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The Construction Bidding Process

What is the Construction Bidding Process?

Construction projects are always given to the lowest bidder. This assumption takes away from the key aspects and the overall importance of both knowing and mastering the bidding process as a construction company. Simply put, the bidding process is the process where a contract is sought out, offered upon, and the offer is accepted or rejected. Though seemingly straight forward, this process is vital to the success of a company.

Construction Bidding Steps

  1. Bid Solicitation

Bid solicitation is the process where a project is marketed to potential contractors. In most cases, an invitation to bid (ITB) is used to solicit these contractors to submit a bid in order to hopefully obtain the rights to work on the project in interest.

  1. Bid Submission

Bid submission occurs when interest is gathered from various contractors. These contractors will submit items, such as, but not limited to, a projected timeline, cost estimate, and previous completed projects, as a way to garner favor for being selected for the new project.

  1. Bid Selection

Bid selection follows the bid submissions when a contractor is selected to perform the work. For public projects, many times the lowest bidder is selected out of requirement to avoid any bias or fraudulent transactions. For private projects, there’s a little more discretion with other factors besides price.

  1. Contract Formation

Contract formation occurs when the bid is selected by the owner of the project. Some common types of construction contracts are fixed-cost, time and materials, and cost-plus contracts.

  1. Project Delivery

Project delivery or performance of the agreed upon work must occur following a signed contract. At times, there may be bonds in place protecting the deliverance of the performance obligations.

Types of Construction Bids

Open vs. Negotiated vs. Selective Tendering

Open tendering and negotiated tendering are two opposite types of bidding. Open allows for any contractor to submit a bid, while negotiated is where the owner only negotiates a bid with one contractor. Normally, negotiated bids are quite specialized. The middle ground, then, is selective tendering, where the owner solicits bids from a select group. This allows for competition, unlike negotiated, while also keeping some of the specialization that open does not always offer.

Serial Tendering

Serial tendering differs slightly than the other bid types, as it is used for multiple like projects. This type of bid allows owners to solicit bids for a group of projects to avoid countless bids over like projects.

Tips for Preparing to Bid and Winning Work

Know What You’re Bidding For – Public vs. Private Contracts

Knowing the distinction between public and private bids is vital. Public projects are many times driven by the lowest cost, but the importance of an audited overhead rate and a company’s reputation can be huge influential factors, as well. Private projects are also driven by a company’s reputation and cost, but other items such as preferred timeline, experience, and safety records can drive securing contracts.

Develop and Know Your Team

As hinted at above, experience is an important part of receiving a contract when the owner of the project ultimately makes their selection. Keep one’s team up to date on the latest regulations and training for one’s industry. Ask the questions: What are the team’s strengths and how can they improve? Then, find a way to project those strengths in the bid submission amongst the standard language and numbers.

Bid on Projects that Bring Value

In the end, companies want to be profitable, but that isn’t everything. Keep perspective during the bidding process and bid on projects that fit the company’s goals and progression. Value is not just a dollar amount. Bid accordingly.

McKonly & Asbury’s Architecture, Engineering, and Construction (AEC) team is ready to serve your overhead rate audit needs. Our experienced AEC team is prepared to guide you through the audit process, so don’t hesitate to contact us for any additional information or questions.

About the Author

Andrew Puleo

Andrew joined McKonly & Asbury in 2022 and is currently a Senior Accountant with the firm’s Audit Segment.

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