How Does Construction Bidding Work?

The construction bidding process for large public works projects is not quite the same as the process for bidding on smaller, private projects, but they share certain elements. That’s because the end goal is essentially the same—finding a qualified, affordable contractor. Sometimes that means choosing the contractor offering the lowest bid, but more often it means awarding the contract to the bidder offering the best value—the best combination of technical qualifications and cost. To arrive at that decision, project owners go through a series of steps in a predictable order. Here is some important information to know about how construction bidding works.

Bidding on Public Works Construction Projects

Public works projects are governed by some complex government regulations. Solicitation and procurement methods may vary. Before bidding on a federally funded project, contractors must register with SAM, the System for Award Management. Many states have similar laws and systems that apply to state-funded public works projects.

The bidding process begins with the project owner’s publication of a request for proposals or bids. It’s crucial to read the request carefully and follow the submission instructions to the letter. It doesn’t take much to be disqualified as nonresponsive.

Even contractors who submit completely responsive proposals face an uphill battle. The average win rate for general contractors bidding on public works projects is about 10%. So everything you can do to improve your chances of being the winning bidder is certainly worth doing.

Visit the job site if possible to see if there are any issues that could affect your costs. Make sure you’ve identified and accurately estimated every cost component, including the cost of hiring subcontractors. Use estimation software if possible to improve accuracy and save time. Make sure your project timeline and payment schedule will provide sufficient cash flow. Make sure you’re in 100% compliance with the project owner’s proposal requirements. And make sure you don’t miss the bid submission deadline!

The project owner will review all bids submitted, weed out those that are considered nonresponsive for whatever reason, and evaluate and rank the bids ones according to predetermined award criteria. This can be a lengthy and onerous task. Finally, a winning bidder is selected and notified.

Are Bid Bonds Required?

Unfortunately, contractors sometimes underestimate the cost of a project, either in a deliberate effort to underbid competing bidders or by mistake. If a lowballing contractor is chosen and then turns down the contract because it can’t be completed for the bid price, the project owner is left in the lurch. Having to go back and choose another contractor from among the remaining qualified bidders or even having to issue another RFP can be a tedious and expensive proposition. That’s why bid bonds are required for public projects, and often for private projects as well.

A bid bond is your pledge that you will accept the job if you are chosen as the winning bidder. If you don’t, the project owner will have a valid claim against the bond. What you pay a surety company to underwrite your bid bond is a small percentage of the bond amount the project owner will require. But if you violate the terms of the bond by turning down the job, you will be out the full amount of the project owner’s claim. Although the surety company will pay the claim initially, that only buys you a little breathing space, because you are legally obligated to reimburse the company for what it pays out.

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Bidding on Private Projects

Bidding on a private project requires the same attention to detail and careful estimation as bidding on a public works project if you hope to be the winning bidder. Although the bid process may not be governed by all those laws and regulations, your proposal or bid must meet all of the project owner’s requirements in order to be considered responsive. Increasingly, one of those requirements is the purchase of a bid bond to protect the project owner as well.

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Surety Bond Professionals has over 30 years of construction bonding experiences. Our team is prepared to help you get all the bonds you need for your upcoming project, at competitive rates. From bid bonds to performance bonds, payments bonds, and more, we’re here to assist with your surety needs at every step.

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