Mastering the bid process is one of the most important ways to set yourself up for success to not only win more bids, but also build more profitable projects. And a big part of the bidding process is bid leveling — when you master it, you up your ability to deliver more quality projects and lower the risk to your construction business.
To streamline the process, you need to set up the infrastructure to compare subcontractors equally, so you can make more informed decisions on which bids will provide the best value for the cost, while staying competitive and delivering quality work.
Key Takeaways
- Bid leveling is the process of reviewing and adjusting bids from subcontractors so they can be compared on an equal basis.
- Proper bid leveling protects general contractors from risk incurred through scope gaps.
- Effective communication with subcontractors is crucial throughout the bid leveling process to ensure an understanding of requirements and justification for any changes or adjustments.
What is Bid Leveling?
Bid leveling is the process of reviewing subcontractor bids and comparing them on an equal basis. To do that effectively, you need a system that allows you to receive pricing from multiple subcontractors on several scopes of work and easily identify irregularities or discrepancies. This helps you evaluate pricing using “apples to apples” criteria and select the best bid.
Subcontractors often submit pricing based on the scope of work they typically perform for a project, which may vary slightly from another subcontractor bidding on the same job. If the bidding requirements are unclear, each subcontractor may end up submitting pricing for slightly different scopes of work, or one might leave out pricing for a specific requirement.
Subcontractors will also submit pricing based on varying levels of quality or types of materials used, which can result in a different price. When these discrepancies exist, the bids are difficult to compare directly, so making bid adjustments will help identify which subcontractors are qualified and equipped to execute the project for the right price.
Let’s take a look at a side by side example of two electrical contractors bidding on a commercial job:
Subcontractor-A’s Bid – Subcontractor-A’s scope of work includes installing wiring, light fixtures, and electrical panels. However, they did not include the installation of emergency backup generators in their bid. Their bid comes in at $100,000.
Subcontractor-B’s Bid – Subcontractor-B, on the other hand, includes all the work Subcontractor-A proposes, but also adds the installation of emergency backup generators in their scope. Their bid comes in at $120,000.
In this scenario, the bids are not directly comparable due to the difference in scope for the backup generator. To level the bid as a GC, you might ask Subcontractor-A to provide a revised bid that includes the cost of procuring and installing the emergency backup generators. You could also contract separately for the generator installation with another subcontractor.
By evaluating how Subcontractor A’s price would change, by including the extra scope or by contracting the scope separately, you can make a side-by-side comparison between the two subcontractors and select the bid that offers the best value, considering both the cost and each company’s ability to complete the full scope of work. If you didn’t level these bids, you may end up with an unqualified subcontractor underperforming on a complete scope of work or overpaying for a scope of work that could cost you the ability to stay competitive in the fight to win a project bid.
👉🏼 Check out our ultimate guide to the construction bidding process.
Why Use Bid Leveling?
Bid leveling is an essential step in the bid process because without it, you take on extra risk in a couple of ways. The name of the game in winning a project you are bidding on is maintaining a competitive edge and staying lean with pricing. Without the ability to accurately compare bids, it’s almost impossible to determine if you are picking a subcontractor who offers the best value for the cost. Picking the wrong subcontractor could mean paying a more expensive sub when an alternative company could do the same job for cheaper, leaving you with a fatter bid and hampering your ability to stay competitive.
Construction companies also get in trouble when they don’t effectively level costs when they select a subcontractor that misses key aspects of the project’s requirements or fails to deliver on a scope of work. This leads to a loss of profits, delayed schedule, or change orders due to scope gaps. The risk here is not necessarily about losing the project bid, but more about preserving your reputation as a GC and the ability to gain referrals or repeat work.
Benefits of Bid Leveling
1. Fair Comparison: Bids from different subcontractors can vary in terms of what they include or exclude, making direct comparison difficult. Bid leveling ensures all bids are based on the same scope of work, allowing fair evaluation of each subcontractor bid.
2. Identifies Best Value: By comparing ”’like for like,” you can identify which bid offers the best value, not only the lowest cost. Leveling takes into account factors like quality, capability, and reliability, in addition to price.
3. Reduces Risks: Bid leveling helps identify any omissions, allowances, or assumptions in the bids that could lead to additional costs later. By spotting these early, you can avoid unexpected costs and delays during the project.
4. Promotes Transparency: Bid leveling promotes transparency for internal and or external stakeholders, making it very easy to identify what scopes of work were included in a subcontractor bid during the preconstruction phase to help mitigate confusion or disputes later on in the project.
The Bid Leveling Process
Once you’ve started the process of bid leveling and begin receiving subcontractor bids, the setup for comparing the bids is simple. Follow these steps to select the right subcontractors for the project:
1. Receive Bids: Once the bids are received, organize them in a way that allows for easy comparison. This could be done in an excel spreadsheet or bid comparison software.
2. Review Bids: Carefully review each bid to ensure they adhere to the defined scope of work. Check for completeness, pricing, exclusions, qualifications, and any assumptions made by the subcontractor.
3. Identify Differences: Highlight any differences in the scope of work submitted by the subcontractors. This could include work that has been excluded or additional scope that’s been included.
4. Request Clarification or Additional Information: If there are any items in a bid that are unclear, or if there are tasks or materials included that weren’t in the original scope of work, reach out to the subcontractor for clarification or additional information on why it was included/excluded.
5. Request Revised Bids: If a subcontractor has excluded a task or material that was in the original scope of work or was included by another subcontractor, ask them to provide a revised bid that includes this item. Conversely, if a subcontractor has included additional tasks or materials that weren’t in the original scope, ask them to provide a revised bid excluding these items.
6. Document All Changes: Keep a record of all changes made during the bid leveling process. This includes any adjustments to the scope of work, any revised bids received, and any other changes or clarifications.
7. Compare Bids: Once all bids are leveled, compare them to identify which offers the best value. Remember, the best value may not always be the lowest price. Consider factors like the subcontractor’s reputation, quality of work, reliability, and workload.
8. Finalize Contractor Selection: Based on the bid leveling process, select the subcontractor that offers the best value and proceed with contract negotiations.
Communication is key in bid leveling. Be sure to maintain open lines of communication with all potential subcontractors throughout the process to ensure everyone understands the requirements and any adjustments that need to be made. The faster you can identify and communicate changes or adjustments, the faster you can put together complete and accurate pricing for your potential client.
Key Areas of Risk
When bid leveling, there are some key areas of risk that you should be aware of. For one, you want to look out for big inconsistencies between bids and adjustments with subcontractor pricing. When bids from subcontractors are showing significant differences, it’s an indication that several subs may have overlooked key elements of the project scope and underestimated the price, leading to unforeseen costs later on in the project. In these cases, consider re-confirming the project requirements and communicating to the subs by being prescriptive on what you’d like to see included in the subcontractor’s bid.
Lastly, be mindful of the communication you are having with subs and the resources they are likely using to put together pricing. While leveling bids for the project’s sake is imperative, remember that relationships with your subs and stakeholders are also important. Be mindful of how often you are asking for revised pricing to maintain a positive relationship and the promise of receiving bids on future projects.
Final Thoughts
Effectively bid leveling is essential for any general contractor aiming not only to win work but also to deliver high-quality projects while maintaining profitability. By ensuring all bids are compared on a level playing field, you can make informed decisions about which subcontractors provide the best value and can effectively execute on project delivery.
Bid leveling goes beyond simply comparing numbers. It involves understanding the nuances of each bid, identifying discrepancies, and communicating effectively with subcontractors. When done correctly, it can significantly enhance your ability to be competitive in the construction industry and ultimately lead to the successful and profitable completion of more projects.
Further Reading: Foundations of Construction Project Management
The CrewCost Team consists of men and women who have worked in the construction industry as project managers, general contractors, sub contractors and more. They share their decades of experience on our blog as a way to help other contractors grow healthier and more profitable businesses.