Bidding is an essential part of the construction process. Without accurate and organized bids, contractors may not be able to secure projects or realize profits on the work they can obtain.
Profit margins can be very slim in the construction industry. According to the National Association of Homebuilders, the average gross profit for a home builder in 2020 was 18.2%, and the net profit margin is 7.0%.
Running over budget, even by a small amount, can significantly affect profits and may put a company in debt. Depending on procurement methods and contracts, a single flawed bid can dampen what was otherwise a successful year for a developer or a contractor.
A methodical bidding process, supported by a suite of specialized estimating software tools, can help ensure accuracy, protect profits, and help contractors remain competitive when bidding.
The first step is understanding the details of the job. These variables can help provide focus and a framework for the next steps in the bidding process. Here is what you should consider.
Finally, you need to use a bid template. Most requests for bids will include the desired layout. You should always use the included template and note any formatting requirements.
Contractors can delegate aspects of the estimate process to specialists who are familiar with a specific aspect of construction.
You can also rely on administrative personnel in your company to research legal aspects, such as permitting, insurance requirements, and administrative costs.
Some contractors have in-house tradespeople who can handle projects without help from subcontractors. In many cases, however, it is necessary to work with subcontractors on specific aspects of a project, as each construction has different elements, making it necessary for contractors to work with specialists.
Those unwilling to work with subcontractors may find their ability to compete for bids severely limited. These tradespeople perform very specific tasks, such as electrical installation, plumbing, masonry and stonework, landscaping, roofing, or HVAC installation.
For example, a contractor specializing in residential homes may hire subcontractors for a specific aspect of the project that may not be necessary for every home, such as pouring concrete for driveways.
Meanwhile, a commercial building contractor could rely on several subcontractors to handle specific elements of the project, such as plumbers, electricians, and HVAC installers.
A procurement method is how developers get the necessary materials and services to complete their construction projects. There are several options for procurement. In many cases, the request for bids will require a specific procurement method.
Here are some of the most common types of procurement you will come across in construction.
It is also important to make a distinction between private and public financing. Private financing comes from investors, banks, and other non-government sources; while public works projects, such as roads, get funded by governments.
Project delivery methods can vary depending on the type of project and timeframe. It is important to take the delivery method into account as you assemble information for the bid because it will provide a framework for pricing, timing, and understanding who is involved and overseeing the process.
There are four main project delivery methods.
Depending on the nature of the project and financing, there could be a variation in one of these delivery methods.
The next step in the bidding process is to actually estimate how much it will cost to deliver the desired services to the project owner. Here are the costs you need to consider.
Contractors typically use specialized estimate software to streamline this process, ensure accuracy, and limit human error.
It is important not to overlook overhead costs. In addition to administrative staff, permits, insurance, taxes, and other expenses, contractors should consider legal fees and other costs associated with preparing and filing necessary documents for the jurisdiction where the project will take place.
You might include the cost of preparing the bid and any associated marketing costs in this category, as well.
You should double-check all figures and information from your estimates. However, one of the most important pre-submission steps is to carefully review all the parameters, specifications, and requirements for the project.
In addition to timeframe, quality requirements, and information related to safety, you should use measurement software to ensure accurate data — using AI to determine dimensions on drawings and other distance calculations. This will expedite your timeframe for completion and estimation of labor and materials needs.
Contractors need to balance their desire for more business with the need to set aside time for current and future projects. Here are some things to consider.
You might also consider if using subcontractors or delegating tasks can lower your time commitment while still allowing you to complete the project.
Construction operations need to comply with regulations that govern their industry. These rules can vary from place to place, so it is essential to understand the requirements for the job site location.
Local building codes can vary greatly from place to place. They may require a specific type of wiring, for example. Not only will you need to ensure you have the correct materials and subcontractors who understand the requirements, but you may also need to pay for an inspection to verify that everything meets city or county requirements.
In addition, you’ll need to seek out permits, as they are always necessary. You find out which ones are necessary for the project and how much they cost, and you should also learn how long it takes to get the required documents so that there are no delays before starting the project.