Running a successful construction company in Australia is no walk in the park. It’s riddled with challenges including business marketing, job scheduling, accounting, and maintaining relationships with architects and subcontractors. However, no matter how long you’ve been in business, the most difficult part will almost always be construction bidding. Here’s a comprehensive guide to help you make sense of this complex process.
What is construction bidding and how is it different from cost estimating?
Construction bidding is the process of submitting a proposal by the contractor to a prospective client or project owner to manage a construction project. Proposals specify to project owners how service will be delivered, including set deadlines and prices.
While bidding involves setting a price for construction services, it’s a different process from cost estimating. The former involves deciding the final price to charge the client, while the latter entails forecasting internal project costs. Estimating is merely one key component of construction bidding.
Bidding is strategic and requires you to mark up your services in a way that can win jobs and turn over a profit. This balance is difficult to achieve even for the most experienced construction companies. Bid too high and you risk losing the client to other businesses with lower rates. Alternatively, underbidding may win clients over but result in a net loss for a job, which can be catastrophic for your cash flow. It’s therefore clear that there’s so much more that goes into a successful bid and proposal than an estimate.
Understanding the bidding process
When it comes to construction bidding, having a firm grasp of the entire process is crucial to getting a contract. Below are the steps involved in the bidding process:
Bid solicitation – This is when a project owner issues a request for proposal (RFP) or invitation for bid (IFB) to contractors. In these requests, the client or general contractor details project plans and specifications, delivery method, and preferred contract and payment terms.
Bid submission – When contractors receive an RFP, they must submit a complete bid proposal package by the deadline. The package should include a summary of the number of workers, tools, and materials required for the job as well as rates and timelines.
Bid selection – After the project owner receives the bid package, they then pick a contractor that will provide maximum value. Government contracts will usually select the lowest bids for fraud prevention reasons. Meanwhile, private project owners are free to select bids depending on many different variables, including price, schedule, and expected service quality.
Contract formation – Once a contractor is awarded the job, they can finalise the contract and discuss any pricing and contract term changes.
Project delivery – This is the final stage where construction begins. There are five common types of delivery methods: traditional Design-Bid-Build, fast-tracked Design-Build (DB), Integrated Project Delivery (IPD), Construction Management at Risk (CMAR), and Public-Private Partnership (3P).
The challenges of construction bidding and how to overcome them
While the construction bidding process seems fairly straightforward on paper, companies often face several challenges in reality. For starters, businesses that can’t find bid packages to actually bid on is a common scenario. This usually stems from poor networking, neglecting to ask for referrals, and failing to promote the business in the right channels.
Even if companies find bid packages, they’re often unable to craft a winning proposal, especially on such short notice. These issues are apparent in companies that lack the tools to produce more accurate estimates and don’t have enough workers to confidently meet project demand. Another reason is that contractors tend to waste their time bidding on projects they’re not suited for, taking their focus away from perfectly winnable projects. It’s also easy for businesses to overlook specific RFP requirements and end up getting disqualified from the bid selection process.
If your company struggles with these obstacles, you need to adjust your bidding strategy. The following tips can help you overcome construction bidding obstacles and outperform the competition:
1. Bid on the right jobs
You shouldn’t bid on every job just because your company is in the red, as tempting as it may be. In fact, this strategy may cost you more time and resources in the long run since you’re not focused on bids you can win.
Instead, you should visit bidding websites to find property owners looking for the specific expertise and services you can provide. Some of the most popular bidding websites include Australian Tenders and Build Australia. It also pays to promote your services to ideal clients via word of mouth and online marketing channels.
Once you have a list of potential projects, evaluate the nature of every job before submitting a bid. Consider the client’s budget and location, the designer’s reputation, and competence, the project’s scope and specifications, and the competition. You’ll want to bid on projects that are achievable. More importantly, learn to say no when you don’t have the manpower, equipment, time, and resources to accommodate a job.
2. Carefully read the fine print
Failing to read the minute details of RFPs is a common mistake you must avoid. Many companies are often disqualified from the selection process because they failed to submit required documents or meet certain deadlines. Others misread the RFP and waste time bidding on jobs that they don’t have qualifications for and are above their experience level.
3. Leverage your subcontractor network
Working with subcontractors with specialised expertise like waterproofing can help you meet highly specific RFP requirements. This gives you the ability to increase the number of projects you can bid on, and eventually win. If you need to look for high-quality subcontractors, try recruiting on websites like hipages and SEEK.
4. Craft a winning bid
There are several elements to include in a solid bid proposal, but they can make the difference between winning and losing a contract. Firstly, it needs to include the basics like contact information, address, company name and logo, date of submission, and deadline. Secondly, you must write an introduction to the project that demonstrates a deep understanding of the job requirements.
Then, elaborate on the details of the project, complete with illustrations, job schedules, and materials, and equipment required. List any potential workplace risks and how you plan to mitigate them and provide an accurate cost estimate breakdown. Finally, sum up your total costs, service fees, and other markups. If the project’s RFP requires supporting documents, make sure to attach them to your document and format your bid proposal as specified by the client.
5. Use advanced tools to produce accurate estimates and bids
Estimating costs and finalising a markup for the job is the most complex step in the construction bidding process. Your calculations must be as precise as possible using the most accurate data. Doing this manually on spreadsheets can be difficult on a deadline, which is why you need powerful job costing tools.
WorkBuddy uses real-time material costs, hourly pay rates, and historical data on previous projects to accurately price a job. This reduces the time spent on composing a bid proposal and allows you to secure projects at a profit. Essentially, it simplifies a daunting construction bidding process so you can focus on growing your business.
Request a demo today to learn more about how WorkBuddy streamlines construction bidding. You can also tune in to our blog for more practical advice on running a successful construction business.