A Comprehensive Guide to Understanding the Construction Bidding Process

General contractors and subcontractors must become experts at the construction bidding process if their businesses are going to thrive. While a variety of industry sources place the average win rate somewhere between 4:1 and 6:1, there can always be room for improvement. Improving bid win rate requires a thorough understanding of each phase of a complex process, attention to detail and strategic thinking. This post dives deep into every aspect of construction bidding to help you put more projects in the pipeline.

4 Phases of the Construction Bidding Process

1. Bid Solicitation

Project owners kickstart the construction bidding process by soliciting bids from contractors via an Invitation for Bid (IFB), a Request for Quote (RFQ) or a Request for Proposal (RFP). When done well, solicitations include everything a construction firm needs to know to submit a competitive bid. Common elements of a solicitation include:

Project Requirements  

A key part of a solicitation, project requirements outline what owners want to achieve. They may communicate the expected functionality, performance and characteristics of a project. For example, an owner may require that a project meet certain sustainability standards without dictating how those standards are met.

Construction Specifications

Also known as specs, these documents detail the work required to complete the project. In contrast to requirements, which tell contractors what project owners desire to accomplish, specs tell contractors how to accomplish it. They are, in essence, instructions that list, among other conditions:

• Project materials  
• Installation methods  
• Quality standards  
• Commissioning and testing necessities  
• Building, regional and safety standards  
• Scope of work, often including the project schedule

Bonding and Insurance Requirements  

To protect themselves from a variety of risks, project owners communicate their bonding and insurance requirements in bid solicitations. Types and amounts of bonds and insurance vary based on the financial value of the project, whether the project is public or private and other owner requirements.

Project Delivery Method  

The owner’s preferred project delivery method will inform the bids they receive. Often, the delivery method an owner chooses depends on the type of project they want to complete, as some projects are better suited to certain delivery methods than others. More on that later.

Contract Type 

Much like project delivery methods, project owners have a variety of contract types at their disposal, each with their strengths and weaknesses. Lump sum contracts, where all parties agree on a single fixed price for the entire project, are the most common, but owners can consider other options.

Contractor Qualifications  

Finally, as part of a bid solicitation, project owners ask contractors to list qualifications, certifications and success with similar projects to make sure they are capable of completing the work.

Public vs. Private Construction Bidding  

There are many contrasts between public sector construction bidding and private sector construction bidding, but we’ll focus on the main difference. With public construction, bidding is open, meaning any contractor aware of the opportunity may bid on it, a process called open tendering. The solicitation is publicly advertised, typically for a set amount of time, and there are strict rules for awarding project winners.  

Private bidding, on the other hand, grants project owners more flexibility and control. They can invite as many contractors to bid as they please, what’s called selective tendering, or invite a single, preferred contractor to bid — what’s known as negotiated tendering. Additionally, with private bidding, owners can set their own standards for bid selection and contract award.

2. Bid Submission

Now it’s time for contractors to throw their hard hats in the ring. In this phase of the process, interested contractors construct a bid submission package. This package is a trove of documentation, all presented to give a contractor the best chance of winning the bid. In addition to expected timelines and examples of success with similar projects, general contractors will submit estimated costs for material, labor, equipment and overhead. But GCs aren’t necessarily experts in specialized areas, so they need to collect bids and proposals from subcontractors. They should not, however, accept subcontractor costs as gospel. Instead, they should verify these solicited costs with an independent cost database like Gordian’s RSMeans™ Data. Built on 30,000 hours of annual research, RSMeans Data has been synonymous with accuracy and reliability since the 1940s. 

Contractors may be required to submit a bid bond to win the project. A bid bond, at its core, is a guarantee that the awarded contractor will complete the work according to the terms of the contract, a legal measure that obligates one party to pay another if they fail to hold up their end of an agreement. Provided to a GC by a surety broker, a bid bond is generally 5-10% of the construction bid. So, for a $1,000,000 bid, the bid bond would fall somewhere between $50,000 and $100,000, and guarantees the contractor will complete the project for the original $1 million bid value. If a contractor wins a bid but decides not to take on the project, the project owner can file a claim against the bond, for which the contractor and the surety will be jointly liable.

3. Bid Selection

At this stage of the construction bidding process, an owner has solicited bids and contractors have responded. The ball is now back in the owner’s court and it’s time to select a winning bid. Before choosing, many owners take the time to level the bids, meaning they standardize them as much as possible to make informed comparisons.  

Owners often select bids based on price, but other factors like experience, references and the contractor’s anticipated schedule influence the outcome as well.

4. Contract Formation

While many details of the contract are already set, at this stage, the project owner and the general contractor typically engage in negotiations over pricing structure and other terms. Eventually, once both parties are satisfied, they sign the contract and the construction bidding process has been completed. Work can now begin.

Project Delivery Methods and Construction Bidding

There are many ways for contractors to complete construction work, known as project delivery methods. Owners often marry the needs of a project with the delivery method that best positions them to achieve their requirements, and it is important for contractors to grasp what each delivery method demands of them. Here are a few common project delivery methods.

Design-Bid-Build (D-B-B)

Design-Bid-Build is so widely used that when contractors think about “traditional bidding,” the process they imagine is D-B-B. Typically used for large-scale commercial projects, with Design-Bid-Build, owners first hire an architect or engineer to design the facility, draw up plans and specs, etc., then solicit bids for the work. D-B-B is often a lengthy process that includes the project designer overseeing the work of GCs and subs, ensuring it meets the owner’s standards and requirements.

Design-Build (D-B)

This project delivery method speeds up the D-B-B process by combining two steps into one. With Design-Build, the owner hires a single firm to both design and build a project. The design-builder acts as the owner’s point of contact, allowing for efficient communication and placing more responsibility in the hands of the awarded firm.

Construction Manager at Risk (CMAR)

A derivative of Design-Build, Construction Manager at Risk is popular with project owners who want to remove themselves from the day-to-day rigor of project oversight. Instead, that work is farmed out to a Construction Manager.

Hired by the owner, the Construction Manager plays a special role in project delivery. They are, effectively, an owner’s stand-in and advocate. But that’s not all. During the design phase of the project, the Construction Manager presents the owner with a Guaranteed Maximum Price, or GMP, a threshold they work to stay under. If they do, the Construction Manager is often rewarded by the owner with a revenue-sharing agreement. If they don’t, and project costs exceed the GMP, the Construction Manager is on the hook for the difference.

Job Order Contracting (JOC)

A public sector favorite for completing routine, operational work, Job Order Contracting allows many projects to be done with a single contract. It is important to note that JOC does not skip steps in the owner’s procurement process. Rather, it satisfies them uniquely and efficiently.  

Instead of bidding on individual projects, under Job Order Contracting, contractors bid on a Unit Price Book filled with verified, preset costs used to price every project. This single-solicitation approach accelerates project delivery by as much as 25%, according to a report by Gordian and NIGP, allowing organizations to deliver more projects in less time and with less effort.

Watch this recorded presentation to find out why Gordian JOC contractors win up to 7x more projects than their peers.

Mastering the Construction Bidding Process

A contractor’s business depends on his mastery of the construction bidding process, so it is absolutely crucial to approach it with thoroughness and an eye for detail. If contractors want to beat the industry average and win more than one in five projects, they need to hold their bids to high standards. By understanding every step of the process, contractors put themselves in a prime position to succeed.

See all the Job Order Contracting bid opportunities Gordian has in your area.