Surety Bond Professionals is a family owned and operated bonding agency with over 30 years of experience. With access to a broad range of surety markets, our expert agents are ready to assist with all of your construction bond needs.
The Procurement Process
Different project owners go about hiring contractors in different ways. The federal process is formal and highly regulated to ensure that it is fair for all parties while minimizing the risk to the government. The same is generally true of the process used to hire contractors to execute state-funded and municipal-funded public works projects. New contractors need to thoroughly understand the process to be used for a particular project before preparing and submitting a bid. All of the time, effort, and money that goes into preparing a bid is wasted if the contractor is disqualified for not following the correct process.
Not all bids are advertised publicly for open bidding by any contractor. While government-funded projects typically are, some project owners, especially private ones, only advertise bids to contractors who previously went through a vetting process to be on a list of prequalified bidders. Open bidding, also known as open tendering, is an “equal opportunity” method of contractor selection and is the most likely to produce results for emerging contractors.
Make sure you understand how bids will be evaluated, whether there may be some negotiation before a contract is awarded, and what kind of contract will be written (more on that shortly).
Bid Preparation and Submission
There are two key aspects to preparing a bid: 1) crunching the numbers to arrive at a contract price and 2) providing all other information requested to prove you have what it takes to complete the job successfully. If you don’t follow the directions exactly, your bid may be disqualified as non-responsive.
Cost estimation can be tricky, but estimation software makes it easier and increases accuracy. Underestimating or overestimating costs can knock a contractor out of contention if the resulting profit margin does not fall within the range the project owner considers acceptable.
Project Delivery Methods
Know what you’re bidding on. Construction projects typically fall into one of these categories: Design-Build (DB), Design-Bid-Build (DBB), Construction Management at Risk (CMAR), or Integrated Project Delivery (IPD).
In a DB project, the contractor is responsible for both project design and construction. The contract price covers both phases.
DBB projects are the most common, especially for government-funded non-residential construction. The project owner hires a designer (typically an architect) who provides engineering drawings for approval. The project owner then shares the information from the design phase with one or more general contractors, who then submit their bids for executing the design. The project owner then signs a contract with the chosen general contractor.
CMAR projects are similar to DBB projects except that the general contractor is involved from the very beginning and may even be involved in choosing a designer/architect. The two collaborate during the design phase, which helps reduce costs. This delivery method is most commonly used for complex projects.
IPD is a newer method in which the project manager, designer/architect, and general contractor work together as a team under one multi-party contract. All parties share the risk if the project comes in over budget or the savings if it is completed within the budget. The IPD approach is most common for complex projects that use lean construction principles.
Construction Contract Types
Contractors also need to understand what kind of contract the project owner is offering and what that means in terms of its advantages and drawbacks. By far the most common construction contracts are fixed-price contracts—one price for the entire job for the entire scope of work from project initiation to closeout. If you can bring the project in under budget, you’ll reap the benefit of a higher profit margin.
With a time and materials contract, the contractor is paid an hourly rate or receives a fee based on the cost of the materials used. The advantage to contractors is that they are compensated for all of their work, even when that exceeds what was specified in the scope of work. However, a lot of time goes into tracking work hours and materials costs.
A cost-plus contract pays the contractor a specified percentage of the total project price as profit as well as for all direct and indirect costs. The contractor is assured of a certain profit margin even if the project comes in over budget.
Guaranteed maximum price contracts motivate the contractor to finish a project on time and within budget because any costs above the agreed-upon maximum contract price come out of the contractor’s pocket.
Substantiate Your Qualifications
Emerging contractors don’t have a long track record to rely on as proof of success on projects of similar size and complexity. So it’s especially important for them to have all of their ducks in a row in terms of qualified personnel, financial strength and stability, insurance coverage, and bonding capacity.
Construction surety bonds are a requirement for the vast majority of public works projects and for an increasing percentage of private project owners. The ability to obtain the required bonds can be the deciding factor in whether or not a project owner is willing to give an emerging contractor a chance.
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