What are construction bids and how does construction bidding work?
Construction bidding starts with submitting a proposal to take on a construction project. It is like giving an offer to do work for a certain amount of money or revenue.
The project owner selects an architect who will create a complete design and then solicits bids to general contractors to carry out the design. The construction bid covers the total cost of structure and fees for the subcontractor who will do the work.
It is an important part of the success of your contracting business to win construction projects. It is your way of getting work and profit to your company. Construction bids can be expensive and time-consuming but if done correctly, will not only increase your income but will expand your network as a contractor.
What is the construction bid process?
The construction manager or general contractor sends out bid invitations to the subcontractor and you as a subcontractor, then submit a form or proposal to the owner, general contractor, or whoever is in charge of the project. You can review the documents and other project information if they are a good fit then submit a comprehensive bid to the general contractor. The general contractor grants the bid to the subcontractor based on the best value like past performances, experience, bid capacity, and bid price. The lowest price however does not guarantee you will win the project; oftentimes the general contractor goes with the middle number to lower the risk.
Three types of construction contract
Construction contract includes how you will get compensated; as well as summarizes the duties, roles and responsibilities of each party. There are three types of construction contracts that you will encounter based on the size of the project and the owner’s forbearance for risk. They are:
- Firm fixed-price contract – in this type of contract, you agree to deliver a range of project work for a fixed price. Some contracts provide an extra incentive if you finish the project before the deadline or when they fall under the budget.
- Cost-plus contract – under this contract, the owner pays for all your expenses and a percentage of your profit as a contractor. This type could appear under several names such as cost plus a fixed percentage, cost plus fixed fee, or cost plus with a guaranteed maximum price contract.
- Time and material contract – this contract includes an hourly rate and the actual unit price of materials. This type poses less risk for you as you will bill using labor cost coded and material costs. There are contracts that include a “not to exceed’ clause so that you cannot go beyond the fixed number without requesting the owner’s approval.
You always need to review the prequalification and make sure you can perform the tasks required by the project especially for government contracts as they are stricter compared to private projects.
There are four mistakes you need to avoid in a bidding process and they are (1) failing an in-depth review of the bid package, (2) bidding on a project that does not fit your business’ skill set, (3) not visiting the site before submitting your bid proposal and, (4) making an inaccurate estimate that can cut your income margins.
You have to make an assessment of your bidding and proposal method so that you will not be missing the mark and you can win as much work as you like, as well as can successfully compete for the best projects and clients.