The Project Owner’s Guide to the Construction Bidding Process

FMP Construction MarketingBlog

Construction bidding process among workers

The bidding process is competitive, and the contractors must understand the ins and outs to “win” the project.

But what about the project owners?

How do they know what to expect during this complex process?

To whom should they consider awarding the project?

This guide will break down the bidding process.

We’ll explain the project owner’s perspective and how you’ll fill your role in this process. We’ll also discuss comparing bids to find the right company for your construction project.


 

4 Simple Steps in the Contract Bidding Process

 
The construction bidding process may seem quite complicated, but it all boils down to just four simple steps:
 

1. Bid Solicitation

 
There are many names for bid invitations.

Whether your construction proposal names it a Request for Proposals (RFP), Invitation for Bid (IFB), or Request to Tender (RTT), it’s all the same.

You’ve put your project out there for contractors to put their name in the hat as the best person for the job.
 

2. Bid Submission

 
Next, contractors interested in your project will submit all necessary bid forms by the deadline to be up for consideration.

They may request a site visit to give you a more accurate bid. Contractors should also include any subcontractors participating in the project in their bid documents.
 

3. Bid Selection

 
After the deadline passes, the project owner (that’s you) reviews all bids and chooses the winning bid.

Many factors could affect this decision, and we’ll get more into that later in this article.
 

4. Contract Formation

 
The winning bidder and the project owner then sign a legal contract. This contract lays out the terms and project expectations extensively to leave no room for dispute mid-project.

The type of contract could also vary depending on the agreement and the parties involved.

Start your Colorado commercial construction project today by requesting a job quote!

 

How To Draw Up a Request for Bid Proposal

 
Construction bidding process request for proposal

As the project owner, your largest contribution to the bidding process is selecting your contractor of choice. Beyond that, you’ll also have to provide as much information to the prospective contractors to allow them to make a bid confidently.

The bid proposal will include this information. It also includes all the construction documents in one packet that will be available to the interested contractors.

Proposals will differ slightly for government projects, private projects, and public projects. But for the sake of this article, we’ll focus on public projects.

The state of Alaska has a helpful checklist for people creating an RFP for their transportation department. Another good resource is this guide on creating an RFP for associations.

You can use these two examples in creating your own along with the information below:
 

Intro

 
This section will introduce yourself or your company and give a thorough project description. That includes specifics, project scope, and any expectations you have for the project.

If you have them prepared, you can share the blueprints for the project.
 

Method of Delivery

 
The delivery method is an integral part of any project to understand as an owner or a contractor. Therefore, your RFP should clearly state your chosen method.

We’ll discuss the options under the heading “Project Delivery Methods” below.
 

Procurement Method

 
Another important bit of information to include in your project documents is the procurement method.

“Procurement” is just a fancy name for the selection criteria for the project. It lets the contractors know what you will prioritize when making your decision.

Some projects will strongly consider the lowest bidder. Others will want to see proof of stellar past performance.
 

Punch List

 
A punch list is a list of tasks required to complete the project. It gives an easy-to-read breakdown of each step of the project to allow the contractor to draw up a bill of quantities for the construction job.

Contractors will provide a unit price for each task, which might also be tantamount to choosing more than one contractor.

One contractor may also give a better price for pre-construction while another does so for construction tasks. If that’s the case, you could save money by hiring them individually to complete the respective tasks.
 

Request for Qualifications

 
Many project owners will have a bid form called the RFQ or request for qualifications to weed out those who cannot complete the project.

An RFQ provides a two-fold benefit.

First, it helps the contractor to determine if they’re up to the task, and second, it helps cut down on the number of bid submissions to look through.
 

Due Dates and Timelines

 
Every project will have an expected timeline. So it’s important to make prospective contractors aware of your expectations regarding the speed of construction.

Smaller construction firms may not have the workforce to complete a project in time.

You also need to set a due date for bid submissions.
 

Contract Model

 
You’ll need to lay out the contract model so that the contractors understand the project’s management structure.

We’ll discuss this in detail under the heading “Construction Contract Models” below.
 

Extra Information

 
It’s also better to include as much detail as possible in your RFP. That way, your bids are as accurate as possible.

If you want to use specific materials, include the type, style, and brand in your RFP.

Will you allow for subcontracting options? If so, explain the parameters and the information you expect about this process.


 

The Different Types of Project Delivery Methods

 
Construction bidding process delivery methods

The delivery method of a project is simple. It essentially outlines the relationships between the parties involved in the ensuing construction services.

The parties can include the project owner, architect or engineer, contractor, and project manager.
 

Design-Bid-Build (DBB)

 
The DBB is the most commonly used delivery method in construction.

This method consists of three phases; the design phase, the bid phase, and the build phase.

In the design phase, an architect or engineer draws up the plans. Then, the selected contractors build according to these plans.

This method allows for more involvement by owners and an extra layer of quality control.
 

Design-Build (DB)

 
The DB method merges both designer and builder roles. The contractor handles drawing up the plans.

This method is faster than the DBB method, but there’s more risk for the project owner leaving so much control to one party.
 

Construction Manager at Risk (CMAR)

 
For this method, you’d hire a construction manager to oversee the project as a representative of the owner.

The project owner only deals with one person while still having some say in how the project plays out.

The construction manager awards the project to bidders of their choice. They also provide the project owner a GMP (guaranteed maximum price).

If the project exceeds this price, the construction manager covers the overages.
 

Job Order Contracting (JOC)

 
An alternative to bidding on an entire contract, JOC is a good way to go if you plan on having multiple projects in the coming years.

Bids are for long-term availability for several contracts.

The contractors deliver a Construction Task Catalog (CTC) to the project owner. A CTC is a list of preset unit prices for various construction tasks.

The owner then has several contractors available to call on when needed.

To utilize this method, the project owner provides a detailed scope of the work to multiple contractors already approved.

It then works on a first-come, first-served basis as to who will be awarded the job. One primary bidding process cuts the procurement time down to several weeks on each project after that.
 

Integrated Project Delivery (IPD)

 
With this method, all three, owner, designer, and contractor, work together as a team in the project management and share the risk.


 

More About Construction Contract Models

 
Contract models outline how payment to the contractor will happen.
 

Lump Sum

 
Also known as a fixed price, a lump sum contract is when the contractor uses a cost estimate to determine one fee for the entire project and includes a profit margin for himself.
 

Cost Plus Fee

 
For this method, the owner pays all associated construction costs of the project. But they also pay the contractor a percentage of the project’s cost as their fee.
 

Guaranteed Maximum Price

 
With this method, the general contractor guarantees they’ll complete the project below the owner’s budget using construction estimating software.

The contractor must cover any costs that go above this number.
 

Time and Material Contract

 
In this type of contract, the contractor receives pay according to an hourly wage plus the number of material costs to determine the final price.

It’s the most time-consuming contract in the construction industry. That’s because it requires recording all data throughout the construction process.

You can find more information on each type of contract with those free sample PDFs on AIA’s website.


 

How To Assess Contractor Bids

 
Construction bidding process and contractor bids

If you’ve successfully written out a detailed RFP and reached the deadline, you should have a handful of viable bids to look through.

How can you whittle through these bids and choose the right contractor? What should you look for or prioritize?

Follow these guidelines to ensure you make the proper choice.
 

How Detailed Is the Pricing List?

 
Professionals will include pricing as detailed as possible in their bid package. If pricing is vague or includes just one final number, disputes could easily arise on cost throughout the project.

A detailed price list can also prove that they read and understand the full scope of work. Look for pricing that includes pre-construction, actual construction, and the project closeout.

Bid selection is not just about choosing the lowest price, although budget will always be in the picture. So you’ll want to choose a contractor that delivers competitive bidding and proof of expertise.
 

Do They Have the Necessary Certifications and Credentials?

 
You’ll also need to take the time to check the background of each contracting company.

Are these companies reliable?

You can quickly determine their credibility with a bit of digging.

Check their BBB ratings. Look into any negative reports you find.

Look at the references they provided. If references turn into a dead-end, they likely have no one to vouch for their quality of work.

Analyze their EMR rate, which is a number that measures their safety rating.

You should’ve checked their insurances, licensing, and certifications during prequalification. But it doesn’t hurt to check again.

Are they members of an organization?

Are they a member of a union or trade association?

If they are, are they in good standing?

Have you used them in past projects? This is usually the biggest proponent of trust and credibility.
 

Meet Them In Person

 
A face-to-face conversation is very underrated nowadays. However, meeting individuals in person lets you better read their professionalism and reliability.

You can see their job site and equipment if you visit their office.

Are they organized?

Is there proof of good teamwork and leadership among the workers?

Do they ask you questions during this meeting? Doing so shows their attention to detail and willingness to go above and beyond.

Their choice of questions also shows their knowledge based on the type of questions they ask. Are they insightful, or do they show a lack of experience?
 

Look for Red Flags

 
Don’t consider any bids that include these red flags:

  • Upfront payment or larger than normal deposit
  • Excessively high or low bids
  • Unrealistic timelines
  • Lack of details in cost and materials

Don’t forget it’s not always a good idea to place the lowest bid at the top of the list.

Trying to keep the bottom line as low as possible can be tempting. But if you want a project to run smoothly and the finished product to be of the highest quality, you need a contractor that won’t cut corners to save money.

Use this free checklist to evaluate your contractor bids.

Speaking of red flags, check out our recent article 9 Common Steel Building Sales Traps [and How to Avoid Them].

 

Conclusion

 
It’s just as important for project owners to understand the bidding process as contractors.

More importantly, as a project owner, you must understand how to select the right contractor. That way, you can keep your project on schedule and under budget.

Are you ready to kick-start a commercial construction project in Colorado? Contact us today for a job quote!