Quick Guide to Construction Bidding
Before we get into how to bid construction jobs effectively, we need to first understand the fundamentals. Here’s a basic breakdown of the purpose and process of bidding in construction:
What is Construction Bidding?
To put it simply, “bidding” in construction refers to the process of pricing construction jobs and using this information to submit a budget proposal to whoever owns the project.
The people who receive these proposals are usually developers, architects, or realtors who are representing the project owner. There are a few possible reasons why project owners invite contractors to bid on projects:
- They want to look for the best price.
- They are still designing the project and want to look at its preliminary costs.
- They are curious about the renovation costs of an existing building.
No matter what the reason may be, from the eyes of the contractor, all bidding situations present the same opportunity:
Someone needs a price, you need a job
It’s that simple. With this in mind, it’s clear to see why we need to get the bidding stage of construction right. If we don’t, then you’re out of jobs…
The Bidding Process
Most owners (the person who owns the land and is paying for the project) do not completely oversee the job themselves. Instead, they rely on the project’s architects to act as the contract administration and oversee the construction on behalf of the owners.
Once they are selected and the job is ready to get started, the architect will act as a gatekeeper will send out an invitations to local contractors to submit their bids.
Because architects are “gatekeepers”, contractors should reach out to them as early as possible in the project and get a foot in the door. By going building a relationship with architects, contractors can get free construction leads in the future.
Architects will typically send bid invitations through lead generation sites. Once they hear back from general contractors, they will move forward with selecting a bid and use the winning contractor’s budget proposal to figure out how to pay or finance the job.
To give the architect a bid, the most common estimating strategy among GC’s is to reach out to their subcontractors to make their own bids and simply adding everything up. The problem with this way of “estimating” (not really) is that you have no certainty that the budgets your subs give you will be over or under budget. You can imagine the headaches that can come with that kind of system…
Instead of trusting the price of your subs at face-value, you can instead figure the job’s cost yourself. Of course, estimating every project that comes your way is impossible, especially if you’re doing it by hand… You can instead outsource your estimating to services like ours, or buy an estimating software to speed up the process. Check out our article on the best construction estimating software to find out which one is right for you.
In any case, this whole process of sending out bid invites and selecting a winning bid is known as the sales cycle in construction and it takes around 3-6 months to complete (. To recap, here’s the sales process in order:
- Contract administration (architect) is selected
- Architects send out bid invites to GC’s
- GC’s send out bid invites to subs
- GC’s calculate full bid and submit
- Architects select winning bid and apply proposed budget
With that out of the way, let’s get into the three strategies you can use to start winning jobs:
Strategy #1: Estimating speed is key
You can only bid as fast as you can estimate.
On average, contractors usually only win 10-20% of the construction bids they make, so if you want to increase your sales, you need to bid a large number of jobs The problem is, in order to bid more, you need to be able to estimate jobs fast.
Nowadays, this isn’t as difficult as it sounds. Even if you don’t have an estimating department there’s plenty of digital takeoff softwares and cost databases out there for you to estimate entire jobs in half the time. (You can read our post on the best construction estimating software to see which one is right for you.)
Of course, our recommendation here at I AM Builders for smaller contractors is the best estimating strategy is actually outsourcing your estimating to companies like ours. The best advantage with this strategy is that you can experience the speed and output of an entire estimating department, for less than the salary of an in-house estimator.
By using an on-demand estimating service like I Am Builders, you can essentially have the support of an entire estimating department for a fraction of the cost, and most importantly, avoid missing out on bids.
No matter what method you choose, remember: the more you bid, the more you hit.
Strategy #2: Negotiate as a high-value contractor
A lot of contractors forget that the first bid proposal you submit is never the final budget.
You can think of your first proposal more so as “Preliminary Bid”.
The most important fact to understand about the preliminary bid is that architects will always ask for a discount. With this in mind, the best strategy is to bid high and negotiate down.
You might be thinking, won’t bidding high make winning the job harder? Actually, increasing your perceived value is more important than being the low bidder.
The concept of perceived value is something that many contractors miss. If I were to offer you a Toyota Corolla for $50,000, you would laugh in my face, but if I were to offer you a Ferrari for the same price… You would do everything in your power to get the money together.
The principle is the same for general contractors. Your perceived value means more than the price itself and there are two ways you can increase your perceived value:
- Bid higher preliminary bids
- Build client relationships
The second way is the most important and highly neglected among most contractors.
If, on top of sending a bid, you follow up with the architect through visits, calls, text, etc., you position yourself as the most preferred option simply because the contract administrator is familiar with you.
There are four “touch points” to interact with project owners and get in their good graces. These four are:
- Face-to-face visits
The benefits of having a higher perceived value are priceless: Architects will be more willing to negotiate your price even if you’re the highest bidder. Plus, changing market conditions won’t be as detrimental to your negotiation process.
All in all, when it comes to biddy, expect to negotiate your price down and make sure to increase your perceived value.
Strategy #3: Follow up, follow up, follow up!
We mentioned earlier how following up with your clients increases your perceived value. As a contractor, you can’t underestimate the power of building relationships.
It might sound like this doesn’t relate to bidding, but building relationships is one of the most important things you can do to win more construction jobs.
When you consider the construction sales process, getting leads and estimating is only half the battle. Remember that the process itself takes 3-6 months and in that time, you can greatly increase your chances of winning the job if the architect knows you.
Plus, having a strong relationship with the contract administrator can bring you even more leads when you become a trusted contractor. Following up benefits you in the short-term and the long-term.
The Secret to 10X your Construction Business
If you are interested in growing your construction business, I’ve prepared a short training video for you that you can watch for FREE: