In the construction bidding process, clients have to make several interdependent decisions based on the limited information on a contractor. There are different bidding strategies in construction projects, and the client needs to know how to analyze the bids appropriately and choose the best-qualified contractor.
Refining the bid analysis process helps clients find the best productive contractor to help them complete projects successfully.
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What is bid analysis?
Bid analysis refers to the process of evaluating the submitted bids after the tender's submission deadline. The best offer from the bid evaluation process is the most feasible alternative that meets the client's requirements.
The strategy employed in bid analysis should reflect the client's objectives and project-specific criteria for safety, security, maintenance, and durability. The bidding parties should submit clear and organized bids to ensure the proposals are well understood and increase their chances for success. The evaluation process is multi-faceted, and the client has to combine different standards to a single evaluation scale.
How are bids evaluated?
The bid analysis process takes place in four stages. These are:
- Preliminary evaluations
- Compliance with technical requirements
- Financial evaluation
- Due diligence
During preliminary evaluations, the client's team will assess each bid to determine whether it is properly signed, has the required bid security, has no omissions, and is free of any computational errors. The team also checks if the documents meet all tax and legal requirements to the bid documents and if they require any clarifications. The bids that do not meet the conditions in the preliminary stage do not proceed to the next step.
The second stage is checking whether the bid satisfies the technical requirements for the project. These include the material quality requirements, delivery schedules, compliance with the scope of works, warranties, and the bidder's experience. The technical specifications are not fixed but depend on a specific project.
The next step is price evaluation. Here the main evaluation point considered are costs and their influencing factors such as unit pricing, labor rates, labor hours, overheads and profits, price lock (the duration price is guaranteed), material costs, quantities, and quality.
The panel also considers provisional sums and discounts. If the bids are in more than one currency, the prices are converted to a single currency based on exchange rates from one source.
The evaluated bids are then organized from the highest to the lowest price. The evaluation team also prepares a price analysis that ascertains whether the bid prices are reasonable compared to the prevailing market conditions.
The final step is post-qualification, which only applies to the winning bid. Here the evaluating team conducts due diligence to ascertain all the information the bidder gave is accurate and that the bidder complies with all prequalification requirements.
Technical bid analysis
After a project is subdivided into packages, an owner advertises for bids. Most project owners request bidders to submit their proposals in two parts; the technical and commercial bid.
A technical bid analysis evaluates a bidder's technical documents to ascertain whether they meet the client's project technical requirements. The technical specifications assessed include quality, experience, operating costs, specifications, execution capabilities, and performance penalty to meet project requirements. Additional technical requirements include compliance checks, relevant licenses, and relevant sources for the workforce for the project.
Technical bids are assessed by the engineering teams, including the consulting engineer, and the approval or rejection of bids lies in their hands.
The client's team first lists all the specification requirements during technical bid analysis, and they then attach the bids' technical queries, deviation, and justification lists. All the bidder deviations are assessed, approved, or rejected by the client's team. A delivery time of the queries in the bids is mentioned, and the technical bid analysis is issued to the client for final approval.
After the engineering team ascertains the acceptability of the technical aspect of the bid, the team now proceeds to open the commercial part of the bids of the technically qualified bidders. This information exchange between owners, engineers, and vendors is referred to as technical evaluation or technical bid analysis.
After approvals, the qualified bidder is issued with the finalized contract specifications.
Commercial bid analysis
Commercial bid analysis ensures that you get the best cost-effective deal for your project. The assessment is based on several project criteria: price analysis, delivery schedule, and proposed contractual terms and conditions.
The commercial bid analysis also ensures that all bidders understand and deliver what is required in the project. The client's cost consultant, quantity surveyor, or architect are responsible for weighing whether the bidders meet all the evaluation categories.
The commercial assessment ensures that all costs are adequately covered per the bid documents. It also checks whether the bids are comparable and if the currency conversions are correct at the bid time. If there are price escalations or alternative methods for meeting specifications, they are identified and separately logged.
Details of extra costs such as insurance, customs, delivery fees, testing, and inspection charges are also identified. The evaluation team also evaluates retentions and terms of payment.
The above assessment criteria are not exhaustive as some requirements are project-specific, but it gives a rough idea of the cost make-up that you should consider. If there are changes in project size or quality, the bidders might be required to rebid.
The commercial evaluation of a project also assesses the social value. Social value is the term that describes additional benefits that a project brings to a community. In the past, projects only weighed quality and cost alone, but the social value has become an essential aspect of a successful bid in recent history.
Some economic assessments of social value include how a contractor will create job growth in the local area, voluntary work, and training opportunities.
After this tendering stage, the winning bid is awarded the contract before work commences.
Sometimes construction bidding feels like a game of chance, but taking a data-driven approach helps you make informed decisions when bidding. Now that you understand the bid analysis process, you can follow the due process and improve your chances of securing the best projects.