A Beginner’s Guide to the Construction Bidding Process

What Is the Construction Bidding Process?

The construction bidding process is the procedure contractors and subcontractors use to submit proposals to work on building projects. It involves responding to a bid invitation by submitting a package against other bidders. The bid that is selected is formalized through the formation of a contract finalizing pricing and other terms.

Bids vs. Estimates

The terms “bid” and “estimate” are often used interchangeably. But though they’re related, they have different meanings. 

An estimate is an internal calculation performed by the contractor or subcontractor to gauge the costs of a project in light of expenses such as labor and materials. 

A bid is a price quoted to a construction client. An estimate is used for internal purposes, while a bid is used for external purposes. Estimates reflect the cost of the project to the contractor. Bids, however, are priced higher because they include the contractor’s profit margin over and above estimated costs.

So, Why Is the Construction Bidding Process Important?

Understanding the construction bidding process is important for a number of reasons:

• Knowing how bidding works makes it easier for you to win more bids
• How you bid determines how much you’ll get paid
• The bidding process sets the stage for your contract, which will govern your building project, how you get paid and any legal disputes which arise

The more you know about the bidding process, the better position you’ll be in to win more contracts, get paid more per contract and avoid contract disputes.

Types of Bidding in Construction

Types of construction bids may be divided into different categories based on:

• Method of procurement
• Method of project delivery
• Type of contract

Understanding these elements can help you with selecting projects to bid on, crafting winning bid proposals and negotiating project contracts.

Bidding Procurement Methods

In construction bidding, an invitation to bid is called a “tender,” and the process of inviting contractors to bid is called tendering. Several types of tendering commonly are used for bid invitations:

• Open tendering, where the bidding invitation is open to anyone
• Single-stage selective tendering, where bidding is extended by invitation to a limited number of prequalified contractors
• Two-stage selective tendering (negotiated tendering) in which prequalified contractors first submit prices before selected bidders are asked to submit drawings based on those prices
• Negotiation tendering (distinct from negotiated tendering), where clients invite a preferred contractor they work with regularly to submit a price (usually used for specialty projects such as elevators)
• Serial tendering, where contractors who successfully bid on one contract may be offered more work
• Joint-venture tendering, where multiple parties pool resources on a bid (usually used for complex projects requiring diverse expertise)
• Framework tendering, where a provider is authorized to use a streamlined process for tendering multiple suppliers on an ongoing basis without having to go through the full tendering process each time
• Public procurement, used for government projects and following procedures governed by applicable regulations

Open tendering is the most common method of tendering.

Methods of Project Delivery

Project delivery methods are distinguished based on how responsibilities and risks are assigned:

• Design-build-bid (DBB): the project owner hires a designer to develop designs before opening bids to contractors who are hired separately from the designer
• Design-build (DB): a single contractor is hired for both designing and building
• Construction manager at risk (CMAR): a construction manager works with a designer during the design phase before acting as general contractor during the building phase
• Integrated project delivery (IPD): the project owner, designer and builder jointly assume responsibility and risk as a team

A project’s delivery method will determine what you would be responsible for should you win the bid.

Types of Construction Contracts

The construction bidding process concludes when a contract is reached. Construction contracts fall into a number of common varieties, including:

• Lump-sum contracts, where parties agree in advance to a fixed price regardless of what the actual cost of the project turns out to be
• Time-and-material contracts, where contractors are paid based on an hourly rate plus the cost of materials
• Cost-plus contracts, where contractors are guaranteed their expenses plus a profit
• Guaranteed maximum price contracts, where fees are capped in advance
• Unit-pricing contracts, where projects are broken down into phases each with their own fees

Note that the type of contract you enter into determines how much you may be paid and how much risk you run of getting paid less as a result of underestimating costs.

Stages of Construction Bids

A bid for construction work unfolds through several stages:

1. Solicitation: the project owner or general contractor tenders bids by invitation or request
2. Submission: bidders submit proposals with price quotes
3. Selection: the hiring party awards a winning bid
4. Contract formation: the parties formalize their project agreement by finalizing prices and terms

The exact details of these stages may vary, however. For example, general contractor job bids will require contractors to get estimates from subcontractors. But subcontractors submitting bids may not need to perform this step unless they will be dealing with sub-subcontractors. 

Also, a bid on commercial jobs doesn’t need to follow some procedures required by bids for government contracts.

How to Bid on Construction Jobs: 10 Best Practices

During each stage of a bid on construction projects, following these best practices will help you increase your chances of winning the bid. With that in mind, here are some top strategies to follow when you bid on contractor jobs.

1. Know Your Niche

Construction bidding can be competitive. To give yourself a competitive advantage, focus on a niche that plays to your strengths. 

For example, you can differentiate yourself by:

• Type of project, such as new residential homes versus remodels
• Geographic location
• Type of client
• Type of contract

Find one niche or more that can provide a sustainable flow of steady bidding opportunities.

2. Develop Subcontractor Networks

Your ability to estimate costs and deliver on projects depends on access to reliable subcontractors. Developing a network of solid subcontractors will put you in a better position to quickly estimate costs and complete bids.

3. Know Where to Find Construction Jobs to Bid

Finding construction projects to bid on is partly a matter of knowing where to look. One way to find bid opportunities is by using construction lead sites. 

For example, BidClerk provides access to information on commercial projects, while GovernmentBids.com provides access to government project data.

4. Bid Selectively

Bidding on construction contracts can be time-consuming and expensive. You can’t afford to bid on every project. Develop a list of criteria to help you single out viable opportunities. Screen projects based on:

• Who the client is (in terms of budget, location, prior building experience, etc.)
• The designer and their reputation
• The technical plans for the project
• Project specifications (such as time allowed, contract required and payment schedule)
• Who you’re competing against for bids

So, develop your own customized checklist in these categories to help you assess bid opportunities.

5. Understand Bid Proposal Requirements

When clients request bids, the requirements for the bid are laid out in a formal document called a request for proposal (RFP) or invitation for bid (IFB). 

Studying this document carefully will tell you whether you meet the qualifications the project requires as well as what documents you must submit to be considered for bidding. Increase your chances of winning bids by paying close attention to bid requirements and following instructions.

6. Visit Prospective Sites

Some bids require you to visit a site before you can put in a bid. Even when this isn’t required, visiting is advisable. 

Traveling to a site can help you estimate travel costs and identify other variables which can contribute to expenses, such as the need for specialized equipment.

7. Estimate Accurately

An inaccurate estimate may disqualify you from a bid. It also can cut into your profits. So, developing reliable procedures for estimating costs can help you win more bids.

8. Submit a Competitive Bid

Yes, winning a bid often boils down to submitting the lowest price quote. However, other factors can enter into bid evaluations. 

For some projects, your expertise in your niche may weigh in heavily. Also, following the instructions in your bid requirements closely will help you make your proposal more compelling. Additionally, emphasizing your brand’s value proposition in your marketing can help you stand out from the competition.

9. Bid Quickly

When bids are competitive, getting in early can give you an advantage. Proactively scout for bids through digital platforms and word-of-mouth networks to find opportunities before competitors do. 

Develop efficient proposal preparation procedures so you can respond quickly to emerging opportunities.

10. Use Construction Software

One way to speed up your bid proposal process is by automating your procedures through construction software. Construction estimating software makes it easier for you to assemble cost data quickly and accurately. 

Leading examples include eBid eXchange Marketplace, SmartBid and PipelineSuite.

Follow Construction Bidding Best Practices to Win More Contracts

Best practices such as niched marketing and project selection, close adherence to bid proposal requirements and accurate cost estimations can help you win more bids. Using construction software can accelerate the bid submission process and help you take advantage of more bidding opportunities. 

In short, follow these tips to win more bids and get more business.