How Does Construction Bidding Work?

by Donna Bogren; Updated September 26, 2017
How Does Construction Bidding Work?

When a construction project is put out to bid, its owner is looking for a responsible, qualified contractor to do the work at a reasonable cost. The bid process ensures that potential bidders are working from the same information, leading to the ability to compare not only prices, but the thoroughness of the bid.

The chances of a successful project outcome are greatly increased when the owner prepares complete, factual information for the bidders. This information is called a bid package, or bid documents. These documents include the project plans, specifications, quantity lists, schedule information and data on any specific equipment or products to be used. Relevant information on site conditions is also included. A copy of the contract to be signed is often part of the package to allow bidding companies time to review it, as well. The bid documents, taken together, typically become part of the successful bidder's contract. Bid quantities and unit prices control how much money is due in progress payments during the life of the project.

Public bids, or those with an agency or governmental owner, follow different rules than private bids. They must be advertised in advance, and they allow any qualified contractors to bid if they choose to. Private owners may opt to limit the process to contractors they have selected as bidders.

When the bidders receive the bid packages, they sharpen their pencils, or fire up their estimating software, and determine material costs and availability, the labor and equipment that will be needed, the order of work, and scheduling requirements. Problems sometime arise as they consider a project. An example would be finding that an important component has a long lead time for delivery that will conflict with the owner's desired construction schedule. Another typical issue occurs when owner-supplied quantities do not match the quantities as the bidder has estimated them. Questions are addressed by asking for clarifications from the owner. A responsible owner will both answer these questions and share new or updated information with all the bidders.

Site visits are often arranged to allow contractors an opportunity to identify potential problems that may be costly, like access issues or conflicts with existing structures or improvements.

When the bid date arrives, government agencies may or may not open bids publicly. Some agencies mandate that the bid be awarded to the lowest responsive bidder. This is sometimes problematic in that the low bidder may have made an error or otherwise miscalculated the project's true cost, which can lead to cutting corners or substandard work during construction. Private owners do not typically have public bid openings. They have great discretion to use criteria other than price for selecting a contractor. One contractor may have a higher price, but may have identified scheduling efficiencies to bring the project online faster, for instance.

Whichever process is followed, public or private, the bids are evaluated for completeness. A contractor who has excluded some of the work, for example, may be considered "not responsive," and that bid may be rejected. Information that was requested but that was not supplied, perhaps regarding insurance or a list of previous projects, may also be grounds for rejecting a bid. Contractors need to take great care to include all documents requested.

At the end of a well-run bid process, the bids give project owners objective, apples-to-apples criteria to select the best contractor for the work.

About the Author

Donna Bogren has been a freelance writer since 2008. Her background includes 30 years in construction management, a frequent topic of her articles published by Demand Studios. Her work has been published in "Critter" magazine. She also writes grants and marketing materials. Bogren's degree in civil engineering technology was earned at Michigan Technological University.