What is a Bid in Construction, and What's Its Purpose?

Suppose your client wants to know how much the construction project will cost. As a contractor, you don't want to bid too low or too high and miss out. That's why accuracy comes in handy during a construction bidding process.

Crafting a winning construction bid gives you the upper hand in the bidding process. Usually, the project owner asks contractors to submit bids. Then, the owner picks the one that best fits their needs.

For example, if I am looking to build a house. I'd ask for quotes from different construction companies. After the review, I'll choose the one that offers the right mix of quality and cost.

Construction bidding is essential for both project managers and construction firms. All contractors want to submit a competitive bid. Meanwhile, project owners wish to find a guide to pick the perfect company.

Let's delve deeper into this topic to understand bidding. What is a bid, and what does the bidding process involve?

What is a Construction Bid?

In construction, a bid is an offer or proposal from a bidder to the project owner or general contractor. A construction bid includes the estimated cost and project details, and it also states the project delivery method.

Consider a bid submission as a formal way for construction companies to say, "Hey, we can do your project with this approach and for this amount of money."

Let's say a company wants to build a new office. They can hire a construction manager to start the bidding process, solicit bids, and choose the right construction company.

Types of Construction Bids and Bidding Methods

Understanding the various types of bids and construction tendering methods is crucial. This helps in submitting a complete bid package. Each construction project may need a different project delivery method. Besides that, clients also use various tendering methods.

Let's dive into the various construction bid types.

Design Bid Build (DBB)

Have you ever bid on a project where the design plans were already in place? That's the process of design-bid-build. Here, you, as the contractor, will submit a bid based on the completed design plans provided by the client.

An example is when a city planning to build a new stadium hires an architect to create detailed plans. General contractors then bid on the projects based on the plans.

Design Build (DB)

In this model, a single construction company handles the design and construction phases. The model is suitable for complex projects requiring collaboration and efficiency. For example, a technology company can contract a design-build firm to design and construct their new research and development facility.

Construction Manager at Risk (CMAR)

In a CMAR project, the project owner involves the construction manager in the design phase of a project. The construction manager provides cost estimates before submitting a bid at a guaranteed maximum price.

Cost-Plus-Fee (CMF)

Transparency in construction projects is critical, right? Cost plus fee construction contracts ensure the project owner pays the actual construction costs and any extra fees. The contract model is like an open book —everyone is on the same page, avoiding surprises.

Fixed Sum (Lump Sum Contracts)

A fixed-sum or lump sum construction contract is an agreement where a construction company agrees to a fixed project fee. This contract model is suitable for those who crave predictability. It offers a clear path, providing construction managers and clients with a reliable budget.

Unit Price

Unit price bids involve contracts where a construction firm bids on the individual work units. The contractor breaks down the project into bite-sized chunks, and the final payment reflects the quantities of those units.

Turnkey Contract

A turnkey contract allows the general contractor to handle the entire project. The arrangement allows the contractor to design, construct, and deliver a complete project.

Integrated Project Delivery Method (IPD)

Sometimes, the entire project team can work together from the start, sharing responsibilities and rewards. The architect, general contractor, and client collaborate throughout these projects, ensuring everyone's on the same page.

Construction Manager as Advisor (CMA)

Many project owners unfamiliar with construction management may choose to work with a professional advisor. This professional advisor is a construction manager advising on the plan without taking risks.

Bidding/ Tendering Methods

While the competitive bidding process in construction encourages participation from all candidates, not every project is open to everyone. A project owner's specific tendering method determines who can submit a bid.

Open Tendering

Open tendering is a common choice for clients in construction projects where fairness matters. Open tendering is an inclusive construction bidding process where every qualified builder can throw their hat in the ring.

Most government projects often embrace open tendering and procurement methods to foster fairness and transparency.

Selective Tendering

Quality over quantity is a famous principle in the construction industry. Selective tendering promotes quality by prequalifying contractors based on their capabilities.

Only prequalified contractors are requested to submit bid documents. This approach allows clients to choose from a pool of proven contractors and saves time during the bid selection process. The method is suitable for both public and private projects.

Negotiated Tendering

Rather than soliciting bids, a project owner might negotiate directly with a builder for construction services. This is negotiated tendering and is often suitable for complex projects where the client wants control over the bid selection process.

What's the Purpose of a Construction Project Bid?

The purpose of a bid is to allow the project owner to find the best contractor for the job. Bids enable clients to compare project costs, timelines, and approaches before choosing contractors who suit their needs.

For general contractors and subcontractors, a bid is a tool to show that you're up to the task. The project owner selects from a pool of submissions, so you must submit a competitive bid.

Construction bidding is usually a time-consuming task involving repetitive tasks. Many subcontractors use an automated online bid board to stay ahead of the pack.

What is the Difference Between a Bid and a Contract

A bid is like a proposal, while a contract is a formal agreement. The bid process precedes contract formation. The project owner must accept a bid from a chosen contractor before signing a contract.

The contract outlines the project's specific details, like the scope of work, schedule, and payment terms. So, a bid is the plan, and a contract is the official agreement to follow the plan.

The Construction Bidding Process Explained

Construction industry experts say most bidders will likely win only 9% of their bids, especially for public projects. This is a significantly high bid-hit ratio. Thus, there is a need to understand the construction bidding process.

There are different types of construction bids, and the process comprises several steps.

Bid Solicitation

Bid solicitation is the first step in the bidding process. And it's where the project owner announces the need for construction services and invites bidders.

Examples

• A private developer sends a construction request for proposal RFP to several contractors for a commercial building project.
• A city government publishes a public bid seeking bids for building a new public hospital.

Bid Submission

Soliciting bids opens the stage for bid submission. In this stage, contractors prepare and submit bid documents to the client within a specific timeframe.

Examples

A general contractor submits a detailed bid proposal outlining cost, timeliness, and project delivery method for a school construction project.

A subcontractor submits a bid to the general contractor for the electrical work in a new office building.

Bid Selection

During bid selection, the project owner evaluates the received bids and selects a contractor based on predefined criteria.

Examples

A selection committee reviews bids for a road construction project and chooses a contractor based on their experience, cost, and timeline.

A homeowner assesses bids from different landscaping companies and selects the one that best aligns with their vision and budget.

Contract Formation

After selecting a contractor, the client enters into a contract with the contractor. This contract outlines the terms, conditions, and scope of work.

Examples

A city company signs a contract with a construction firm for a new library.

A property developer finalizes an agreement with an HVAC company for a residential project.

Project Delivery

The final step is the actual project delivery. Construction works begin, and the project progresses according to the terms outlined in the contract.

Examples

The construction crew visits the project site and initiates the building process for a commercial project.

A subcontractor starts electrical installations in alignment with the agreed project specifications and schedule.

How to Streamline the Construction Bidding Process

A smooth construction bidding process can make a difference for many general contractors and subcontractors. Think of a scenario where preparing bid documents for construction, submitting bids, and tracking feedback is simple and friendly.

Many contractors want to focus on what matters to grow their business. The construction bidding process, as essential as it is, can be cumbersome. No contractor wants to spend hours behind their PC doing mundane admin tasks.

A construction management platform can be a game-changer for many construction firms. It can help you save time, speed up bid submission, and easily track new and submitted bids.

Improve Construction Bidding to Boost Your Business

A bid is your proposal when you want to convince a project owner, you're the best contractor for their project. It takes a winning bid to stand out and improve your bid-hit ratio.

And amid the construction hassle, you can simplify your bidding process with automation. Discover Downtobid for innovative bid invitation solutions. Make bidding work for you. You can enhance relationships with general contractors or subcontractors and improve your workflow.