Construction Bidding: How To Bid Construction Jobs

Bidding is an essential part of the construction process. Without accurate and organized bids, contractors may not be able to secure projects or realize profits on the work they can obtain.

Profit margins can be very slim in the construction industry. According to the National Association of Homebuilders, the average gross profit for a home builder in 2020 was 18.2%, and the net profit margin is 7.0%.

Running over budget, even by a small amount, can significantly affect profits and may put a company in debt. Depending on procurement methods and contracts, a single flawed bid can dampen what was otherwise a successful year for a developer or a contractor.

A methodical bidding process, supported by a suite of specialized estimating software tools, can help ensure accuracy, protect profits, and help contractors remain competitive when bidding.

Evaluate the Job

The first step is understanding the details of the job. These variables can help provide focus and a framework for the next steps in the bidding process. Here is what you should consider.

• Obtain project documents: Most developers will use a bidding platform that allows contractors interested in the project to access project documents online.
• Assess the stakeholders: Does the project involve private investors, a government agency, or a developer or building company? Commercial, residential, industrial, and civil projects have different requirements.
• Figure out project scope and complexity: It is also important to understand the level of involvement necessary. You do not want to commit to a project only to discover you are responsible for elements outside of your area of expertise that would require finding and working with new subcontractors.
• Look at the location and legal aspects: Construction projects have to abide by local permitting rules, labor laws, and safety regulations. Other issues, such as local conditions may also play a role in project planning and execution.
• Learn about the bidding process: The project documents should provide insights about the bidding process, what information you will need to provide, and the timeline for submissions, decisions, and awarding of the project.

Finally, you need to use a bid template. Most requests for bids will include the desired layout. You should always use the included template and note any formatting requirements.

Plan Out the Delegation of Tasks

Contractors can delegate aspects of the estimate process to specialists who are familiar with a specific aspect of construction.

• Decide what insights you need: You can start by defining the parameters of the project. What services will you need to provide and which specialists will provide them?
• Find the experts best suited to provide insights: You will want to get your information to make your estimate from people who understand what is involved in the specific part of the job. For example, if the estimate includes interior painting, you should use an employee or subcontractor familiar with the nuances of their job.
• Create a central place to save data: Each specialist may use different estimating tools to handle their aspect of the bid. A central platform to combine estimates is essential for ensuring each aspect is accounted for and as accurate as possible.

You can also rely on administrative personnel in your company to research legal aspects, such as permitting, insurance requirements, and administrative costs.

Consider the Role of Subcontractors

Some contractors have in-house tradespeople who can handle projects without help from subcontractors. In many cases, however, it is necessary to work with subcontractors on specific aspects of a project, as each construction has different elements, making it necessary for contractors to work with specialists.

Those unwilling to work with subcontractors may find their ability to compete for bids severely limited. These tradespeople perform very specific tasks, such as electrical installation, plumbing, masonry and stonework, landscaping, roofing, or HVAC installation.

For example, a contractor specializing in residential homes may hire subcontractors for a specific aspect of the project that may not be necessary for every home, such as pouring concrete for driveways.

Meanwhile, a commercial building contractor could rely on several subcontractors to handle specific elements of the project, such as plumbers, electricians, and HVAC installers.

Decide on Your Procurement Method

A procurement method is how developers get the necessary materials and services to complete their construction projects. There are several options for procurement. In many cases, the request for bids will require a specific procurement method.

Here are some of the most common types of procurement you will come across in construction.

• General contracting: The most traditional method is general contracting, which places the responsibility for project completion with the contractor. The winning bidder will handle all aspects of the project and deliver the finished result to owners according to their specifications.
• Design and build: This method requires contractors to handle both designing and construction using in-house architects and engineers or partnering with a design firm.
• Construction management: Construction management contracts involve a manager from within the development company who oversees all aspects of the project. This person can hire contractors and subcontractors to handle specific aspects of the projects.

It is also important to make a distinction between private and public financing. Private financing comes from investors, banks, and other non-government sources; while public works projects, such as roads, get funded by governments.

Determine Your Project Delivery Method

Project delivery methods can vary depending on the type of project and timeframe. It is important to take the delivery method into account as you assemble information for the bid because it will provide a framework for pricing, timing, and understanding who is involved and overseeing the process.

There are four main project delivery methods.

• Design-Bid-Build (DBB): DBB is the most common type of project delivery method. It involves obtaining designs and then having general contractors bid on the construction aspect of the project.
• Design-Build (DB): The DB delivery method seeks to streamline the process by contracting both design and construction to a single entity. Contractors bidding on this type of project need to have an in-house design department or partner with an outside firm.
• Construction Manager at Risk (CMAR): A construction manager oversees CMAR projects. In addition to working with the design team to ensure the project is feasible and deals with potential risks and pitfalls, the manager leads the construction process.
• Job Order Contracting (JOC): Job order contracting allows construction managers to use contractors for agreed-upon services at any point during the timeframe specified in the contract. These agreements are typically for large projects or companies that have several development projects at once.

Depending on the nature of the project and financing, there could be a variation in one of these delivery methods.

Estimate Your Costs

The next step in the bidding process is to actually estimate how much it will cost to deliver the desired services to the project owner. Here are the costs you need to consider.

• Pre-construction costs: These could include design costs for design-build contracts, permits, insurance, administrative costs, and legal fees.
• Materials: Materials costs include everything necessary to complete the job. This category can be complicated and require different software for each material. For example, drywall estimating software and steel estimating software can offer precise cost calculations that you can combine to come up with the overall materials costs. You should also consider transportation costs for the delivery of materials to the site.
• Equipment rental, maintenance, and fuel: Ideally, contractors and their subcontractors have all equipment on-hand, so this category will include fuel and maintenance. However, if it is necessary to use leased machinery, the costs get included here.
• Labor: Labor costs can include workers at the job site and in the office. You can include subcontractors in this category, too.

Contractors typically use specialized estimate software to streamline this process, ensure accuracy, and limit human error.

Consider Overhead Expenses

It is important not to overlook overhead costs. In addition to administrative staff, permits, insurance, taxes, and other expenses, contractors should consider legal fees and other costs associated with preparing and filing necessary documents for the jurisdiction where the project will take place.

You might include the cost of preparing the bid and any associated marketing costs in this category, as well.

Carefully Review Parameters and Specifications

You should double-check all figures and information from your estimates. However, one of the most important pre-submission steps is to carefully review all the parameters, specifications, and requirements for the project.

In addition to timeframe, quality requirements, and information related to safety, you should use measurement software to ensure accurate data — using AI to determine dimensions on drawings and other distance calculations. This will expedite your timeframe for completion and estimation of labor and materials needs.

Review Your Schedule

Contractors need to balance their desire for more business with the need to set aside time for current and future projects. Here are some things to consider.

• Consider how much time to project will take based on existing information from the project documents.
• Ensure the project will not interfere with any existing projects you are already obligated to finish.
• Decide if the project you are bidding on will interfere with future work you could obtain. Will the time commitment make it impossible to pursue other work during a construction season?

You might also consider if using subcontractors or delegating tasks can lower your time commitment while still allowing you to complete the project.

Review Pertinent Regulations

Construction operations need to comply with regulations that govern their industry. These rules can vary from place to place, so it is essential to understand the requirements for the job site location.

Local building codes can vary greatly from place to place. They may require a specific type of wiring, for example. Not only will you need to ensure you have the correct materials and subcontractors who understand the requirements, but you may also need to pay for an inspection to verify that everything meets city or county requirements.

In addition, you’ll need to seek out permits, as they are always necessary. You find out which ones are necessary for the project and how much they cost, and you should also learn how long it takes to get the required documents so that there are no delays before starting the project.

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