it is about showing your potential client the right perspective.
All prospective clients need to see their investment return, so be prepared with hard data that backs up your information. Breaking down the data through case studies is one of the helpful methods you can use.
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 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 accrued.
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.