Bidding a Project

Construction projects are bid at the convenience of the owner. The list below gives an idea of the process that could be expected of a bidder. Remember, often a general contractor is providing a bid to the owner with input from many subcontractors who, in turn have given their bids to the GC.

  • Hard Bid - this method is typical for most public projects, saluted for its ability to keep public bureaucrats from "hand-picking" contractors with political alliances. Here, the specifications and drawings are complete prior to bidding and awarding the job to a general contractor.
  • GMP - Guaranteed Maximum Price - this type of approach is meant to protect the owner from "low bidders" that rack up pricey change orders? throughout the project, however contractors assume a high risk, and will bid the projects accordingly to manage that risk. A GMP-type approach can be used with a Hard Bid or Design-Build project. At some point, when the drawings are far enough along, the General and Owner agree on a GMP for the project.
  • Best Value - this process allows an owner to contractually take into account both value and price offered for the delivery of a project. Before the bid is put out on the street, the owner will usually explain how the contract will be awarded. This will typically include an oral presentation, a bid, and quite possibly value engineering.
  • Design/ Bid/ Build - this method sometimes requires the contractor to find an architect to suit the owner's needs; otherwise the owner will have a schematic design for the contractor to bid on, and the design is developed further as the project continues.

The following sections are the important factors that are used to determine if a general or subcontractor will bid on a project at all. These factors include Bonds, Project Type and Owner; they don't cover all the reasons, but they're the top three in my book.

Bonding a Project

There are many factors that affect whether or not a subcontractor will bid a project. First off, can the sub be bonded for the size of the project? A bonding company will usually be required, should the subcontractor become financially unable to complete the job. The bonding company holds the sub accountable, and assures that the correct parties are paid upon completion of work by way of a performance bond.

  • Performance Bonds are often required to ensure that should the general or subcontractor go out of business, the bonding company will find another contractor to complete the work. This is not always a requirement, but often general contractors will require this of their subcontractors to reduce risk.

Note: A performance bond is not always necessary. Sometimes a general contractor will foot the bond for small business enterprises in order to meet goals of SBE, WBE, DVBE, etc. for a project. Other times, an incentive plan can be put in place as a sort of insurance. For example, some General Contractors will award a fee if a subcontractor meets their expectations laid out in the contract agreement.

  • Payment Bonds are often required to ensure the contractor will pay his vendors. In the case that the contractor cannot pay his vendors, the bonding company will step in.

Note: The contractor pays for Performance, Payment and Bid Bonds, not the owner. Some general contractors will set up these requirements to their subcontractors.

  • Bid Bonds are often required to ensure that the subcontractor will perform the work at the value of the bid provided during bid time, even though there is no contract awarded at the time of bid. These are used to protect the owner and general contractor and are quite common in commercial construction. This again helps the general contractor manage risk when bidding on a project and basing the values strongly on quotes from subcontractors.

Project Types

The type of project will likely determine whether subcontractors will bid a project. Workers that are accustomed to work in one field may have trouble adapting to another. Consider loose safety rules of a residential housing track compared to stricter rules enforced while working in a hospital. Construction can easily be divided into several self-explanatory sectors. Typically a contractor will specialize in one type of construction. Here is a list of how owners would describe a project, based on its future function:

  • Commercial Schools, Airports, Casinos, Chain Stores, Restaurants and more!
  • Residential? Apartments, Military Housing, Dormitories, Housing tracks, etc.
  • Heavy Civil? Roads, Bridges, Dams, Aqueducts, etc.
  • Industrial? Petroleum, Chemical, Oil, Medicine, etc.

The Owner-General Contractor Relationship

This item is listed last on this page, but it should be considered first in the "Bidding" Circle of Life because the owner is the alpha and omega of all projects. Specifically, if after completing one project, the same owner will be building another similar job in your area, the past relationship you have built with this owner, will be the budding first signs of life in the new project.

Here are some of my thoughts on owner-contractor relations:

The owner has a majority of the power to make the project successful. I disagree with this statement, though it is strictly an opinion. In my experience, it's how the general contractor manages his relationship with the owner that really makes all the difference.

A smart general contractor will choose his owners, not vice versa. Remember when your mom used to tell you to pick your friends, not to let them pick you? She was giving you the best business advice you could have ever hoped for. The good GC will make relationships with good owners, to guarantee repeat business.

An ineffective GC will choose owners with shaky financial foundations, and compliment them with risky, low bids. We've all heard the saying "big money only comes to those who take chances", but use common sense when bidding a project. Most importantly, understand your overhead. Bidding a project for the cost of work will never reap huge rewards.

A tough owner isn't necessarily a bad owner. This helps the general contractor further enforce quality and production on the project. You should never be afraid of working for an owner with high standards. A good general contractor will have higher standards than his owner.

The Owner-Contractor relationship must be nurtured, like a marriage. A General Contractor should continuously strive to keep a strong relationship with the owner, especially on long projects. Partnering sessions make for a great forum to get feedback to find out what the owner appreciates, as well as what holes need to be filled.



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