Think about this; you need to get some work done on your home and determine how much this will cost. To do that, you search online for potential contractors who can complete the job for you.
Then you ask them to provide a price to complete the work. You will likely ask numerous contractors for a price to get the lowest cost.
These contractors are sending you their bids or proposals to complete the job. The contractors have to perform estimates and provide bids when they want to get any work in construction.
In this article, you will learn how to bid a construction job and what it is. I will give you some information so you can create your bid and hopefully land a job!
Note that you need to be very cautious when performing a construction bid. You can’t return to the owner and ask for more money for anything you missed in your bid.
The owner selected your price because it was likely the lowest or most reasonable. Thinking you can say, “Oh, I forgot to put this in my price,” is not going to fly.
Only when you specifically exclude the work will you be exempt from performing it. The owner or general contractor will need to pay you more to get you to do the additional work.
What is a Construction Bid?
A bid is a price a contractor gives to perform a defined scope of work for a project. Their estimator will generate this price based on their best interpretation of the project needs. They determine their price by conducting a site walk and using the contract plans and specs to calculate the labor hours and material costs.
In the construction industry, understanding how to bid is a crucial skill. Having this knowledge will keep you employed since estimating is how you get work.
It’s the process that general and prime contractors use to present a proposal for a construction project. A solid bid can mean the difference between securing new projects or not, and it can even help to build your reputation as a reliable and trustworthy contractor.
So, let’s start by looking at how to bid a construction job.
How to Bid Construction Jobs: 5 Steps to Follow
The construction bid process is broken down into 5 steps:
- Understand the project scope
- Estimate the project cost
- Prepare a bid proposal
- Submit you bid proposal
- Follow up with the project owner or GC
Step 1: Understand the Project Scope
This is your starting point. A clear understanding of the project scope means analyzing the bid document and project specifics. This document will be your compass, detailing what the project entails and what the project owner expects from you, the contractor.
Performing a site visit is the next step you should consider after you get the plans. You can visualize the work and how much needs to be done there.
It will also help generate questions that you might have that are unclear from the plans and specs. You’ll submit these questions as an RFI and send them to the owner for response.
I have seen events where the RFI questions result in some changes to the design; this will extend the duration of the bidding period. The owner must give all the contractors on the bid list enough time to review the changes to include in their proposal.
Quick note: A bid list is the list of contractors invited to provide an estimate for a given project. Depending on the type of project, there’s a qualifying process, such as an RFQ, to get on the list.
Once you have a solid understanding of the project, you can begin working on putting together your price. You should work on your estimate as you review the construction documents. I think that’s the most effective use of your time.
Step 2: Estimate the Cost of the Project
Estimating the cost of a project is more than just adding numbers. It’s an intricate process that considers several factors. The cost of materials, labor costs, and overhead are essential components, but you should also factor in other elements.
For instance, the effect of inflation on the price of materials and labor should be considered, especially for projects that span several months or even years. Prices can fluctuate, and not accounting for this can affect your profit margin. The term for this is a cost escalation for materials or equipment.
Work with your vendor to see what they can expect for cost escalations.
A ‘take-off,’ or a list of materials with quantities and types, is another crucial part of the estimation process. This requires you to review the construction drawings, determine your material quantities, and then calculate the total cost. You should contact material suppliers to get accurate pricing after your takeoff and include it in your price.
You perform a take-off by reviewing the drawings and measuring how much of a specific material is needed. Let’s consider the following example.
You need to figure out the amount of concrete you’ll need for an equipment pad. To figure out this quantity, you’ll need to determine the volume of the pad. With the volume, you can reach out to a concrete supplier and get their unit price for the concrete.
The price you get from the concrete supplier is what you will use in your estimate.
You’ll repeat this process for everything that you plan to bid for.
If you need a more detailed example, you can check out my similar article giving you a construction bid example.
Back to developing your estimate!
You first need to determine the material cost; then the labor hours are next for the estimate.
Estimating labor costs involves determining how many workers you’ll need and the number of hours they’ll work. Unless you have a system for calculating labor hours, you’ll need some experience in the industry when estimating labor costs.
This is because you need to know how long it takes to complete a particular task for a project. Without much experience, you’ll be shooting in the dark with the hours.
Let’s look at an example for calculating labor hours.
When looking at the labor hours, you could figure it out based on the amount of material and assume it takes “X” amount of hours to install “Y” linear feet of 2×4.
Be careful if you calculate your labor hours this way. While it can make the process quicker, you could run into issues when the work begins.
Consider this, what if you experience an obstacle preventing the typical installation of your lumber? Then it will increase the amount of time to complete the work.
Did you estimate using a formula for your hours? Well, there goes part of your profit margin.
These are things to consider when you calculate labor costs.
As you can see, estimating is not an easy task. There’s a lot of pressure on the estimator to determine the correct cost and keep the total price down to win jobs.
I see seasoned estimators often make mistakes that affect the project’s bottom line. You’ll make mistakes, but when you’re starting, work closely with a mentor if possible.
If you need a more in-depth example of how to create an estimate for your bid proposal, I’ve created an article which you can find here.
After materials and labor, consider your indirect costs. This includes costs for construction, such as office expenses, utilities, insurance, etc. The indirect costs can also cover any equipment or machinery you’ll need for the project.
Risk management is another vital element in the estimation process. The construction industry is rife with uncertainties. For this reason, it’s advisable to factor in a percentage of the total project cost for unforeseen expenses.
The term for this is contingency, which is common to include in your estimate. Remember how I mentioned you might make mistakes? This is a reserve to cover your butt when those mistakes occur.
Contingency can vary from 5-10% of the project’s total cost.
It’s difficult to foresee the project’s outcome or what unforeseen conditions may arise. Contingency is built into your estimate to protect you when this happens.
Using Estimating Software
If you’re bidding on multiple construction projects, technological tools like estimating software can make the cost estimation process smoother, more accurate, and more efficient. The software can automate repetitive tasks, store data for future use, and reduce human error, making your bids more precise and competitive.
There are many different options for estimating software. You’ll need to conduct some research to determine which is the best fit for your needs.
You’ve put together your price, and the next step is to prepare it and send it to the owner or general contractor.
You’re one step closer to submitting a bid!
Step 3: Prepare a Bid Proposal
With the estimate completed, you’ll need some way to provide the cost to the project owner or GC. Sure, you can send an email with the price, but this is dangerous and unprofessional.
How is it dangerous, you ask? If you don’t state all your exclusions and the scope of work correctly, figuring out what you do and do not include in your cost could become a nightmare. Having a standard template can help to alleviate these issues, and not to mention; it looks much better.
Decide on what template you will want to use, but I believe it should include the following information:
- Job Name
- Company Name
- Project Name
- Brief Description of Your Scope of Work
- The Documents Used to Generate Your Price
- General Exclusions
- Specific Exclusions & Inclusions
- Terms and Conditions
- “Quote Good For” Duration
- Your Price!
This should be a good starting point. If all of these items are in the bid proposal template you’ll be off to a good start.
I also recommend speaking with a lawyer to develop your terms and conditions. These should be designed to protect you should issues arise.
Also, the general exclusions are something that will take some thought.
My advice, consider what your company is capable of with your current crew. This should be an exclusion if you can’t complete a specific portion of work without hiring a subcontractor.
For example, the job requires installing a new AC unit in a building. You’re only a mechanical contractor, so you will only set the unit and pipe up to it. But wait, you’re still missing the power for the equipment, but you don’t employ electricians.
So, instead of getting the cost from an electrician to include in your bid, you decide to exclude the work.
The example I just shared could apply to various aspects of a project. You’ll need to determine this before sending a proposal.
You can consider using the bid proposal that I have created on google sheets. It covers the basic requirements for a bid. I don’t recommend using this for larger projects.
Click here for the bid proposal template that I have created.
When it comes to larger or more lucrative projects, you must create an in-depth bid package. Consider including your price, qualifications, expertise, and portfolio of projects in the package.
After all, you’re competing with other contractors to obtain the work. You must put in some effort to show you’re serious about getting the job.
Submitting a bid package proposal to an owner rather than GC is a best practice I suggest. The GC won’t have much interest in reviewing a lengthy proposal.
Showcasing your qualifications and experience in the proposal can set you apart from the competition. A potential client wants proof that you can handle the project and deliver quality results.
Step 4: Submit Your Bid Proposal
Your package is ready; now, you only need to send it out. Depending on the customer, they may ask for a physical or digital version of the proposal to be sent to them.
Before you send out your bid package, you’ll need to consider a few items.
Sending the proposal requires attentiveness to detail, from following the specific instructions in the bid document to ensuring you submit it on time.
It might also be a good idea to send a follow-up email to confirm your bid was received and to show your continued interest in the project.
One thing to consider.
While the lowest bid might be tempting to a project owner, it isn’t always the best option. A very low bid might suggest that some costs have been overlooked, or the quality might be compromised. Your job is to ensure your bid is competitive but realistic and reflects your quality of work.
Step 5: Follow up with the Project Owner
After submitting the bid, your work isn’t over. Following up with the project owner or GC shows you’re proactive and genuinely interested. It lets you see how your price stacks up against the other contractors.
While some people might be hesitant to share a price from your competitor, others don’t seem to care, I have found. They might not give you the exact price but tell you how you did compared to the competition.
Once all the bids have been collected, it will be the owner’s time to review and select a contractor. Then the project award will go out to the contractor selected.
If your price was selected, you’ll need to begin working on the pre-construction tasks. One of these activities is getting into an agreement or contract with the owner or GC. Here some negotiation skills may be required to come to an agreement.
When bidding to a general contractor, note that they will need to be awarded the job first. Then they must decide if they want to give the work to you or find a contractor at a lower price.
Conclusion
In conclusion, bidding in the construction industry is a multi-step process. It demands a detailed understanding of the project, accurate cost estimations, and effective communication with owners, suppliers, and subcontractors.
Negotiating skills can be crucial in securing the project and establishing a relationship with the client. It’s not just about getting the job; it’s about setting the stage for successful project delivery and potentially securing more jobs from the same client in the future.
If you’re just starting out in the industry, you’ll need to develop a reputation to secure jobs.
Engaging in government projects can help to boost your reputation. These projects are typically larger and more visible, giving your work exposure to a broader audience. However, they also often require a more intricate bidding process, including a thorough understanding of open tendering and sometimes more rigorous selection criteria.
Equally, excelling in commercial construction projects, whether small or large, contributes to a good reputation. Commercial projects are diverse, allowing you to showcase your skills in various types of construction work.
Maintaining a good reputation is vital. In the construction industry, word-of-mouth and past performances are big determining factors for your success in securing bids. So, focus on delivering quality in every project you undertake, regardless of size.
Your reputation as a reliable and high-quality contractor will often precede you and give you an edge in the competitive bidding process.
Bidding a construction job can indeed be complex, but it’s an essential part of your business that can be mastered with practice, attention to detail, and the right strategies.
So, delve into the process, understand each step thoroughly, and improve your bidding skills for a successful career in the construction industry.
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