Construction contractors and businesses are always on the lookout for new projects. One way to ensure that contractors receive new work is through a construction bidding process. Many construction firms rely heavily on winning bids and proposals to bring in revenue and build successful businesses.
So, how does the construction bidding process work?
Ultimately, different contractors will submit their bids to prospective clients, project/property managers, and owners for a particular construction project.
The project is then awarded to the contractor or vendor with the most qualified bid after the prospective clients, project/property managers, or owners have gone through all proposals. The bid will include documents that explain the total expense of the project, general charges, fees, delivery method, essential resources, the skill level of his or her crew members, and the project schedule. There is often a misconception that project and property managers always settle for the lowest bid in terms of price. This is a false narrative, which is often put there to misguide those that are inexperienced. Project and property managers are always looking to work with those with the most relevant experience and those that can provide the most value. In fact, the lowest bid gets rejected most of the time because these bids are usually from contractors with the least experience or quality of work.
That said, understanding the steps and details of the construction bidding process is essential for a successful business. This article breaks down the steps in the construction bidding process, types of contracts, and more.
Steps in the Construction Bidding Process
The initial stage is a request to bid, where clients search for proposals. A package of documents is presented that includes all the drawings, specifications, and other relevant documents.
Following the bidding request, the contractor submits bids for different construction projects, including electrical work, interior design, and HVAC installation. All contractors have to submit bids by a given date. If you’re a contractor looking to secure a gig, sending in late proposals or bids can instantly eliminate you from winning the bid.
Choosing a Bid
Project owners go through the proposals and select the best one. As mentioned before, the project managers don’t just focus on the lowest bid. They’ll also consider experience level, reliability, and other factors.
Making a Contract
Drafting an agreement is another crucial step because there are so many risks involved in these projects. Both parties want to feel protected should there be issues down the road. The document will detail everything required for the project to succeed, and it will have everything in writing, so there are no bottlenecks in the future.
Contractors and vendors start their work. It is the last step in the bidding procedure, and the construction begins as per the agreed date in the contract.
Different Types of Contracts
Since construction contracts vary from project to project, it’s also essential to understand the types of contracts you’ll possibly encounter in the construction bidding process.
The cost-reimbursement contract, also known as cost-plus contracts, entails details of how the project manager will cater to all the expenses incurred during construction and the project’s total cost. For example, it will take care of direct labor, resources expenses, and indirect costs.
Lump-sum contracts are agreements in which contractors and businesses agree to complete projects for a price decided upon before any of the work begins. This requires companies and contractors to estimate the costs, expenses, and scheduling ahead of time. Of course, these costs will vary from project to project. This type of contract reduces the project and property manager’s risk but gives contractors much more control over profits they can make.
Time and Materials Contracts
This arrangement institutes day-to-day or hourly pay and compensates contractors for the materials cost. The times and materials contract is usually used for more minor projects and often puts the project manager more at risk. Contractors like working with the time and materials contracts because they can get paid hourly instead of fixed.
GMP stands for Guaranteed Maximum Price. And these types of contracts create a cap on the contract amount. The contractors aren’t allowed to exceed the amount indicated in the contract, and if they do, they’ll bear the extra material and labor costs. This contract puts more pressure on contractors and businesses because delivering on time and within budget is the only way to ensure profit.
Advantages and Disadvantages of Bidding Process
One of the advantages of the construction bidding process is that it’s often reliable and fair. Everything is made public, which is not just a good thing for the contractors but also the project and property managers. It’s in the best interest of project and property managers to create a fair process to ensure they find contractors who are the most qualified for the job.
There are a few disadvantages when it comes to the construction bidding process. First, it can often be time-consuming drafting a bid. Submitting an accurate request will require you to invest a lot of your time and maybe even money. You have to research and get access to gigs in your location.
Second, there could be a lot of competition and limited projects during certain times of the year. This limits contractors and businesses from making a profit all year round.
However, the disadvantages that come along with a bidding process no longer need to be a bottleneck for your business. Construction bidding software like Ventract simplifies the whole process of submitting bids. Ventract’s AI platform helps you save more time, find more projects, and grow your business.