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Mastering the bidding process is essential for general contractors and subcontractors alike. Across the industry, a hit ratio of around 5:1 is considered successful—meaning that for every five jobs you bid, you are awarded the contract for one of them.
Being successful with bidding requires a deep understanding of the process and the strategy that you should take as a contractor. Read on for detailed information about every step of the construction bidding process.
5 steps of the construction bidding process
The construction bidding process is broken down into five key steps: bid solicitation, bid submission, bid selection, contract formation, and project delivery, detailed below.
For public project bids, the solicitation phase is usually an open invitation for any contractors who are registered to work on government construction jobs.
For private projects, bids may be open or sent to a smaller group of contractors. In some cases, bids may be solicited with bid management platforms like Procore or PlanHub.
Regardless of the project type, the bid solicitation phase will include the following information for interested contractors:
- Construction specifications
- Project requirements
- Contract type
- Project delivery method
The solicitation will also ask for additional information about the contractors who apply, like their qualifications and past projects. This information is used by property owners to prequalify the contractors, ensuring that they will be able to complete the job as promised.
Contractors who meet the requirements and are interested in the job will be able to submit a bid.
Tip for contractors: Pay close attention to the project requirements during the bid solicitation phase. Submitting a bid takes time, and one way to improve your hit ratio is to focus on the right jobs for your business—that means skipping some bids entirely.
In the bid submission phase, interested contractors submit documentation about the project timeline and costs—as well as information about their business. General contractors will solicit their own bids from subcontractors to complete specialized aspects of the job, and they combine all of this information into a bid they submit to the property owner.
In order to create an accurate bid, contractors must create an accurate estimate of project costs, including:
- Profit margin
By reviewing the project specifications and bill of quantities, performing material takeoffs, and calculating overhead and profit margin, contractors should be able to nail down a competitive bid. A good bid represents the best quality at the most reasonable price.
Importantly, bids should be as clean and organized as possible. A bid sheet serves as the face of the bidder’s company. A professional bid with all of the correct documentation submitted on time serves as the first indication of a bidder’s reputation.
Tip for contractors: It may seem like bidding low is a great strategy, but low bids often hurt contractor cash flow, so find ways to break the cycle of low bids.
When it comes to bid selection, property owners will often pick the bid that has the most competitive price. Furthermore, when it comes to public projects, government rules often mandate that the lowest bid wins.
However, private project owners may take into account other factors beyond price, including:
- Contractor experience
- Safety records
- Scheduling philosophy
When property owners solicit many bids, they may receive offers with similar prices from very different contractors. In that case, owners will often use internal scoring systems or other prequalification measures to determine which contractor is most suitable for the job.
Tip for contractors: Winning bids requires choosing a price that is high enough to stay in business but low enough to stay competitive. Keep track of your unsuccessful bids to learn for the future.
After the owner selects a bid, they work together with the contractor to form a construction contract that both parties will eventually sign. Even though the contract type (e.g. fixed-price, time and materials, etc.) has already been determined, contractors still have leeway at this point to negotiate the terms of the contract as well as the final pricing structure.
Tip for contractors: After your bid is accepted, take time to review the proposed contract and make suggested changes. Use our guide to negotiating construction contracts to suggest contractor-friendly terms.
Even though it’s not technically part of the bid process, project delivery plays a very important role in bidding.
Before bidding starts, the property owner will determine the project delivery method. For example, any of the following methods could be used:
During bidding, the project delivery method determines how bids are solicited and submitted. For example, Design-Bid-Build solicits bids from general contractors based on designs from a separate firm, whereas Design-Build employs a single firm for design and construction, so bids are only received from subcontractors supporting that firm’s work.
After bidding, the project delivery method often influences contract negotiations. For example, with the CMAR method, there is likely a guaranteed maximum price in the contract, which the construction manager will want to carefully negotiate to ensure project profitability.
Tip for contractors: Make sure you’re clear about the project delivery method and how it affects the bidding process. Contracting businesses tend to specialize in certain project delivery methods while ignoring others.
Types of construction bids
When a property owner is ready to receive bids on a project, they will choose one of four tendering methods: open tendering, negotiated tendering, selective tendering, or serial tendering.
With open tendering, anyone is allowed to submit a bid on the project. This is the method most commonly used on government projects, and it is generally considered to create the most competition for a job, driving prices down.
With negotiated tendering, the property owner identifies a single contractor to perform the work and negotiates a contract with them. This method of tendering is generally reserved for highly specialized projects, and it may be considered anti-competitive in certain cases.
Selective tendering is the middle ground between open and negotiated tendering: A small set of predetermined contractors is invited to submit bids on a project. Typically, this method of tendering offers a balance between competition and simplicity in the bid selection process.
Serial tendering is used for situations where a property owner is soliciting bids for a series of similar projects over a period of time. For instance, a housing developer may be building hundreds of residential homes over a three-year period. Serial tendering can reduce the burden of repeatedly soliciting bids for similar projects, though it does potentially reduce competition.
Master the construction bidding process to stay in business
Contractors that master the bidding process are much more likely to succeed long term. Because contractor cash flow is heavily dependent on skillful bidding, businesses that bid well tend to outlast their competition.
Learning to find the correct bids, prepare proper estimates, and submit professional bids takes time, but it’s worth the effort. And if you handle the bidding process well, you can even make sure that your payments are protected before the project even starts.