Construction Bidding Process Explained: Your 2024 Guide

Bidding is the lifeblood of construction, but also a fine balance. You must walk the tightrope of submitting competitive pricing to win projects while still maintaining adequate profit margins.

Low-ball bids can win jobs but destroy profitability. And the bid price impacts everything—from handoff to the project management team, to having enough resources and manpower.

The construction bidding process has become more challenging with fierce competition for commercial projects. Tight labor, materials delays, and strained sub relationships mean submitting an optimized bid is essential just to have a fighting chance.

In this article, we'll explain each step of the bidding process and give some expert tips to help you create winning proposals.

What is Construction Bidding?

Construction bidding is when a construction company prepares a proposal on how they will manage the construction projects. It's through the proposal that the project owner decides whether or not to select them for the project. Ideally, the interested contractors submit a construction bid informing potential clients about their project delivery method and the project costs.

Although most bids are similar to estimates and quotes, the construction bidding process is usually longer as it entails more project details, including project timeline, cost estimation, overhead expenses, etc. Also, it may involve visiting the job site and meeting up with potential clients.

The most overlooked element in construction bids is cost. In most cases, the bids awarded are the lowest bid. There are other cases where the contractor's qualifications are considered but this depends on the type of construction bid discussed later in the article.

Generally, the best construction bid considers the project owner's interests and the general contractor's profitability. While bidding for construction projects, you will compete with other construction companies. So, through a construction bid, you need to prove you are the best company for the project.

Though most clients often look for the lowest bids, some consider experience, quality, and cost. For instance, the bid-hit ratio in the public sector is at 10:1 and 5:1 in the private sector. So, when bidding for construction jobs, it is essential to understand how the construction bidding process works and how to win more project contracts.

Where to Find Construction Jobs

With the right strategies, finding construction jobs shouldn't be difficult. Construction jobs in the public and private sectors are worth millions of dollars yearly. The issue here is finding a reliable client with new projects.

To find a construction job, you will need to find a client and estimate their project cost. Then, if you deliver quality work, you may land a lifetime client. Once you find where to bid on construction jobs, it is time to start the process.

The software products are designed to help contractors focus more on partnerships than deal with paperwork. The whole system simplifies the bid management tasks and relies on day-to-day reality in the construction industry.

This construction bidding app has simplified bidding processes for construction jobs thanks to its easy-to-navigate and detailed platform. Here is how the platform works.

How to Bid on Construction Jobs

Bidding for construction jobs has five key steps. This includes;

• Bid solicitation
• Bid submission
• Bid selection
• Contract formation
• Project delivery method

1. Bid Solicitation

In the bid solicitation phase, the project owner issues an Invitation for Bid (IFB), a Request for Proposal (RFP), or a Request for Quote (RFQ). If it's for public projects, the agency will have to issue open invitations to all qualified contractors registered to work on government projects.

For private projects, the solicited bids can be opened publicly or sent to a specific group of contractors. Ideally, this is a non-competitive bidding process. There are cases where the bid is also solicited via a bid management platform.

No matter the construction project type provided, the bid package has construction details that can help contractors create an accurate bid. The bid package may contain the following;

• Project requirements
• Contract type
• Construction specifications
• Bonding and insurance requirements
• Project delivery method

Other additional information the solicitation may need is a contractor prequalification questionnaire. This includes examples of similar past projects and professional qualifications. This is necessary to ensure the contractor can comfortably complete the construction job within the agreed duration. All contractors who meet the needs above automatically qualify to bid.

If you need guidance to create an offer, try our free bid package template.

2. Bid Submission

In this phase, all interested contractors submit their documents about their project delivery method, timeline, estimated costs, and information about their construction business. In this phase, general contractors solicit their bids, RFIs, or proposals from the subcontractors they will hire. The general contractor then combines subcontractor proposals to prepare the construction bid. To create an accurate bid, contractors must have accurate estimates of the project, including;

• Labor costs
• Materials
• Profit margin
• Equipment
• Overhead costs

By analyzing all these costs and data, contractors should be comfortable creating a competitive bid. Good bids are a representation of quality at reasonable prices.

At times, the contractor may have to submit a bid bond together with their bid to be considered. A bid bond is more of an agreement or assurance that the contractor will complete the construction job according to their bid.

If you focus on winning the bid, then ensure your bid is organized, clean, and submitted on time. This is an indication of your reputation, so you need to be careful.

3. Bid Selection

The bid selection phase is where everything becomes interesting. The owner picks the most. In most cases, owners go for the most competitive or lowest price. For federal government projects, it's a government rule that the lowest construction bid wins the project.

This is the absolute opposite of most residential projects. Normally, owners consider other factors besides price.

This includes:

• Experience
• Safety record
• Delivery method

Since contractors submit their bids in different formats, the bid solicitor goes through a bid leveling process. At this stage, the project owner tries to standardize bid formats so that they may be able to compare their difference and similarities. This way, the owner is able to make informed decisions about the most suitable contractor. Contractors can use software to manage subs to compare bids and track all of the subs.

4. Contract Formation

After selecting the bid, the owner and the contractor form a construction contract that both will sign. The owner determines the type of contract to be signed but the contractors may still negotiate the terms and the final cost estimation.

Here are the types of contracts in construction bids:

• Lumpsum contracts: A lump sum contract for construction has a fixed price for all the cost elements in the project, including incentives for project completion
• **Unit price contracts: **The final cost is based on the unit price of the services and materials in the project
• Guaranteed maximum price contracts: The owner sets the maximum contract price and they won't be responsible for other incurred expenses in guaranteed maximum price contracts
• Cost plus fee contracts: In a cost plus fee construction contract, contractors start the project and are reimbursed later by the owner of the incurred costs, including additional fees that cover the contractor's profit margin

You should be comfortable signing the contract without any pressure from the owners, so go through it thoroughly.

5. Project Delivery Methods

The project delivery methods are an essential element in construction bidding. Before bidding, you have to determine the project delivery method. It gives you the framework for pricing, construction manager details, timing, etc.

There are four main project delivery methods in construction. This includes:

• Design-Bid-Build (DBB): DBB process is about obtaining designs from separate firms then the general contractors can bid on the project. It is the most commonly used method.
• Design-Build (DB): This method employs a single entity for design and construction. Ideally, the bids are from subcontractors who are in support of the firm's work.
• Construction Manager at Risk (CMAR): In this method, the construction manager oversees the projects and works with the design team to ensure the project is workable. Also, any risks involved are dealt with as the construction manager leads the process.
• Job Order Contracting (JOC): This method enables construction managers to work with contractors for an agreed-upon service anytime within the specified timeframe of the project contract. The agreements are for large projects which have several new projects at once.

After bidding, the above project delivery methods often influence contract negotiations. However, there can be variations in these delivery methods depending on the project and financing.

Though the above are the main technical steps on how to bid construction jobs, other steps, such as cost estimation, overhead expenses, parameters, and specifications, are often overlooked. Let's look at them in detail:

1. Cost Estimation

After the processes above, cost estimation is another bidding process that estimates how much it will take to deliver the services as per the project contract. When estimating the costs, there is so much to consider in costs. It includes;

• Materials: Material costs comprise everything needed to finish the construction job. This is actually the most complicated category, as you may also need different software for every material. The software can help you come up with good approximations that you may use while determining the overall material costs. The transportation costs of these materials should also be included.
• Pre-construction costs: This includes permits, insurance, design-build contracts, legal fees, and administrative costs. Read our full breakdown of preconstruction costs.
• Labor costs: These costs include workers in the construction site and office. Subcontractors can also fall into this category.
• Equipment: Most types of equipment used are either rented. So, the rented cost, fueling, and maintenance costs should also be included. Generally, GCs and subcontractors have construction equipment. So what you should cater for is fueling and maintenance. But if the machines will be leased, you have to include the cost.

To streamline this process, you can use DowntoBid's estimating software, which guarantees accuracy and minimizes human error.

2. Overhead Expenses

Overhead costs are often overlooked. As much as we have discussed insurance, taxes, and permits, you should also consider other costs, such as preparing and filling the documents needed during jurisdiction. You can even include other associated marketing costs.

3. The Procurement Method

You also need to choose a procurement method. The method you choose determines how the developers will get the services and necessary materials needed for their construction jobs. When bidding, these are the common types of procurement methods you will come across;

• Lowest bid procurement method: The low bid procurement method involves the contractor submitting a competitive bid to the project owner. The owner then compares these offers and awards them to the lowest bidder. At times, the owner looks at the contractor who meets the minimal requirements and has technical expertise. The winning bid is then given to the lowest bidder in this category.
• Negotiated procurement: In negotiated procurement, the owner chooses a contractor without inviting bids from others. They then negotiate with the potential contractor about the technical requirements and pricing of the project. The contractor with a favorable offer gets the job.
• Best value selection process: This is a procurement method that focuses on other factors other than cost. It strikes a balance between price and performance. The selection criteria used add value to the bid.
• Construction management: This procurement method involves the construction manager overseeing all aspects of the project. The manager can hire GCs and subcontractors to handle other aspects of the project as assigned.
• Design and Build: In the design and build method, the contractor handles design and construction using their in-house engineers and architects. Or, they can just partner with another design firm.

When considering financing options, they are distinct. For instance, in public financing, all the projects get funded by the federal government. On the other hand, private financing is from banks, non-governmental organizations, and investors.

The best procurement method is the one that not only focuses on cost but, balances price and performance. The selection criteria of a contractor should add value to the client's bid.

4. Pertinent Regulations

Another thing to do is review the regulations surrounding that project. However, these rules vary depending on your location. For instance, local building codes vary from place to place. So, you need to ensure that the ideal materials for construction are used and that the subcontractor understands all the requirements.

In most cases, you may have to pay for inspection. This is to verify that whatever materials and everything you do align with the county's requirements. Also, you will have to seek necessary permits for your project while analyzing its costs. These documents may take some time before approval. So you must find out how long it takes to minimize delays in the construction project.

What are the Different Types of Construction Bidding

There are three main types of bidding for a construction project. That is open tendering, selective tendering, and negotiated tendering. Each type of construction bid has advantages and disadvantages that buyers should be aware of.

Before getting into a detailed explanation of these construction bids, here is an overview of the three main types of construction bidding.

As much as you focus on these three main types of construction bidding, you should be aware that they aren't mutually exclusive. This is what happens. The project owner can make public their project and, at the same time invite bids from only trusted contractors. Most project owners and general contractors lean on negotiated bids and selective tendering once they establish a trustable relationship with the contractor.

1. Open tendering

With open tendering, all contractors can submit bids on the project after the project owner publicly posts the bid package. This is inclusive of the project details and construction specifications. This is a common method, especially in government projects.

The open tender, which can either be a Request for Proposal or an invitation to bid, is advertised online or in print. This way, it can reach more potential bidders, thus promoting competition, transparency, and fairness.

Generally, open tendering often increases competition. And when competition is high, the bids are lower-priced. However, the project owner and general contractor often use Request for Qualifications (RFQ) to ensure that only experienced and qualified contractors bid on their projects.

2. Negotiated tendering

With negotiated bids, the project owner or general contractor negotiates directly with a single contractor to determine the cost price and other terms of the contract. This tendering method is highly considered for complex projects. Sometimes, it's considered anti-competitive as the owner already has an established relationship with one contractor.

This type of construction bid process is common in private sectors. And because the buyer negotiates directly with a specific contractor, they can simply streamline the bidding process. During the negotiation process, the owner and the contractor work to set a realistic budget.

This is to ensure there are no risks of cost overruns.

The limitation of this tendering method is that you can't compare the prices of various bids. But, even so, there are in-house estimators that buyers use to develop a realistic cost estimate.

3. Selective bidding

With selective bidding, the owner or general contractor invites only a few selected bidders to submit their bids. This is the most common tendering method used on private construction projects.

The invited contractors will bid based on their relationship with the owner. Also, the performance rate of the contractor on past construction projects and their expertise on a specific project are considered.

You can solicit bids through a bid invitation platform. This is to streamline the tendering process. The best thing about this process is that you choose bids from contractors with experience and a proven track record. This will help reduce the project risks, making moving to the next construction phase easy.

Other advantages include minimized overall competition. Also, the construction project will kickstart at the selected period and there will be fewer delays in the construction process.

With various advancements in the construction industry, construction bidding software is becoming a necessity, and it's best to adapt to the changes.

Mastering the Art of Construction Bidding

It's clear that the art of bidding in the construction industry is both intricate and dynamic. This guide has illuminated the multifaceted nature of construction bidding, from understanding the basics to navigating the complexities of different bidding processes. We covered bid solicitation, submission, selection, contract formation, and project delivery methods, which provided a thorough grounding in the essentials of construction bidding.

The key to successful construction bidding lies in a deep understanding of the process, a strategic approach to each bid, and the effective use of tools like DowntoBid.