The construction bidding process involves a contractor presenting a proposal, called a tender, to a client for carrying out or managing a construction project. It plays a crucial role in construction projects as it allows firms to choose contractors to hire.
Standard Procedure of Bidding:
The standard procedure for construction bidding includes the following steps:
- The client or general contractors issue bid invitations to contractors or subcontractors.
- The contractors or subcontractors receive the invitation which includes the scope of work, deadline, penalties, and pre-qualification requirements.
- The contractors or subcontractors examine the tender document and evaluate the project based on their cost codes.
- The contractors or subcontractors submit their bids to the client or general contractor.
- The client or general contractor awards the bid to the subcontractor with the most advantageous offer, which then becomes a binding agreement.
Types of Construction Bidding Methods:
When a property owner intends to receive bids for a construction project, they can choose from four types of tendering methods, namely, open tendering, negotiated tendering, selective tendering, and serial tendering.
- Open Tendering: This method allows anyone to submit a bid on a project, and it is widely used in government projects. The open tendering process is considered to create maximum competition and lower the costs of the project.
- Negotiated Tendering: In this method, the property owner selects a single contractor to carry out the work and negotiates a contract with them. This tendering method is only applicable to highly specialized projects and might be considered anti-competitive in some cases.
- Selective Tendering: This is a balanced approach between open and negotiated tendering, where a limited number of contractors, pre-determined by the property owner, are invited to submit their bids. This method provides a balance between competition and simplicity in the bid selection process.
- Serial Tendering: This method is used for situations where the property owner is soliciting bids for a series of similar projects over a specified period. For example, a housing developer may need to construct hundreds of residential homes over three years. Serial tendering can reduce the burden of repetitively soliciting bids for similar projects, but it may also reduce competition.
Major Steps in the Construction Bidding process:
Bid Solicitation:
This is the first step in the construction bidding process where the property owner, who is looking to undertake a Construction Bidding project, issues an Invitation for Bid (IFB), a Request for Quote (RFQ), or a Request for Proposal (RFP) to the contractors.
For public projects, the bid solicitation is usually an open invitation to all the contractors who are registered to work on government construction projects. However, for private projects, the bid solicitation may be open or sent to a select few contractors. In some cases, the bids may be solicited through bid management platforms like Procore or Plan Hub.
The bid solicitation document should include the following information for the contractors:
- Construction specifications
- Project requirements
- Contract type
- Project delivery method
In addition to these details, the bid solicitation document may also ask for additional information about the contractors, such as their qualifications and past projects, to prequalify the contractors and ensure that they are capable of delivering the job as promised.
Construction Bidding Submission:
In this phase, contractors who meet the prequalification requirements and are interested in the job, submit their bids to the property owner. The contractors will submit documentation about the project timeline and costs, as well as information about their business. General contractors will solicit bids from subcontractors to complete specific aspects of the job, and they combine all of the information into a single bid, which they then submit to the property owner.
To create an accurate bid, contractors must perform a detailed cost estimate of the project. This includes calculating costs for labor, materials, equipment, overhead, and profit margins. This can be done by reviewing the project specifications, performing material takeoffs, and calculating overhead and profit margins. The final bid should represent the best quality at the most reasonable price.
Bid Selection:
In this phase, the property owner will select the winning bid. For public projects, government rules often mandate that the lowest bid wins. However, private project owners may take into account factors beyond price, such as contractor experience, safety records, and scheduling philosophy, to determine which contractor is most suitable for the job. When property owners receive multiple bids with similar prices, they may use internal scoring systems or other prequalification measures to determine the winning bid.
Contract Formation:
Once the winning bid has been selected, the property owner and the winning contractor will enter into a contract. The contract should be a detailed agreement that outlines the expectations and responsibilities of both parties, including the scope of work, payment terms, completion timeline, and any penalties for non-compliance.
Project Delivery:
Project delivery is an essential aspect of the construction bidding process, even though it is not considered part of the bidding itself. Before the bidding process starts, the property owner must determine the project delivery method, which will play a significant role in the way bids are solicited and submitted.
Several project delivery methods could be used for construction projects, including Design-Bid-Build, Design-Build, and Construction Manager at Risk. These methods vary in terms of the way bids are solicited, submitted, and evaluated.
Design-Bid-Build:
is a traditional method where the property owner employs a separate design firm to create the designs for the project. The general contractors then bid on the construction of the project based on the designs. In this method, the contractor is only involved in the construction of the project and is not responsible for the design.
On the other hand, the Design-Build method is a single-source delivery system that employs a single firm to provide both the design and construction services. In this method, bids are only received from subcontractors that support the work of a single firm. In other words, the single firm acts as the general contractor and is responsible for both the design and construction of the project. Finally, the Construction Manager at Risk (CMAR) method involves the hiring of a construction manager to provide both pre-construction and construction services. The construction manager is responsible for managing the construction process and is at risk for delivering the project within a guaranteed maximum price. In this method, the construction manager is involved in the project from the beginning, and the contracts for the construction work are negotiated and awarded to the subcontractors.
