Bidding for construction jobs is a critical skill if you want success as a contractor. It would be best to be acquainted with material prices, market conditions, and competitor rates for effective bidding.
Having unreasonably high bids will make you lose out on projects, and having too low offers will cause you to lose money on every project. Therefore, you need to balance how to structure your bids to ensure you are profitable.
This article highlights the main steps in construction bidding and critical information you need to know while bidding.
Table of Contents
What is construction bidding?
In essence, a construction bid is a proposal that informs a potential client how you will erect a structure for them and how much it will cost them. Construction bidding is the process for preparing this proposal on how you will manage the building of the structure.
Understanding the art of construction bidding spells the difference between a contractor's success and failure. The essential element in construction bids is cost. Sometimes, bids are awarded based on the lowest bidder, whereas the contractor's qualifications are necessary in other cases.
The best construction bids have to delicately balance the client's interests and the contractor's profitability. These bids start with accurate cost estimation then submitting the lowest request among the competing contractors.
Where to find construction jobs
Finding construction jobs is relatively straightforward if you are equipped with the right strategy. Municipalities and states also award construction jobs worth millions of dollars every year. To get reliable construction jobs, you need to find reliable clients, efficiently estimate the project costs, and convert the clients to lifetime clients. Below are some of the areas you can get construction jobs.
1. Sign up for construction bidding sites
The best way to start construction is by looking for contractors that are already open for bids. You can try out commercial project bidding sites such as Dodge Construction Central, iSqft, BidClerk, or BidCentral. Most of these bidding sites have a small subscription fee of anywhere between $75 and $150 a month. You can try out the free Building Connected site if you are on a budget.
If you are looking for residential projects, you can check out Home Advisor, which offers excellent services to residential contractors.
2. Sign up as a government contractor
The government is always embarking on new projects. Therefore, you can sign up as a government contractor either for your city, county, state, or federal government. These sites include USA.gov, GSA, BidNet, and Fed Biz Opps.
3. Utilize your networks
Most people win contracts by word of mouth. The more you put yourself out there, the more opportunities you will encounter. You can find these networks from the people you have worked with, professional associations, friends and family, and professional networking sites such as LinkedIn. Building a network takes time, but it is a sure way to build repeat customers.
Essential elements of a bid
A construction bid entails three critical elements. These are the project delivery, procurement method, and contract model. Understanding these elements helps an owner and the bidder understand a project's risks, costs, and responsibilities. These elements also influence design decisions in a project and help the contractor have a good profit margin.
Project delivery refers to the method a client organizes the finances, construction, and operations of a structure. There are different types of project delivery methods, but they aim at helping project owners meet a project's quality requirements and build structures in time and within budget.
The standard project delivery methods are:
- Integrated Project Delivery
- Construction Management at Risk
In the Design-Bid-Build method, the owner, with the help of an architect or engineer, has contract documents that have blueprints and detailed specifications. The client then solicits bids based on these documents, and the contract is then awarded to the best-qualified contractor.
In the Design-Build method, the owner comes up with a conceptual plan and then solicits bids from architects, engineers, and builders. The group of architects, engineers, and builders work in a joint venture to design and construct the project.
The Integrated Project Delivery method harnesses all the systems, people, and practices throughout the construction phases. This project delivery method aims at reducing waste in construction and closely adopts the philosophies of lean construction.
The Construction Management at Risk project delivery method is similar to the Design-Bid-Build process, whereby different firms deal with the design and construction. However, in this project delivery method, the construction manager joins the project before the plan commences and can even help choose the architect. The architect and construction manager work together during the design phase, but the construction manager slowly transitions to the general contractor when construction commences.
After selecting a project delivery method, the owner has to decide how to procure construction services. Factors that affect this decision are government laws, the owner's expectations, project size, location, and complexity.
The typical construction procurement methods are the lowest bid, negotiated, sole-source, and best value method.
The lowest bid procurement method is the most common. Here, contactors submit competitive bids to an owner, and the owner compares the offers and awards them to the contractor with the lowest bid amount. Sometimes the owner might look at the contractors that meet the minimal requirements and technical expertise and award the bid to the lowest bidder in the qualifying pool.
In a negotiated procurement, the client chooses a contractor without inviting bids. Instead, the client negotiates with potential contractors concerning the project's technical requirements and pricing. The client then awards the project to the contractor with the most favorable offer.
The sole source procurement method is a non-competitive procurement method where services are solicited from one provider throughout the project. Sole source procurement is relatively rare in construction projects but is sometimes used to handle complex and unique situations.
The best value selection process is a procurement method that focuses on other factors apart from cost. This procurement method aims to strike a balance between price and performance. The client defines the selection criteria that add value to the bid. These factors could be past performance, key staff, and the management approach used.
The contract type governs the budget and profit margins in a construction project. Therefore, the contractor should understand the kind of contract they are getting into. Below are the various types of construction contracts.
- Lumpsum contracts: These contracts have a fixed price for the total cost of all the activities in the project. It may also include incentives for completing the project on time. The contractor bears more risk in these projects as the owner is not contractually bound to disburse more funds if the project stretches beyond the budget.
- Unit price contracts: The final prices are determined from the unit prices of materials and services in the project.
- Reimbursement contracts or cost plus fee contracts: In this contract type, the contractor embarks on construction and is later reimbursed by the project owner for the costs incurred. The reimbursement costs also include additional fees to cover the contractor's profit.
- Guaranteed Maximum Price contracts: In this contract, the owner establishes a maximum contract price beyond which they will not be liable for the expenses incurred.
How to bid on construction jobs
Highlight Project scope
You need to have this written clearly to ensure that you and the client are reading from the same page and interpreting the project in sync.
Pinpoint material and labor needs
Proving your expertise and knowledge of needs is key. Ensure all costs are estimated correctly, and accurately, in light of the project timeline estimations, and inflation projections.
Have a list of permits written
Ensure the permits necessary are highlighted in the bid proposal. Once it is accepted, the permits necessary to proceed with construction have to be paid. Highlighting this beforehand in the bid raises your stakes for being selected.
Have a certificate of insurance
This is key when bidding for construction jobs as it shows you are ready to be liable for any eventualities. Most owners avoid working with people who show no proof of insurance before embarking on a project.
Highlight project milestones
Have a written estimate of milestones and timelines of the project being bid on. This is helpful to give a clear guideline on what to expect and to stay accountable and credible.
Read through your bids
Always countercheck the information you are giving out. Ensure the details are correct.
Connect with the client
This can be done before or during the process. Attending networking meetings, and possible places to meet the clients give an overview of the client and may raise your chances of winning a bid. This is tapping into the relational concept of business where better relationships lead to better business.
Tips when bidding on a job
Minor errors can mean the difference between winning or losing bids. A lot of time and preparation goes into preparing proposals. It is more than crunching numbers together and hoping for the best. However, below are some tips you can employ when submitting your bids to increase your chances for success.
- Choose the best projects to bid on: Do not bid on all jobs you come across. Winning the wrong jobs where you cannot perform as expected or where you cannot make a reasonable profit is as costly as not winning the bid.
- Attend pre-bid meetings and visit the site: Attending pre-bid meetings and visiting the place make you better acquainted with the site conditions and deal with existing problems if you win the bid.
- Where necessary, ask the client for clarification: You should do your due diligence on all the information required on a project and ensure you understand the information. If anything is unclear, you should not bid with assumptions but ask for clarity.
- Accurate takeoffs: After carefully reviewing the project's plans and specifications, you should perform accurate takeoffs. You can do this using construction estimation software.
- Evaluate your subcontractors: Sometimes, getting subcontractors can be hectic. Before working with a subcontractor, evaluate whether they offer competitive prices and meet your performance requirements.
- Organize your bid forms and documents: Failure to organize and submit complete bid forms and documents is a sure way to get your bid rejected.
- Identify and manage risks: This is one of the overlooked aspects when submitting a bid. Identifying potential risks helps you analyze and evaluate ways to mitigate the risks.
- Contact the owner or architect to find out who the competitors are.
Preparing construction bids can be a daunting task, but you can be more successful in your bidding with the right skills. Minor mistakes can lead to discrepancies in prices where you have a lot of overpriced and uncompetitive bids or underpriced bids with no profit.
Understanding the construction bidding process helps your construction business land more bids and stay profitable in the long run.