For some, perhaps most builders, competitive bidding simply comes with their territory. It is often their best avenue into projects. They do a type of commercial or public work for which it is not often possible to win contracts by any other means. Some builders who might be able to go down another road actually prefer competitive bidding for the relatively arm’s-length nature of the process. Owners ask you for a bid, you give it. It’s low, you win. You feel no obligation to warn of problems in the design or hold the hand of an anxious client, you just build to the plans and specs.
A few builders seize upon competitive bidding as a fast track to high volumes of work. They pay wages as low as they can get away with, squeeze their subcontractors and suppliers, rush work to completion, build to the loosest standard that will pass inspection. Thereby they position themselves to bid work as tightly as possible, bid a lot of it and win often.
For almost all builders, including those who prefer to acquire jobs via design/build or cost planning, competitive bidding is a necessity at times. It is a way to keep a crew busy rather than lay off and lose key employees during a slow economy or to simply fill a hold in the schedule during better times.
Success at Competitive Bidding
Though there is an opportunity within competitive bidding, it places serious burdens on its practitioners. One is the time that it takes to do all the estimating and other work necessary to put together a bid – skilled work that designers and owners typically expect you to do without pay. For small-volume builders, the burden can be quite destructive.
Late nights are a common experience for some builders who have not yet worked beyond competitive bidding. When they should be with their family or resting for the next day’s work, they are instead holed up with plans and a computer, calculating costs for a job they might get = or that they will get only by pricing the project so low that they are almost certain to lose money on it. Given the burdens of competitive bidding, if and when you must produce free bids, you will likely want to pick and choose between the opportunities rather than cranking out an estimate for every set of plans you can lay your hands on. You will need a set of guidelines to determine which projects to bid.
To begin, you will want to evaluate the project, its owner, and the designer. Going further, determine as best you can not only the number of bidders but the quality of the bidders and your position in the pack. Too many builders do not understand the overhead burden or lack an adequate estimating system. As a result, they bid on projects for less than their costs.
You can ask about the ground rules for the bid. Some people think that the only fair way to run a competitive bid is to request three builders of closely equal quality to submit bids with the understanding that the low bid will win. By looking for bids for which such rules are in force and by adhering to the other guidelines, you can improve the chances that the investment of time you make in competitive bidding will bring returns.
Portions of this content was sourced and/or published in:
- Barbara J. Jackson, Construction Management Jumpstart