To thrive in the construction industry, mastering the skill of bidding is of utmost importance. It is the only way to secure contracts for building projects.
What is Construction Bidding?
A construction bidding is a process of offering the potential client a proposal to manage or build a structure. The proposal, also known as tender, contains a construction cost estimate and the blueprint of the structure. This method is also used by subcontractors to pitch their services to general contractors.
When you develop a construction bid, various factors need to be considered. A contractor or builder must focus on delivering quality service and craftsmanship for a price that will earn them business profits.
While builders learn about bidding and developing a winning construction bid on the job itself, they also get training for it.
How to Accurately Calculate Bidding Amount?
The general rule is that the one who submits the lowest bid gets the contract. However, there are some jobs where other qualifications can be equally important, if not more. These factors include the time period for completing the construction, the delivery method (more on this later), and more.
But before we even begin to talk about it, it’s important to distinguish between estimates and bids. These terms are often used interchangeably, but they differ slightly in their meaning. An estimate is the calculation of the contractor’s internal costs, which include labor and material. Whereas, a bid is a final price that you charge a customer, even if it crosses your estimates after completing the project. That’s why your estimates should be as accurate as possible.
Now, the process of bidding begins by examining the construction plan and calculating the material quantity requirement. It may seem pretty straightforward on the surface. But there are a lot of other nuances involved in construction planning and bidding. Let us look into it in detail.
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Things to Consider Before Bidding
Contractors need to understand two major structures that shape the construction projects before making any decisions. There are mainly two factors to consider:
- Project Delivery
- Contract Type
As a construction bidder, you will see how roles, responsibilities, and risks differ in each delivery method. The traditional project delivery method is usually preferred for the construction of non-residential buildings. It goes by the name ‘Design-Bid-Build’ (DBB) and is typically determined by the owner’s budget, structure design, and schedule.
In this approach, the owner hires a designer or architect independently who develops complete designs. The owner then invites the contractor to bid their price to execute those designs.
Some advantages are that the contractor doesn’t have to worry about the design, and thus, it promotes ease of implementation. And because the design is already finalized, it becomes easy for builders to determine the construction costs.
In the contract, both the owner and builder lays down the agreed terms and conditions. It includes the project’s scope of work and how the payment will be disbursed. That’s why before bidding on the project, it’s safe to familiarize yourself with different contract types.
The most prevalent contract types are:
- Cost-Plus Fee:
In this method, the buyer agrees to pay for all supplies, labor, and the contractor’s profit amount.
- Unit Price:
As the name suggests, the final cost is based on the unit prices of work, including services and materials.
- Target Price:
Here, the target price is predetermined by the owner and contractor. The contractor then tries to complete the project below that price. The predetermined costs include overhead as well as profit amount.
This method is generally used for projects that have well-defined construction costs. So the contractor accepts one total sum for all components involved in the project. It may also include additional payments for completing the project on time or penalties for delays.
- Time and Material:
The construction cost is agreed upon based on the material used and the time involved to complete the project.
Construction Bidding Software to Calculate Costs
Let’s look at some of the stats first.
In a survey, it was revealed that —
- 25% of respondents take less than a week to prepare cost estimates;
- 46% of respondents take one to two weeks;
- 25% of them take as long as four weeks;
- Only 4% take 5 weeks or longer.
Many contractors and builders use construction bidding software to help them with the costs calculation. It not only helps them compute the estimate quickly but also ensures accuracy to a certain level.
The software comes equipped with a vast number of functionalities, including a proposal generator, cost database, building cost calculator, labor and materials, project reporting, etc.
To understand how it works, let’s look at the basic construction tender process.
This is where the owner sends out an Invitation for Bid (IFD) or a Request for Proposals (RFP). In other words, the owner seeks bids and provides a package of material with specifications, drawings, and other related documents. All the specifications related to contract type, material requirements, and delivery method are clearly laid out in this stage.
The pre-defined templates in the construction estimation solution that help speed up the process by offering a set of the commonly required format for standard tasks or projects.
The proposal should contain all of the bidder’s relevant information. This includes a plan for management, the time period for completion of the project, construction costs, and more.
It’s crucial that while calculating the bid amount, it should be as accurate as possible. Construction bidding software has a cost database where all the material and labor costs are stored to reference when calculating an estimate.
Keep your building proposal clean and professional-looking.
In this stage, the owner reviews every bid and chooses a winner. In government projects, the lowest bidder generally gets the projects. However, in private constructions, many factors are involved along with the price, such as delivery method, material quality, etc.
This is the final phase, where after the owner selects the winner, the contract is formed and signed. As a contractor, you can still negotiate the final pricing and terms of the contract before signing it.
The skill to calculate construction costs accurately comes with experience and mistakes made previously. However, you can always avoid such errors by using an efficient online construction cost calculator.
If you need any help finding the right construction bidding software, please feel free to reach out to us.
A passionate Saas digital marketer working at SoftwareSuggest. She focuses on meeting your requirements by suggesting the best software to take your business to the next level.