How The Construction RFP Works – Guide & Approach

by Alexander Fraser

Think about this. You just bought a new lot of land and you want to build a house on it. You need to find a contractor to do the work, right?

Well, you might be able to work with a contractor to come up with the design and build your place. But this process requires reaching out to different contractors to find the best fit.

The same thing applies to commercial construction. When an owner wants their project completed, the will issue some documentation to contractors to bid on. This is called an RFP.

The construction request for proposal (RFP) document is used when looking for potential vendors to bid on a project. There’s many steps and people that are involved with the development of this document. It provides a basis of what the requirements are for an upcoming project.

There’s many things to consider when reviewing and pursuing a project based on an RFP. This article is geared towards providing you with the information needed for your next construction RFP.

The Process of a New Project

In the early stages of a project, you have the owner/client who has an idea in mind. From there they need to decide how they would like the project delivered. There’s two main methods for construction project delivery.

1. Design-bid-build: When a project owner issues an RFP to different engineering firms to begin the bidding process. Keeping cost, reputation, and experience in mind when deciding on the firm.

a. Once the design has been completed, then the owner will issue a separate RFP out to a construction firm. The contractors will take this information so they can build based on the design.

This is where design-bid-build comes from. Owner gets the design done, then issues it out for bidding to build.

2. Design-build: The design build project differs in the sense that the owner issues an RFP for a contractor to design and build a project. So, this company may have a design department or they might contract out a firm.

Click here to learn more on design-build vs. design-bid-build.

Both methods will result in the same outcome in the end but the decision usually comes down to the project budget. With design-bid-build, the owner is more involved in obtaining both the engineers and contractors. This can save the owner money since a design-build company can’t markup the costs for an engineering firm.

You can see that the owner has some decisions to make here on how they would like to proceed with a project. Once they make this determination, they need to know which contractor or firm will receive the RFP.

Finding Qualified Contractors with an RFQ

They determine a select group of construction companies to invite to bid by using an RFQ. This stands for Request for Qualifications.

You can think of this document like a resume. But instead of submitting this for a job at a company, you’re applying for a chance to complete the construction project. Click here if you want to get a better idea of the requirements for an RFQ.

The owner will then begin the selection process based on the selection criteria. Then, the RFP will be released for bidding to the prospective contractor selection. Of course this will be to the top qualified candidates.

This is where it can become interesting. The contractors will put together their pricing based on how much they think the project will cost. Then a construction proposal will be sent to the owner.

Once all of the proposals have been sent, the owner then has to make the most important decision of the project. They will have to make the final selection for the contractor to perform the work.

There’s many things that they have to weigh here when making the decision. Sometimes it comes down to who has the best value. Other times it can be who’s the best contractor.

They will look at the companies track record, along with their previous projects. This can provide them with an understanding of what type of product to expect. It’s a good idea to do research on the construction companies when making the decision on who to hire.

What to do when you receive an RFP?

So, your company has been accepted and invited to bid on the job. What’s the next steps in putting together your proposal?

Well, you can click here to see a sample RFP. You will notice that it’s a lengthy document. This is because it includes a things such as legal information, project plans, and specifications. These three items alone can result in RFPs of greater than 500+ pages.

In this example, we will take the approach that your company had to submit an RFQ form in order to bid on the job. So, you’re actively trying to obtain this project because of the size and possibility for potential clients later. You will be bidding more aggressive, keeping your margin low and seeing where you can reduce hours to win the project.

There are other times when companies might invite yours to bid on a project but due to some circumstances, you might decline. If you don’t decline, you can decide to be more passive with your price. This way if you obtain the project you’ll come out with a decent margin.

Just need to be aware that if you decline invitations to bid constantly. Then chances are these companies might not extend the invite much longer.

Also, every company will operate a bit different. The first contracting company I worked for had their project managers and engineers also bid on jobs. Most companies will have a dedicated estimating team, so project manager or engineer can focus on their projects.

While it might not be your primary responsibility, being able to estimate can make you more valuable in the industry. It also provides you a level of job security if your company is hunting for work. You can switch over from managing a job to estimating until work is awarded.

Things to look for in an RFP

New Construction vs Retrofit/Renovation Projects

This can be an important first step when you’re looking at an RFP. Knowing this information will allow you to make some assumptions from the start.

With new construction, you’re less likely to be impacted by building occupants limiting when and how long you can work. Additionally, there’s not as many surprises since you won’t have to worry much about existing building utilities. Having to deal with existing conditions can be a major headache and cause the owner some additional capital in change orders.

If you want to learn more about change orders click on the article below.

https://allthingsconstructionpm.com/how-to-construction-change-order-forms-with-free-template/

Where with a retrofit project, there’s much more coordination required and there’s the possibility that you will need to work during off hours. Off hours being either at night or during the weekend.

These are things that can change the outcome of your estimate. If missed, it can create financial stress on your company because the owner will expect you to honor your price. If not, then this can look bad on the company showing that there’s some incompetency.

Some other things to note with any project RFP.

1. Depending on the age of the building, it could contain material that is hazardous. It’s not uncommon that any building made before 1989 will contain asbestos. You can also find material made with lead, arsenic, mercury, and PCBs.

To learn more about hazardous material in construction, check out the link below.

2. Building occupancy during construction is another big thing to confirm as well. This can determine how the project will be phased and dictate your project timeline.
As I mentioned above, occupancy can also determine working hours. When developing the estimate the additional cost for off hours needs to be accounted for.

3. For government construction projects, you need to look out for the personnel clearance requirements. Sometimes the process of registering and obtaining a badge for access can be a lengthy process. Make sure to include the hours needed to cover this cost.

One of the government projects I worked on required special clearance, the application alone took nearly two days to complete. We had to request a change for this because the specs were not clear about how long the process would take.

Make sure to submit a request for information (RFI) to the government if you’re unsure about the clearance. This would need to be done as part of the RFP process. More on RFIs later in this article.

These are some items that you want to look out for so you can avoid possible roadblocks when the project is underway.

Project Plans/Drawings

One of the most important document in the RFP will be the project plans/drawings. This will tell the interested parties how the project will be built in theory. I say in theory because it’s hard to find a project where the design is perfect.

The plans can be used for performing take offs. Take offs are where you track the quantity of material you will need for a project based on the plans. You can also perform a rough calculation based on the type of item being installed.

For example, if you have a section of duct at 10 linear feet. You know your crew can finish about 1 foot every 30 minutes, so 10 feet would take 5 hours. This is just one method of calculating the hours needed for a job.

Plans will give you the best idea on what is your scope of the work. But, this document is not always available with an RFP. In design-build projects the contractor has to develop the design, so they will only have the written scope to work with.

Some design-build jobs will include conceptual drawings, but it is not enough information to perform the work. If you tried to build off of conceptual drawings, chances are you will not meet the client’s needs.

Project Specifications

Yet another major document that you need to look at when receiving an RFP. This will include all of your technical requirements for a project. Specs give you information of exactly what’s required to be installed on a job.

Most specs will consist of a large number of pages, this is mainly because it has to cover every trade on a job. From carpentry, mechanical, electrical, painting, etc.. There’s clear instructions on what’s required from each trade.

This document can be a bit daunting when you’re just starting your project manager/engineer career. On a new project you need to review this document to avoid surprises later if you’re the winning bidder.

Like the project plans, the specifications will not always be included with the RFP for design-build jobs. You may find some general requirements that are provided to the contractor, but not so much for the individual trades.

Sending Request for Information (RFI)

When your company receives an RFP, not everything will be clear on the scope or there might be a mistake in the bid documents. As your team members begin to review the files, they may notice that something written is unclear. They could’ve also performed a site visit and found something that could become an issue during construction.

Well, you can’t simply email the owner and ask what will be done. Instead, you need to submit an RFI form. With this, you submit specific questions to the owner so they can clarify or find a solution to an issue. This is the most formal type of request for information that you might need throughout a project.

Addendums

Typically, if the RFI questions result in a change in the design the owner will release updated plans & specs. This in the form of what’s called an addendum, where there’s a change to the bid documents.

With the add will come a time extension for the contractors to submit their proposals. The owner needs to provide the time to review any changes made. Addendums can include changes to drawings, specs, or just answer all the RFI questions submitted during bidding.

Preparing to Submit Your Proposal

You’ve reached the point where you’ve reviewed the RFP documents, built your estimate, and finally ready to submit. Before you do this, you best make sure you have everything covered. After all, once the price is in, that’s what you’re locked into to complete the job.

You can download a proposal template by clicking on the link below.

Proposal Template

Let’s cover some of the items you need to make sure to include in your price.

Contingencies/Allowances

If you have a complex project and you’re still uncertain if issues may arise, you can include some money as a contingency. This will cover you if the issues arise and you are unable to recover the money through a change order.

I caution the use of including too much in your contingency costs, use your best judgement on how much to allocate. Remember, the owner will need to review the proposals. If your cost is too high then you remove your company from winning the bid.

It’s not all about providing the lowest bid, but having the most accurate one with the time provided to submit your price. The owner may still select your company if your price is close to the lowest bidder and they know you can deliver on a job.

Overhead Cost

Including the cost for all the team members on a project is important, and it’s easy to forget this. The best way to include the overhead cost is to add it at the end. A good rule of thumb is about 10% of the price of the job is your overhead.

For example, if you estimate your the project will cost $10,000 before profit, overhead, and tax. Then you would add another 10% for your over head at $1,000, increasing the cost of your proposal to $11,000.

Cost for Supervisors, Project Managers, and Engineers

You can’t forget the management staff! They will be running the project, so their time/cost needs to be accounted for in your proposal as well.

Other Indirect Cost

With things like overhead, management cost, etc.. these are all indirect costs. But, this is not all the indirect costs on a project.

There’s other things such as office trailers, generators, trailer internet, office supplies, and more. These items can add up and also need to be included in your price.

To check out some additional examples of indirect costs, check out the site below.

https://www.lutz.us/direct-vs-indirect-costs-construction-industry/

Steps After Submitting the Proposal

The proposal is in and the next step is to wait for the RFP response. This can usually take a couple of weeks to determine and just takes some patience. In the construction industry somethings can be a waiting game.

If your company gets awarded the project it then gets placed into the hands of the project management team. Meetings should be held to hand over the job and pass along any information gathered during the bid.

Conclusion

You’ve now learned about what is included in an RFP and what to look for as you’re reviewing the document. I hope that you can take this knowledge and apply it in the field or on your next project!

Thank you for reading.

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