Bidding is the lifeblood of the construction industry. Most contracts are only awarded after a competitive bidding process, and unless there’s a longstanding relationship, competitive bidding is the only way to find work in the construction industry. Naturally, these bids get competitive – so mastering the bidding process is vital to bringing more business to your constriction company.
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Things Contractors Must Consider Before Bidding
Before any actual bidding occurs, a construction business must perform their due diligence. Is this project right for you? Do you have the capacity and expertise? Is your backlog too large to take on the new contract? These are the questions that should be answered before deciding to bid on any given project.
Before deciding whether or not to submit a bid on a project, one of the most important things to consider is the type of delivery method being used on the project. This is typically determined by the owner’s budget, building design, schedule, and how the risks will be allocated on the project. This can be structured as the more tradition Design-Bid-Build, to the more complex Construction Manager at Risk method. Whichever delivery method is chosen, be sure to understand how each can affect your role and responsibilities on the project.
Another critical consideration before bidding on any project is the type of contract the owner wants on the project. The contract type will determine, besides the project’s scope of work, how payments will be disbursed. Understanding the most common contract types is crucial before bidding on any project.
Although there are numerous options, the four most prevalent types are:
Click any of the contract types listed above for an in-depth analysis.
Basic Construction Bidding Procedure
Government jobs are highly regulated, but bidding and procurement for private projects will be less formal, and owners have broad discretion to use whatever procedure best suits them. Still, most bidding procedures follow the same basic format…
This is when the owner sends out an Invitation For Bid (IFB) or a Request for Proposals (RFP). Unlike public projects, these aren’t usually large, open invitations. Rather, they’re sent to a smaller group of contractors. This phase will lay out all the specifications, requirements, contract type, and delivery method.
Generally, the contract will most likely be awarded based heavily on the bid price. Still, the bid solicitation phase of the procurement process will require other information beyond the price – like a request for qualifications (RFQs) asking for more information on the prospective contractor’s company history.
A bid submission should include all of the bidder’s relevant business information. This will be a list of the contractor’s past projects, plans for management, and their track record of staying on schedule and under budget. When calculating a bid, it should be as accurate as possible.
The estimate, based off of blueprints and the bill of quantities, should include all costs. That includes things like overhead, labor, materials, equipment, and of course, profit margin. To win a bid, this number should represent the best quality at the most reasonable price.
The bid should be as clean and organized as possible. A bid sheet serves as the face of the bidder’s company. Be sure it has a professional touch, and that it is submitted to the right place at the right time.
On government construction projects, rules are in place to make sure the government selects the low bidder (or, one of the low bidders). Meaning, the lowest contract price wins out. The reason behind this is to prevent any fraud, abuses, or favoritism. By mandating that the lowest responsible bid be accepted, the idea is that price will be the ultimate equalizer.
On private projects, owners have much more leeway to pick a bid for reasons beyond price. Don’t get us wrong – price is almost always among the determining factors when it comes to bid selection. But, if two contractors have comparable bids, factors other than price might matter a lot more than they do with public projects.
When the owner selects which bid or proposal best suits their needs, the contract must still be formed and signed. If your company wins the bid, this is an opportunity to negotiate. At this point in the process, the type of contract has already been established, but there’s still an opportunity to set out the final pricing and terms of the contract itself.