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Construction bidding is the process of submitting a tender by the contractor to the client as a proposal to conduct or manage a particular construction project. The bidding process is an incredibly important part of a construction project. This enables firms and companies to hire contractors.
Also Read: What is a Tender in Construction?
Some of the important features of construction bidding are briefly explained below.
Construction Bidding Process
The basic construction bidding process involves:
- The client or general contractors send bid invitations to the contractors or the subcontractors.
- The contractors or the subcontractors receive the invitation that includes:
- Scope of Work
- Time of Completion
- Pre-Qualification Details
- Contractors or Sub-Contractors download the tender document and review the project based on their respective cost codes.
- Contractors or Sub-Contractors submit their bid to the client or general contractor.
- The general contractor or client awards the bid to the subcontractors with a most competitive bid and it is converted into a commitment.
Decisions in Construction Bidding Process
The three major decisions in the construction bidding process are:
- The Project Delivery Method
- The Procurement Method
- The Contract Model
1. The Project Delivery Method
There are four traditional project delivery methods. They are:
- Design-Bid-Build or Design Tender
- Construction Management at Risk
- Design-Build D-B
- Integrated Project Delivery (IPD)
The four major project delivery systems mentioned above share the common goal of helping the owners built new structures on time and on budget. These methods also ensure quality and performance requirements.
1. Design-Bid-Build or Design Tender
This is the traditional method and is commonly employed for the construction of non-residential buildings, mainly under government projects. In a DBB method, the owner hires a designer or an architect independently. This is performed by the contractor who is managing the construction. Once the design is completed by the architect, bids are solicited from the contractor by the owner so that the designs can be executed.
The bid covers:
- Total cost of the building structure
- Money for the subcontractors
- General contractor’s costs
- Overhead costs
Important advantages of DBB are:
- The Owner has a great control over the design and construction
- A high ease of implementation
- The cost of construction is easily determined as the architect provides a design before awarding the contract
Disadvantages of DBB are:
- The Owner must have substantial expertise in the work
- Availability of resources
- High responsibility for project execution
- Mange increasing costs due to the design errors
2. Construction Management at Risk (CMAR Method)
The CMAR method is an alternative to the DBB method that helps in reducing the costs. In this method, design and construction are handled by different firms. Here the construction manager is involved in the project from the start of project, even before the design of the project. The CM can even help in choosing the architect for the project. Once this step is done, the project is moved forward by the CM and the architect. They work together during the design phase.
This method is mainly employed for complex projects. The CM is chosen by the owner on the basis of his or her experience and qualifications and not on the basis of the lowest price criterion. The bid of CM to the owner is a guaranteed maximum price (GMP). This cost represents the:
- Pre-construction service
- Actual construction
- The Fee of Construction manager
- Possible Contingencies
After the completion of the design, the construction manager solicits the bids from the contractors. If by chance, the actual costs exceeds the GMP , the risk is on the CM. And this burden won’t be taken by the owner. If the project is built below GMP, the savings received by the owner may be shared with the CM as per the agreement made between them.
Advantages of CM at Risk Method are:
- Great Cost Control
- Reduced risk for Owners
- Superior Project Management
3. Design-Build D-B
In DB Method, the owner provides the contract to a single entity that can handle both the design and construction. Here, one price covers both the phases of construction. This entity is called a design-builder or design-build contractor. In DB, the design-builders is accountable to the owner for all aspects of the project.
4. Integrated Project Delivery (IPD)
The IPD method is also called an Integrated team method. This is one of the newly developed projects delivery methods. This method employs, owner, architect and contractor as a team, and the risk is shared equally.
2. Construction Procurement Methods
After the selection of the project delivery method, the next step is to bother about the procurement method through which the construction services are obtained. Construction procurement is generally classified into:
- Best Value Method (BVS)
- Negotiated method
- Sole Source or Direct Select
- Low Bid
1. Best Value Source Method (BVS)
In this method, the buyers and the contractors are awarded the contract based on price and performance. These records taken into consideration are past performance, robust management approach, qualifications of the staff and other specific factors.
2. Negotiated Tendering
In this method, the contactors are selected without any form of advertising or competitive bidding. A potential builder is chosen and negotiated with reference to the price and the technical requirements. The contractor who makes a favorable proposal is taken into consideration by the government. This proposal is not opened publicly.
3. Sole Source or Direct select
In this procurement method, a single source procurement method. This is a non-competitive method that only uses a single provider who can fulfill all the requirements of the project.
4. Low Bid or Lowest Bid
Competitive bidding with the lowest bidder is the principle behind the low bid procurement method. This is one of the traditional procurement methods. Government and public construction entities are built as per this procurement method
3. Contract Model
The contract format that is presented in the construction bidding process must be carefully developed. The owner is supposed to suggest the type of contract he is willing to make. The type of contract developed determines how cost and the profit are covered. Top used contract types are:
- Cost Plus Fee Contract
- GMP Contract
- Time and Material Contract
- Fixed Price Contract
- Lease Leaseback
Read More: Construction Contracts – Types and Features