One of the most important skills needed by
a developer, builder, contractor or any service professional is the ability to
accurately bid on jobs. Bidding on a construction project is the process of
estimating the cost of each component of the project, determining availability
of materials and labor, and presenting this information to the customer in a
clean, organized and appealing way.
An error in bidding can be a costly mistake
for a construction company that has to honor the final contract and leave the
project with no profit. On the other hand, over-bidding a construction job can
result in lost business. In every single construction project there are as many
opportunities to make money as there are to lose money.
To make a profit on a project, you need to
estimate not only the obvious cost, but also the potential hidden cost. No
matter how good a set of construction drawings is, there will always be some
missing information. Most often, drawings do not state the building material
manufacturer which leaves the door open for misunderstanding and an unhappy
Before a construction estimator even visits
a site or looks at plans, the company should decide on the kinds of profits it
must make to remain viable, where it can afford to lose and what overhead costs
are running at the time. Consider the time you spend putting the proposal
together, operating an office, in addition to the supplies and staffing costs.
Add up all the costs involved in doing the project (the overhead and your
salary), then figure out how much margin you want to add. A 10-to-20 percent
margin, after all expenses have been paid, is a good operating strategy to stay
in business. A company that only breaks even eventually will have to fold.
Consider investing in construction
estimating software that can take a lot of guesswork out of the process.
Estimating programs allow you to enter all of the parameters of a project and
prompt you for information you might have neglected to gather. You can set your
desired profit margins, and the software will prepare the bid and even fill out
bidding forms. Construction programs also can help to manage bids and remind
you when follow ups are due, but even without estimating software you can
provide an accurate bid.
The following steps will help you make
accurate proposals on your next projects:
1. Meet with potential clients
This can't be stressed enough. It is
essential to take the time to visit the job site and review the plans and
specifications. Ask as many questions as you require to clearly understand your
client's finished project expectations.
2. Calculate Material Costs
List all the materials needed and contact
your suppliers for availability and pricing. Include delivery cost and an
allowance for damaged or lost materials in your calculation. Mark up your
material costs enough to remain profitable, but not so much as to sacrifice
your competitive edge.
3. Calculate Labor Costs
Estimate your labor time and cost in wages.
Don't forget to include overhead costs like workers compensation and benefits
in your calculations. Add your mark up on labor to this figure. This will be
part of your gross profit from the project.
4. Request Subcontractor Bids.
Get bids on any portions of the job you
will need to subcontract out. Mark up your cost on subcontract labor slightly
to cover your administrative costs. This is the time to check that your
subcontractors are properly insured and that they have sufficient working
capital to undertake the project.
5. Have a Time Table
Prepare a time line for the construction
project. Consider availability of materials, labor and subcontractor labor as
well. Allow extra time for back orders, inclement weather, last minute
subcontractor problems and/or delays due to the client.
6. Prepare your Bid
Write your bid for the construction
project. Provide enough detail so that the client has a clear understanding of
what he is getting for his money. Make sure that your proposal looks
7. Present your Bid to the Client
When you present your bid provide references
from satisfied customers. Don't wait until the client asks for references.
Successful contractors will be more than happy to showcase their previous jobs.
Also provide photos of high quality jobs you've completed in the past. Show
evidence that you, your employees and subcontractors are all properly insured.
8. Clarify Changes
Include in your bid an estimated
competition date. Also spell out how you will deal with changes to the original
scope of the project. Specify that any changes must be requested in writing,
and that the cost of the additional work will be detailed and signed by the
client before you proceed. This protects both you and the client. When you
neglect this aspect of bid preparation, clients may expect you to make changes
as part of the original job, and you may end up working extra for free.
9. Follow Up
Ask the client when you might follow up to
discuss who will be awarded the job. When you follow up, if the client wants to
give the construction project to another contractor, ask if you might compare
bids. Often service providers get intimidated and don't ask for this
opportunity. Explain to the client that the low bidder is not always the most
cost effective option. Offer to work with the client on cost if your client's
budget is the deciding factor. Suggest alternative materials or design options
that could cut the cost without compromising quality, but never compromise
quality for price.
10. Leave your Contact Information
Even if the construction project will be
awarded to someone else always leave your business card with your contact
information. Be professional, thank the client for the opportunity they gave
you to bid on their project and offer your services for the next upcoming
project. Professionalism goes a long way when building relationships.
If you don't win the bid, find out what the
final bid was and compare it to your own. You may find that that with some
minor adjustments you could come closer to winning the project. On the other
hand, you may realize that you are competing against companies that are willing
to break just even to keep crews employed or to win favor with an important
investor. Track all of your bids and regularly compare the winning and losing
bids to adopt a formula that wins most of the contracts you want.
Tips Before You Sign a Construction Contract
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