If contractors show up and bid on the right projects the right way, they’ll thrive in the competitive business world. But things can be different if they take the wrong approach or bid on a few jobs weekly.
If you plan to use a construction management tool like Bridgit for your next project, you must also learn the ins and outs of construction bidding.
This guide discusses everything you should know to make the best out of your bidding efforts. So let’s get started.
What is a construction bid?
Construction bidding is essentially a job proposal. You tell the client what you can do for them, including the costs highlighting expense and profit. Note that qualifications and costs are two primary considerations for clients when looking to work with a contractor.
An accurate bid can make or break the deal; it decides the success or failure of a contractor. The key is to aim at the lowest bids at the beginning. This will ensure you make a profit and highlight relevant qualifications.
It is also worth noting that there’s a fine line between an estimate and a construction bid. The former is generally for internal purposes. The latter, on the other hand, demonstrates an organization’s offer for the client.
It depends on calculations made in the former stage and includes the contractor’s profit margin. However, the line between estimating and bidding typically blurs and needs clarification for small projects.
3 types of bidding in construction
Before we dig into the construction bidding stages, we must learn about the key elements of construction bidding. The three types of construction bidding include the following:
1. Method of procurement
There are two main methods of construction procurement. Here are the primary responsibilities of the project contractor and owner associated with both.
- Construction management – The project owner hires several subcontractors for individual construction work, such as electrical or plumbing work. This generally requires effort on the owner’s part and is recommended for large construction organizations.
- General contracting – The project owner chooses a general contractor to handle the contract project. The general contractor may hire subcontractors to manage specific areas.
2. Project delivery method
This outlines the risks and responsibilities construction contractors, managers, and project owners assume at the start of a project. These may include:
- Design-build-bid (DBB) – This phase includes the designer creating construction documents. The documents are then released to the contractors, who determine project expenses and represent a bid to the owner. The project owner accesses the bids and chooses a contractor.
- Design-build (DB) – This is an alternative practice where the contractor takes responsibility for the design and project construction.
- Construction manager at risk (CMAR) – Here, the construction manager works as a designer and delivers the entire project at a guaranteed maximum price (GMP) by the construction manager at risk delivery method.
3. Contract type
Establishing a legal agreement to implement a construction project is impossible without deciding on a contract model. So, the project owner and contractor choose an appropriate contract model at this stage.
- Lump-sum contracts – Here, both parties agree to a fixed price regardless of the project’s actual costs that may surface later.
- Cost plus fee contract – The contractor reports costs as they take place instead of cutting them from the budget. Then, the project owner pays the required costs, including a fee agreed upon previously.
- Time and material contract – In this method, the project owner pays for materials and labor hourly. This generally happens when a project needs continuous supervision and its scope isn’t clear.
- Guaranteed Maximum Price (GMP) contract – The contractor gives a guaranteed maximum price for the contract. The project owner must agree to the price, and the contractor must commit to it even if the project expense exceeds later.
6 stages of construction bids
As a rule of thumb, accurate estimates and low bids help you through the construction bidding process. However, your bid shouldn’t be out of business. Make sure you follow the construction bidding process and make mindful decisions.
Also referred to as a Request for Proposal (RFP), solicitation is when the project owner puts a bidding request out for executing a project. The client would likely include a package specifying what is needed to help the contractor understand properly.
This stage involves the general contractor soliciting bids from subcontractors for various project parts. However, this happens after the contractor wins the project.
Once the contractor reaches an accurate estimate and has detailed information, they’ll submit a formal bid to the client. Here, they may use the design-build, design-build-bid, or construction manager at risk method.
At this point, the customer goes through all the submitted bids. This helps them determine one that aligns with their goals and preferences. The winning bid would be the one that best fits their needs.
A bid is a legally binding document that both parties can use equally. However, the bid’s winner and the customer would finalize the terms and conditions of the bid and create a legal agreement. Both parties then sign it to demonstrate their mutual agreement.
Finally, the project starts and proceeds per the agreed-upon pricing and schedule.
What does a construction bid include?
A construction bid varies per the construction project. In other words, there isn’t a one-size-fits-all solution. However, a few elements remain the same regardless of the project type. Here’s what a general construction bid entails.
- Contact information – A bid must contain the contact information of the construction company submitting it. This may include name, address, email, or phone number.
- Scope – The project scope outlines the work schedule, required materials, and other essential features to complete the job.
- Costs – This estimates the entire project’s price, from materials to labor.
- Payment terms – You must highlight the method you prefer to get paid for the job if the customer selects you.
- Existing conditions – This describes the site’s existing conditions after conducting a site assessment.
Accurate construction bidding is a decisive factor in your success as a contractor. You must adhere to the bid proposal requirements and estimate costs accurately to boost the chance of winning more bids. Besides, building professional relationships, knowing your competition, and accentuating your strengths also help during the bidding phase.