Bidding is one of the most important parts of a construction business. Submitting winning bids keeps you in business, allows you to serve more customers, expand your construction business’s portfolio, and build a remarkable reputation for your business.
However, delivering winning bids is an uphill task for most general contractors. According to data, most general contractors only win one out of six bids. Subcontractors have a lower win rate of 1 out of 7 bids, while for some construction businesses, the rate can be as low as 1 out of 35 bids.
Is there a way you can keep your business out of this statistic?
Here’s what you need to know about construction bids and how you can ensure you make ones that attract more clients and build a positive business reputation.
Understanding Construction Bidding
Construction bidding is the process of sending an offer as a contractor to take on a construction project or specific work within a construction project. Construction bidding starts negotiations between the project owner and the contractor to discuss the project timeline and budget.
The project owners evaluate the bid based primarily on these two prepositions and award the bid based on a given criteria. The contractor with the winning bid gets the contract for the construction work.
Besides setting the foundation for the start of a project or specific work within a project, construction bids also act as the foundation for future project planning, contract negotiations, and project execution with a client.
Therefore, you must carefully craft your construction bid, ensuring there are no missing or inaccurate details. Your bid must feel and be presented highly professionally to stand out against the competition.
The Difference Between Estimating and Bidding
Bidding can be generally termed as the process of submitting a proposal to a project owner or prospective client to manage a structure’s construction. It specifies a price and timeline for the project.
The common and erroneous assumption is that most contracts are awarded to the lowest bidder. That’s because very few general contractors understand the difference between a bid and an estimate.
In large construction businesses, bidding and estimating are handled by two different teams. In smaller firms, a single individual skilled in both can be hired to do bids and estimates.
A construction bid provides a proposal to a client about developing or managing a construction, whereas an estimate forecasts the expense of building the physical structure. Therefore, bids and estimates are developed using different processes.
For bids, you calculate the final price the client gets charged, while estimates calculate internal costs. Therefore, bidding is more strategic, while estimating is more tactical. Winning bids defines the direction and reputation of your business, while estimating helps manage costs, markups, and margins from a project.
The Different Types of Construction Bids
Here are the most common types of construction bids.
Selective bids are bid proposals submitted by invitation only. This means the client contacts specific businesses known to them and invites them to submit a bid for a project. Only the invited businesses can make a bid.
Open bids are bid proposals that can be found by word of mouth or on several platforms. Therefore, anyone can challenge for the winning bid, with all companies and general contractors getting an equal chance to submit the winning bid. Open bids are popular among government and private projects.
Single-Stage and Two-Stage Bids
A single-stage bid requires the general contractor to have all estimates and quotations submitted at the time of bidding. On the other hand, a two-stage bid involves first appointing a supplier before other bidding information becomes available. Therefore, general contractors negotiate on a fixed price later, allowing them to begin work immediately.
Negotiated bids involve a single contractor getting a bid solicitation for a new construction project or extending the running contract. Therefore, the project owner directly involves a general contractor in the planning stage of the project.
In some cases, construction companies and general contractors will perform similar work in terms of quantity and scope for several jobs. Therefore, bidding is conducted using standardized bidding templates that allow for serial bidding of these jobs.
General contractors and construction companies can bid on government projects through a competitive public bidding process.
What Should Your Bid Include?
Winning construction bids require the following key pieces of information:
Scope of Work
The scope of work defines the work the general contractor is to perform, the specific methods, schedule, techniques, and materials. This component is vital to a successful bid as it sets clear responsibilities and expectations for the project.
The bid price defines the total cost of the project, broken down into the major job cost categories. These include materials, labor, equipment, additional equipment, and sub fees.
Your construction bid should reflect the terms of the chosen contract type, including details on insurance, warranty, permits, and dispute resolution strategies. The responsibilities of each party should also be clearly defined.
Schedule and Payment Terms
Your construction bid’s schedule will detail milestones and their associated deadlines. The payment terms will coordinate with the schedule, specifying when payment should be invoiced and for which scope of the work or milestone.
How You Can Develop Winning Construction Bids
Here are a few tips you can use to develop winning construction bids.
Understand the Construction Bidding Process
Construction bids should not be treated as a job application or resume. A winning bid should demonstrate deep industry knowledge, excellent craftsmanship, and an intricate knowledge of the bidding process required for the project.
Therefore, before submitting a bid, ensure you understand what the process is, the key decisions the client or project owner needs to make, and the right jobs you should be bidding on based on your business and crew’s expertise and knowledge.
Choose the Right Jobs
This is one of the biggest challenges for contractors. Without enough experience, it can be difficult to select the right jobs to bid on. Often, new contractors rarely get considered for bids because of their lack of networks and referrals.
However, there are various resources you can explore to get fitting construction jobs to bid on, such as regional and government websites and free and commercial online bidding platforms.
Moreover, you can use general contractor software to better curate your bids and estimates and ensure you stand out from the rest amidst the cutthroat competition. Using software also ensures you only choose jobs that you can win, making the bidding process more effective.
Make Smart Bidding Decisions
Bidding is a continuous headache for new and established general contractors. You need to ensure you have a professional bid, a good markup from your estimation, and are talking to clients and project owners who are likely to give you jobs.
Ralph P. Sita, Jr., CPA – Is a lifetime successful serial entrepreneur. He is the Co-Founder of FieldBin, a home service management software designed for trade business owners. While in high school and college Ralph worked for his father’s HVAC company as a mechanic’s helper and then ran a few jobs with his brother Tommy. At even a younger age he would help his dad calibrate thermostats and polish old copper and brass fittings…nothing was ever wasted! In addition to FieldBin, Ralph Co-Founded Cybrary and serves as both CEO and Founder of TrainACE and GamePlannerPro.com.