Construction Bidding: Learn Meaning, Stages, Elements, Types, and More!

Whether you are a general contractor, subcontractor, or even the project owner, everyone must learn about construction bidding in detail. No one is supposed to close all the deals for which they have made bids. However, to secure a high ratio, mastering biding basics becomes essential. So, leverage this article and get an elaborate overview of the bidding process in construction. Learn about its meaning, process, stages, elements, key documents, and more! Let’s begin with what this concept means most practically.

What is Construction Bidding?

Construction bidding is the process where a site owner invites contractors to make bids on a specific project competitively, so that the former has a pool of service providers to choose from. It helps the project owner to come across the best contractor with the lowest bid. A bid is an estimated price that a contractor proposes to charge to complete a project, provided that the other contractors are also competing for the same opportunity. 

What is a Construction Bidding Package?

A Construction bidding package is a set of formal documents prepared by the project owner to send to contractors at large for proposal solicitation. These documents help bidders (or contractors) understand project requirements in the best way, minimising the risk of miscommunication. A construction bidding package often touches upon project requirements, contract type, delivery method, drawings, specifications, scope of work, and more. Without such a package, bidders won’t be able to come up with accurate estimates, leading to inefficiencies. 

Also Read: General Conditions of Contract: Complete Guide with Meaning, Types & Examples

What is the Construction Bidding Process? 

Construction project bidding is a competitive process in which project owners solicit proposals from various contractors in order to complete a building project. This process has four stages as mentioned below. 

1. Bid Solicitation

During the process of bid solicitation, contractors are asked by the owner to send proposals to show their interest in a particular project. To make it effective, a project owner can use any of the following documents. 

• Request for Proposal: This document is used to request contractors to send their proposals with respect to a particular project.   

• Invitation to Bid: This document is used to ask contractors to send competitive bids for the project they have already shown interest in.  

• Request for Qualifications: A request to get informed about a contractor’s qualifications can also be made along with other requests. 

Sometimes, a project owner doesn’t make several requests but just one to demand all types of information needed from contractors. 

2. Bid Submission

Now, the property owner requests bids from the interested contractors so that the most affordable option can be found. Generally, contractors consider the following costs to make accurate estimates.   

• Labour Costs 
• Overhead Costs 
• Materials Costs 
• Equipment Costs 
• Resource Maintenance Costs
• Insurance Costs 
• Risks Involved 
• Unexpected Expenses 
• Profit Margin  

Sometimes, project owners also require bid bonds to be submitted along with bid proposals. This helps make sure that the contractor bid maker doesn’t back out of their promise to complete the project within the agreed-upon amount of money. 

Note: If you don’t know how to deal with submittals in construction, educate yourself on this topic thoroughly, from what submittals are to why they are used.

3. Bid Selection

By now, a project owner usually has a pool of well-qualified contractors along with their respective estimations. This is the time when the owner has to narrow down their list of proposals received and reach the best bet for their money. Property owners often choose the most affordable option without having to compromise on quality services.  

4. Contract Formation

After a contractor or bid maker has been selected, the final part of the construction bidding process requires making the deal formally locked through the signing of a written contract. So, a contract is formulated and then signed by both parties. It is generally done under the supervision of a construction attorney/lawyer or advocate. 

Smart Tip: Being a contractor, never sign any contract unless you have read and understood its implications completely. Otherwise, uncomprehended parts might cause trouble later. 

Key Elements of a Construction Bidding

During construction bidding, contractors must pay attention to scope, estimation, timeline, payment terms, and dispute resolution mechanisms. These crucial elements are elaborated below. 

1. Information and Scope: During construction bidding, a contractor mustn’t forget to provide all sorts of information to facilitate communication. Furthermore, the scope must be well outlined as to what will be done, what materials to be used, and other crucial aspects. 

2. Estimation: A detailed breakdown of all project costs must be included to provide the project owner with as much clarity on the project’s anticipated cost as possible. 

3. Timeline: A clear project timeline makes a bid more authentic and appealing to project owners. Therefore, it is essential to provide a detailed schedule that outlines the various phases of the construction process, delineating each phase with specified durations, along with start and end dates. 

4. Payment Terms: Vague and ambiguous payment options or methods might lead to a variety of disputes later. Thus, for the prevention of such obstacles, every contractor must ensure clear terms of payment. 

5. Dispute Resolution Process: Professional contractors, while bidding, also propose a proven dispute resolution process to handle the building of a project effectively. 

All these points make a bid sound professional. Hence, include these aspects while bidding to make an impression or even stand out from the monotonous competition.  

Types of Construction Bidding  

There are four types of construction bidding, namely, open tendering, negotiated tendering, selective tendering, and serial tendering. All of these are concisely discussed below. 

1. Open Tendering

In this form of bidding, a project owner invites all licensed contractors to participate and submit their best bids. This approach to construction bidding promotes fairness and competition. 

Often, government or public projects utilise this method to find the best project manager in the development industry. An invitation for proposals and bidding is published through various marketing channels, and all valid service providers are called upon to respond.   

2. Negotiated Tendering

As evident by the name, this form of tendering relies heavily on negotiation and discussion, rather than solely selecting a contractor with the cheapest bid. The project owner communicates directly with several contractors and tries to evaluate which one would be the best option to serve the specific needs of the project. 

3. Selective Tendering

In this method, out of a large competitive pool, more qualified and desirable proposals are selected first to proceed further. It is an approach that can be best described as a hybrid form of both open and negotiated tendering. After such pre-selection, the property owner discusses terms and conditions of the project with the chosen candidates and then finalises the deal with the most suitable professional.  

4. Serial Tendering

This form of tendering is used when a series of similar projects need to be constructed over an extended period of time. First, a qualified contractor is selected, and then the same professional can be entrusted with the construction of all similar projects. For example, public authorities might use this method to deliver the renovation of school premises to the same contractor over and over again each year. It helps save time and money, optimising the use of the limited resources.    

How to Bid on Construction Projects?

A contractor just needs to know a few quick steps in order to be ahead of the curve in the construction bidding and its various related aspects. 

1. Project Comprehension: No contractor should rush to make a bid. Before that, it is important to understand all the terms of the construction project or a build as deeply as possible. It offers clarity and accuracy.    

2. Detailed Bid Preparation: Once every nook and cranny of the building project is well understood, it is time to prepare a neat and to-the-point bidding document. This bid, in terms of a written document, serves the project owner during the selection of an ideal construction service provider.   

3. On-Time Submission: Once the bid is prepared with every crucial detail included, it must be sent to the property owner on time. Many people inviting the bids don’t consider a bid proposal if it isn’t provided within the stipulated time. 

Pro Tip: Often, the actual costs of construction tend to be higher than the anticipated ones. Thus, it is always a prudent practice to also factor in unexpected costs and potential risks involved in a particular project. 

Conclusion 

Construction bidding can be a complicated procedure if it isn’t handled effectively by a project owner. On a deeper level, both parties, bid solicitors and bid makers, are required to furnish key documents with optimal clarity and act in the best interest of each other. 

Hence, if you are seeking bids from contractors, make sure your construction bidding package offers every piece of crucial information. And, on the other hand, if you are a bidder, create a proposal with accurate estimates and also never forget to boast your expertise and experience to create an edge. 

Also Read: 10 Biggest Construction Companies in the US to Know Before Hiring a Contractor!

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