Tendering and Bidding in Construction

Tendering and Bidding in Construction

Bidding is the construction industry’s lifeblood. Most contracts are only issued via a competitive bidding process, and competitive bidding is the only way to find work in the construction industry unless there is an established relationship.

Naturally, these bids are competitive, thus mastering the tendering process is essential to enhancing business for your constriction company.

What is Construction project bidding?

Construction bidding involves submitting a proposal to complete a job under a defined set of terms. Prior to bidding, contractors would often do a cost estimate to ensure they are providing accurate figures and protecting their bottom line.

It should be noted, however, that construction bidding and estimating are two separate steps. Estimating is generally used for internal purposes, whereas bidding represents a firm offer made to the client. It is based on estimating calculations but also includes the contractor’s markup (profit).

On smaller projects, however, the distinction between the estimating and bidding processes might get unclear.

Things Contractors Must Consider Before Bidding

A construction company must perform due diligence before bidding: Is this the project for you? Do you have the necessary skills and experience? Is your backlog too large to accept a new contract?

These are the questions that should be answered before bidding on any project.

1.Project Delivery

One of the most important factors to consider before deciding whether or not to bid on a project is the type of delivery method used. This method is often determined by the owner’s budget, building design, schedule, and how the risks on the project will be allocated. It can be structured in various ways, from the more traditional Design-Bid-Build method to the more complex Construction Manager at Risk method. Whatever mode of delivery is chosen, be sure to understand how it will affect your role and responsibilities on the project.

2.Contract Type

Another important consideration before bidding on any project is the type of contract the owner wants. Apart from the project’s scope of work, the contract type will determine how payments are made. Before bidding on any project, it is essential to understand the most common types of contracts.

Although there are numerous options, the four most prevalent types are:

Construction Bidding Procedure

Government jobs are highly regulated, but private project bidding and procurement will be less formal, and owners will have broad discretion to use whatever approach best suits them. Nonetheless, most bidding procedures follow the same basic structure:

1.Bid Solicitation

This is when the owner sends an Invitation for Bid (IFB) or a Request for Proposals (RFP). Unlike public projects, these aren’t usually open to the public. Instead, they are allocated to a smaller group of contractors. During this step, all specifications, requirements, contract type, and delivery methods will be specified.

In general, the contract will be awarded based heavily on the bid price. Nonetheless, the bid solicitation phase of the procurement process will require more information in addition to the price, such as a Request for Qualifications (RFQs), requesting more information on the prospective contractor’s company history.

2.Bid Submission

A bid submission should include all relevant business information from the bidder. This will include a list of the contractor’s past projects, management plans, and track record of staying on schedule and under budget. When calculating a bid, be as accurate as possible.

The estimate should be based on blueprints and a bill of quantities and should include all costs. Overhead, labor, materials, equipment, and profit margin should all be included. This number should represent the best quality at the most reasonable price in order to win a bid.

The bid must be as clean and organized as possible. A bid sheet serves as the professional image of the bidder’s company. Be sure it has a professional touch and that it is submitted to the right place at the right time.

3.Bid Selection

On government construction projects, rules are in place to ensure that the government selects the lowest bidder (or one of the low bidders). That is, the contract with the lowest price wins. This is done to prevent any fraud, abuse, or favoritism. The idea is that by requiring the lowest responsible proposal to be accepted, the price will be the ultimate equalizer.

On private projects, owners have far more leeway in selecting a bid for reasons other than price. Don’t get us wrong: the price is nearly always a deciding factor when it comes to the bidding selection. However, if two contractors submit comparable bids, factors other than the price might matter far more than they do in public projects.

4.Contract Formation

The contract must still be formed and signed when the owner decides which offer or proposal best meets their needs. If your company wins the bid, now is the opportunity to negotiate. The type of contract has already been established by now, but there is still an opportunity to specify the contract’s final pricing and terms.

5.Tender Meaning In Construction

A tender is a written document that contains details about the work to be done. It is publicly released or given to qualified suppliers or contractors who are willing to fill it and take the work.

A tender document helps the tendering process by helping a buyer select qualified and interested suppliers based on contract criteria. This includes pricing documentation and quality criteria in general.

What Is Tendering Process?

Tendering is the process of inviting bids for large projects, and it is used most commonly by government entities. The key objective of the construction tendering process is to eliminate favoritism and corruption in the awarding of contracts to construction companies.

It is an invitation from the owner to the contractor to execute work at a specified cost and within a specified period. The tender is published in the form of a tender notice in newspapers, notice boards, etc., based on the cost of the work.

The tender allows the client to compare different prices for work quoted by various contractors. The lowest-priced and most experienced contractor always wins the tender. In the construction sector, the tendering process is critical in determining who the best and cheapest bidder is for the work.

Types of Tendering Methods in Construction

There are three types of tendering bid methods: open tendering, selective tendering, and negotiation. Tendering methods are chosen based on the requirements of construction contracts.

1. Open Tendering

The employer advertises his proposed project and allows as many contractors as are interested to apply for tender documents through open tendering. Sometimes, the employer requests a deposit from applicants, which is returned “upon receipt of a genuine tender.” However, this method might be regarded as wasteful of contractors’ resources because many may spend time drafting tenders for no purpose.

Also, knowing their chances of gaining the contract are small, contractors may not thoroughly research the contract to determine their minimum price but instead offer a price that will guarantee them a profit if they win the contract. As a result, the employer may be provided “a lottery of prices” instead of the lowest price for the project to be constructed.

If the employer chooses the lowest tender, they risk that the tenderer has not thoroughly studied the contract to assess the risks involved or lacks the technical or financial resources to complete the work successfully.

It is true that the employer can check on the lowest tenderer’s resources and experience and can reject the tender if the request proves unsatisfactory. However, several offers may be below the estimated costs of the job. It is difficult for the employer to choose other than the lowest if such tenderers appear satisfactory and if their offerings are not far off in value.

The engineer who advises the employer may believe that such cheap offers are likely to be unsatisfactory, but the engineer cannot tell the employer what offers to accept, as they have no informational certainty.

2. Selective Tendering

The employer advertises his project under selective tendering and invites contractors to apply to a selected list of contractors invited to tender. Contractors who apply are provided with a list of information to “pre-qualify” them.

The advantage to the employer is that they may choose just those contractors who have sufficient experience, are financially secure, and have the means and expertise to do the work. Moreover, because just a half-dozen or so contractors are chosen, each contractor knows they stand a good chance of winning the contract and thus has an incentive to properly review the tender documentation and submit their most competitive bid.

However, because all contractors have been pre-qualified, it is difficult to reject the lowest price, even if it appears to be suspiciously low — unless there is an obvious mistake. The fact that a contractor’s circumstances can change after they submit their tender is a concern with both open and selective tendering.

The contractor may incur losses on other contracts, affecting their financial stability, or they may be so successful at tendering that they do not have enough skilled staff or men to handle all of the work they win. As a result, neither the tendering process nor any other method of procuring work can ensure the avoidance of troubles.

3. Negotiated Tendering

Negotiated tenders are obtained by inviting a contractor of the employer’s choice to submit prices for a project. This tendering is usually done for forensics processes or when specific equipment is required as an extension of existing work or for further work following a previous contract.

When there is a tight deadline, or emergency work is needed, negotiated tenders can be used. A negotiated tender has a good chance of being satisfactory since it is often based on previous satisfactory work between the employer and the contractor.

When invited to tender, the contractor submits their prices, and any questions are discussed and usually resolved without difficulty. Thus, pricing errors may be reduced, and both the engineer advising the employer and the contractor can be confident that the task will be completed on time; if no unforeseen problems arise.

Even when a negotiated tender is accepted, full contract documents are usually prepared to ensure that the contract is on a solid base. The production of the documents also means that they are available for open or selective tendering in the event that a negotiated tender fails or the chosen contractor is unable to complete the work.

Advantages of Tendering In Construction

1. No Nepotism

Tenders or bids are evaluated using predefined criteria such as price, quality, and value for money. In other words, the agency that provides the highest quality product or service at the lowest price will be awarded a contract or tender.

2. Value for Money

Tenders provide the best value for the money spent for the client. This is due to the client’s ability to select possible contractors who can produce the highest quality product or service at the lowest price point. This helps the government or enterprise save money without compromising quality.

3. Encourages Competition

Tendering helps in the promotion of a competitive market. This is due to the fact that each project allows multiple potential contractors, firms, or suppliers to bid. Because selection is based on quality and price, every bidder seeks to decrease operational and labor costs as much as possible to reduce expenses while improving quality. This entire process promotes healthy market competition, prevents laziness, and encourages innovation and new ideas.

4. Easier Entry for New Firm

Tendering makes it possible and more straightforward for new firms to enter the market or even a specific industry. This is because contracts are granted under these systems based on preset and objective criteria. This approach enables new firms to quickly establish a presence in a market or industry, significantly lowering traditional barriers to entry.

Where would you find information on alternates when bidding on a construction project?

Bid alternates are construction project components that are not included in the main price of a bid or proposal. Alternates are listed separately on the request for proposals or bid form, along with a pricing request in addition to the contractor’s main quote. Most of the time, the owner’s decision to include an alternate in the project is not made until the contract is awarded.

An owner can use bid alternates to price out various options for a project that they have in mind. Different or additional materials, equipment or systems, construction methods, or completion dates are some examples. A bid alternate could also be a clearly defined increase of the project scope. Similarly, on a private project, a contractor may provide alternates as a form of value engineering or otherwise adding value to the project, unless otherwise specifically instructed by the owner not to provide alternates.

When an owner asks about alternates, they should be careful to provide clear instructions to bidders so that the owner may evaluate bids on a “apples to apples” basis. Contractors should take care to follow the instructions to bidders and, if necessary, seek clarification to ensure that their bid is responsive to the owner’s needs. On the other hand, owners should ensure that the information offered to bids to price alternates is as detailed as that provided for the base scope of work.

How can construction bidding be successful?

Here are some tips to help you win while bidding on construction jobs.

CHOOSE PROJECTS WISELY

It’s useless to bid on construction projects that your company isn’t qualified for. You’ll merely waste time and money that could be spent on better opportunities.

Ideally, you’ll want to eliminate bad matches as early as possible in the process. Consider cutting your losses if, at any point during the proposal preparation process, you find the project is beyond your scope or simply not worth it in some other way.

CLARIFY UNCERTAINTIES EARLY ON

If you are unsure about a particular area of the project, clarify it as soon as possible. This is especially important if the item in question could be a deal-breaker.

CAREFULLY REVIEW YOUR RESOURCE MANAGEMENT SYSTEM

When bidding on a project, don’t assume you have the resources to finish it successfully. Check your construction resource management software to ensure that you are not misjudging the availability of a specific worker or resource.

COMPLETE FORMS CORRECTLY

It is not uncommon for workers to become so involved in the complexities of bidding on a construction job that they overlook simple things like appropriately filling out paperwork.

This sort of thing suggests a lack of attention to detail, which is not how you want to begin a project. Make a good first impression by carefully reviewing everything for possible issues.

CALCULATE AND ADDRESS RISKS

On construction projects, things often go wrong. This is an unavoidable fact of life. You must account for and mitigate these risks during the estimating and bidding procedures (either directly in your bid or in other aspects of your business).

VISIT THE SITE IF POSSIBLE

If the feasibility of a construction project is heavily reliant on the quality of the job site, you should try to inspect the area for yourself. This is often done by attending a pre-bid meeting, followed by a site visit.

What are the construction bidding websites?

1. BidClerk

BidClerk is a construction bidding website with over 400,000 projects added to its database each year, as well as 1.1 million active contacts and commercial projects. BidClerk receives projects throughout North America, and users can search for projects by location.

Subcontractors can also track the progress of a project, forecast project prospects, receive real-time project updates, and receive alerts.

2. Dodge Construction Central

Dodge Construction Central enables subcontractors to search by business type and offers industry trends, construction leads, bid management, and custom research. They also give a resource where subcontractors can discover 100,000+ construction products.

3. Construction Bid Source

Construction Bid Source includes projects around the United States that may be filtered by state. Their website accepts pre-bids and provides full project details to ensure that the subcontractor is bidding on what is best for them and their organization. Subcontractors can also search for projects based on their type and the dates they were published.

4. Construction Market Data

Construction Market Data provides all of the market data that subcontractors want when bidding on project leads. Subcontractors can seek construction project leads in Canada or the United States and get help with their spec writing feature.

5. GovernmentBids.com

Since 1998, GovernmentBids has been providing construction bids. Subcontractors can search for government RFPs, contracts, bids, and procurement systems by category and area. This website provides thousands of bids, as well as regular alerts for bids that match what subcontractors are looking for.

Conclusion

Although the construction bidding process may appear daunting, there is always a way to make it easier. Hiring reliable subcontractors and general contractors is the sure-fire way to ensure you get the best value for your project as an owner.