Bid strategies

[edit] Introduction

Contractors and subcontractors often develop strategies for which tenders to bid on and how to bid. The overriding aim of the strategy is to weigh up market and commercial factors and decide on a price that is just low or attractive enough to become the preferred bidder.

The bidding process is often time consuming and expensive, involving costs for the evaluation of specifications, subcontractor selection, proposal preparation, and so on. Bid strategies for major projects may involve many people for months or even years. Contractors cannot afford to bid unsuccessfully for too many jobs and so must select the jobs they do bid on carefully.

However, occasionally, contractors will submit bids without any particular expectation of winning, to test a new market that they may be looking to enter. Contractors may also chase a declining market to take work where there is little chance of making a profit, in order to enter a new market, to develop a relationship with a new client or simply to maintain their operations.

Sometimes, it can be to contractors’ advantage to enter into a joint venture on a bid to win work in market areas where they have less experience or where there is high risk.

[edit] Bid considerations

Some of the factors considered when choosing which projects to bid for and how to bid include:

• The type of work.
• Project size and duration
• The complexity of the project.
• The clarity and detail of the information provided.
• The type of employer: Public employers can be more process-driven and require more complex submittal procedures.
• The location of the project.
• Equipment availability: estimators should be mindful of the availability of expensive equipment across bids and projects.
• The availability of team and management: Projects may be bid with particular project team members in mind who may have specific expertise or experience.
• The number of bidders: Some projects will receive more bids than others. The odds of winning are greater on those with fewer bidders.
• Competition: only a few contractors will be likely to offer serious competition on any one bid. Being aware of their workload gives a better indication of which projects to bid for.
• The time of year.
• Whether the contractor has prior experience with a project that is similar.
• Confidence in the prices provided by subcontractors for the project.
• The state of the market - whether busy or slow.
• Whether there is an existing relationship with the employer.
• The opportunity for follow-on work from the same employer.
• Confidence in external events such as interest rates, inflation, and so on.
• How busy they are on other projects. Being busy may mean they enter higher bids, whereas if they are less busy they may enter lower bids that offer less profit.
• The amount and value of subcontracted work.
• Variations in productivity. As a trend, workers tend to be more productive when labour is readily available, whereas they are less so when labour is more scarce.

Expert analysis can be used to determine optimal bid prices. Typically, a base overhead and base fee are determined before a correction multiplier is applied based on some of the determining factors listed above.

Occasionally, quantitative analysis and bidding strategy models are used to assist contractors in making bidding strategy decisions.

[edit] Bidding process

The bid proposal package should respond directly to the invitation to tender. If the package is not judged to be responsive, i.e. with all the required documentation in the correct form, providing the right information, it may be thrown out.

Generally, early in the bidding process a meeting is held so that overlaps and estimating assumptions can be resolved, and construction methods determined. The meeting should also define the scope of work that is to be subcontracted out.

A final estimate review meeting between the estimating team and management is typically held a few days before the bid deadline. The estimating team explains the rationale behind the generated costs and the scope that is included. At this stage, any remaining disagreements are identified and changes made if necessary.

Bid closing day is generally very hectic as the various subcontractors and suppliers send in prices and then revised prices as the deadline draws near. It is common for bidding errors to occur at this stage, when there is not enough time to review every quote and adjustment in detail. A common mistake made on the bid day is for the same change to be made twice, which results in money either being added or deducted incorrectly.

An incorrectly written price may result in the bid having to be withdrawn or the loss being absorbed.

To try and mitigate against these risks, estimated price comparison sheets may be set up a few days in advance. Each member of the estimating team should be assigned a trade or supplier scope to compare and adjust, with care taken to ensure there are no overlaps or gaps in the assignments.

Another common mishap on bid day is to fail to submit the bid on time. In an attempt to avoid ‘bid shopping’, contractors may withhold their submission as close to the deadline as possible. However, if the deadline is 15:00:00 and it is submitted at 15:00:01, the bid will usually be rejected. If the project is international, it is incumbent on the contractor to be sure what the ‘local’ time of the employer is.

[edit] Related articles on Designing Buildings

• Auction theory.
• Best value.
• Bidding tactics
• Bid writer.
• Competitive tender.
• Dutch auction.
• E-tendering.
• Estimator.
• Form of tender.
• Game theory.
• Initial cost appraisal.
• Invitation to tender.
• Pre-tender estimate.
• Procurement route.
• Relationship management.
• Submittals.
• Tender documentation.
• Tender evaluation.
• Tender process.
• Winning work in the construction industry.
• Zone of possible agreement.

[edit] External resources

• PDHOnline - Bidding