Project bidding is one of the central activities of successful construction contractors. It is an intricate art that is mastered with experience. It takes time and diligence to get comfortable in the field, but it allows contractors to work on exciting private and public projects.
While certainly important and beneficial, placing bids on construction projects also hides substantial risks for a business. Knowing them is essential, as only an informed approach can help avoid the potentially unpleasant consequences.
That’s why forward-looking contractors integrate risk management in the bidding process from the very start. Typically, this involves careful planning of the project’s schedule, realistic assessment of the budget and systematic mapping of potential obstacles during project completion. Contractors face four common risks when bidding on projects. Here is how they can address them.
Unrealistic Ideas and Expectations
One of the most common pitfalls that contractors face, especially when they first start bidding on projects, is not having a clear judgment about the project at hand and their own capabilities. They should make a careful assessment of whether they can handle the amount of work during that specific time period and honestly evaluate the company’s expertise and skills to make sure they match the requirements of the project.
Knowing the surety bond requirements for the project is key. Most public and many private projects require bid surety bonds, which guarantee that the main contractor can obtain the necessary payment and performance bonds. Thus, when preparing a bid, a contractor should be fully informed about the bonding criteria of the project owner. That’s how they can be planned in the bid, both in terms of finances and time resources.
Missing a full overview about the project
It is important to submit a bid on a project only after gathering full information on the job and scope of work. Inexperienced contractors may sometimes enter deals without knowing their full scope, which often has negative results for all parties involved.
Undertaking a risk assessment early on, as well as using a construction bid estimation software and templates, can help prevent unnecessary problems later on.
Take the time and get acquainted with all the parameters of the project. One of the essential ones is the type of delivery method that is expected, which is usually either design-build or construction manager at-risk.
Know the intended contract type. The typical contracts are a lump sum, cost-plus, time and materials, and unit price, but there may be other options.
Low bidding at the cost of unsubstantial profits
If the company is just starting out with bidding, it can be tempting to be the candidate with the cheapest proposal. In some cases, this can be a winning step. However, this strategy should be based on careful predictions of the costs and the volume of the work involved in completing the project. Low bids can result in lower quality, costly change orders and delays, among other potential problems.
Besides a serious obstacle for completion of the project, an unrealistically low bid is counterproductive for the contractor. The contractor should have a good idea of its profit, and take steps to achieve it. After all, realizing it will take a significant chunk of time, so it should be worth the company’s efforts.
Lack of knowledge about the competition
Bidding is a complex process and a highly competitive one. This means contractors need to go a step further beyond simply preparing a solid bid proposal. They need to have knowledge about their competitors.
It is useful to get acquainted with the type of companies that are bidding. If a contractor can gather information about competitors’ proposals, this can guide the bidding strategy. By knowing its competitors and their bids, a contractor can find the best approach that will help them stand out and take on a profitable project.
