Hiring great subcontractors at a low price is a challenge for many general contractors. After all, one sub bid can be the difference between winning and losing a job. But, with a good subcontractor bid management process, GCs can hire the best subs at competitive prices.
Let’s walk through building a subcontractor bid management process, including establishing the procedures for inviting subs to bid on a project, getting bids from them, and selecting the winning bid.
Key Takeaways
- Following a well-established bidding process ensures that the bidding is fair and strengthens a GC’s relationship with its subs.
- It ensures that the bidding process is efficient and reduces the risk that a missing bid will prevent you from completing your bid.
- It also reduces potential GC-sub conflicts about each party’s responsibilities and what is included and excluded from the bid.
Why Use a Standard Bidding Process?
Many small-and medium-sized general contractors rely heavily on subcontractors, so attracting the best bids from the best subs is critical to winning business and staying profitable. Putting some standard procedures in place will help you get better bids and win more work at higher profit margins.
By developing and using standard procedures for subcontractor bids, you:
- Reduce the risk of not having a bid for every work package in time for the bid.
- Increase competition between subs, resulting in more competitive bids.
- Show fairness to all subs by having a consistent and transparent process.
- Reduce conflicts that come from subs feeling that their bid has been evaluated unfairly.
- Strengthen your relationship with your subs, making it easier to get bids.
- Make sure expectations are clearly communicated on both sides.
- Streamline the bidding process and improve its efficiency.
- Strengthen your company’s image as one run by professionals.
The Subcontractor Bidding Process
The subcontractor bid management process varies from company to company. Your company should develop its bidding process based on how you operate and what works best for you. Consider including the following in your process:
Subcontractor Procurement List
A good place to start is by developing a list of all the subs needed to complete a bid for the construction project. You’ll want to carefully review the bid package (plans and project manual) and identify any work that will be subcontracted. We recommend that you pay particular attention to any unusual work or work that might be difficult to find subcontractors for. You don’t want to waste time bidding on a project if you cannot get the needed bids from subs.
Develop Scopes of Work
Once you’ve identified the work that needs to be subcontracted, that work needs to be broken down into work packages, and a scope of work needs to be developed for each package. Care must be exercised to ensure that there aren’t any gaps or overlaps between the work packages. When gaps exist, you also have a gap in the bid, and that often falls on you to cover from your profit. When overlaps exist, the cost of the work is included in the bid twice, increasing the cost and lowering the competitiveness of your bid.
It’s common to identify the section of the technical specifications assigned to each work package in the scope of work, but care must be taken with sections divided among several work packages, like 079200 joint sealants. You must clearly identify which work package is responsible for each portion of the work. Alternatively, you can also spell out all the items required to complete the work in the scope.
Identify Bidders
Once you’ve identified the work packages to be subcontracted, potential bidders (subcontractors) are identified for each work package. We recommend that you prequalify each bidder to ensure they can perform the work and will be a good team member. You should identify potential bidders early in the bidding process so there is time to prequalify them.
🔎 Dive deeper – Prequalification: The Key to Choosing the Right Subcontractors
Request for Proposal
Requests for proposals (RFPs) are often used to communicate the desired bid requirements to bidders. The RFP forms the basis of the contractor-subcontractor agreement and reduces miscommunications and conflicts between you as the GC and your subs. A well-developed RFP should include:
- General information about the project (project name, company name, location, and owner).
- The scope of work (work package) you want them to bid on.
- How can they access the bid package and bid documents?
- Requirements for bid submission (by email, online portal, etc.).
- When you need the bid.
- The documents (licenses, bonds, insurance certificates, and certifications) that need to accompany the bid.
- How the work is to be quoted (fixed price, unit price, etc.).
- How long does the price need to be guaranteed?
- How you plan to evaluate the bids and select the winning proposal (lowest price or best value).
- The anticipated schedule.
- Contact information (name, title, email, phone number, etc.) for the person handling the bid.
A copy of the contractor-subcontractor agreement should also be sent with the RFP. Because the RFPs become part of this agreement, we recommend you work with your attorney to develop a standard template for the RFP.
Send Out RFPs
Once the RFPs have been prepared, it’s time to send them to prequalified subs using a bid invite. You don’t want to just email the quotes to the subs and hope they will send you a bid; you need to get a firm commitment from them to bid on the project. This can be done by asking them to respond to your email or with a phone call. Personally, I find that a phone call is more personal, and allows you to quickly address the sub’s concerns about bidding on the project and assess their level of commitment. One of the most important jobs of the bid team members is to convince the best subs to bid on the project and give your company better pricing than your competitors. Relationships matter!
Follow Up
Following up with the sub is essential to developing a good relationship. When you receive their bids, you should send them a quick note letting them know you’ve received the bid and appreciate their efforts. If you haven’t received their bid a few days before the bid date, don’t hesitate to check in with the sub and verify that they are still bidding on the project. You don’t want to be left without a complete bid on bid day.
Bid Review
When you receive a bid for a work package, you need to review it against the scope of work to ensure everything is included and that there are no extra items. If the bid doesn’t match the scope of work or you have questions about the bid, discuss your concerns with the sub. There’s always a chance that there’s a valid reason for the difference. A certain material may not be available, or you may have missed something in your scope of work. By bringing issues like these to light during the bidding process, you can address them head-on and minimize their impact on the project. If you still have concerns about missing or extra items, ask the sub if they can adjust their bid to address them.
Bid Leveling
When you have received several bids for a work package, you need to adjust them for any differences so that you are comparing apples to apples. During the bid leveling process, the pricing is adjusted by adding money to the bids to cover the cost of missing items and deducting money for extra items.
Note: Be very careful when deducting costs because there is no guarantee that the sub will reduce their price.
Bid Selection
Once you have leveled the bids, you can select the sub bid to include in your bid. This decision-making should be based on the selection criteria outlined in the RFP. When subs feel that their bid has been unfairly evaluated and passed over, it creates hard feelings and makes it difficult to get bids from them in the future.
Post Bid
Once you submit your bid, you’re still not done with subcontractor bid management! You need to follow up with the subs.
Notify Unsuccessful Subcontractors
You should notify the unsuccessful subs that they were not the low bidder. Sometimes, it makes sense to wait to send the notification to the unsuccessful subs until the low sub has signed the agreement — in case they fail to sign. When notifying subs, you should thank them for their bid and let them know how it compares to the competition. If they’re open to it, you can also help them understand how they can improve their future bids. This takes time, but it strengthens the relationship.
When you’re awarded the project you’ll have a new list of things to do. At a minimum, we recommend you take the following steps with the sub with the winning bid:
Negotiate Final Terms
If there are differences between the sub’s bid and the scope of work, you must negotiate with the sub until the bid and scope of work are the same. This is not an invitation to beat a few extra dollars out of the sub but rather, to ensure that you and the sub have the same expectations and can avoid potential conflicts during construction.
Execute the Agreement
Once you have reached a consensus, you can prepare the final agreement for the work package and send it to the sub for them to sign. If you have included a copy of the agreement in the RFP and negotiated final terms, it should be easy to get it signed by both parties. Once the agreement has been signed, you need to make sure that accompanying documents (like copies of licenses and insurance certificates) have been submitted and are acceptable.
Notify the Superintendent
Once the agreement has been executed, you need to send a copy to the superintendent. Sending them a copy lets them know that the sub can begin work on the project. They also need the agreement so they understand their responsibilities to the sub and review a summary of the sub’s duties.
Review the Bill
When you receive a bill from the subs, you should check it against the contract documents. A good accounting system plays a vital role in this review. If there are discrepancies between the bill and the agreement or if you feel they are billing for more work than has been completed, contact the sub and discuss it with them.
Close Out the Agreement
Once the subcontractor has completed their work (including any punch list items) and they have been paid, you need to close out the agreement in your accounting system. This prevents additional costs from being billed to the contract.
Construction Bid Management Tools
Construction bid management software allows the general contractor’s project management team to automate the bidding process. Once you email a bid solicitation to the potential bidders, they can access the bid package from a centralized location (including your RFP) and return their bid submission through the software. Bid management tools give the bid team real-time access to the sub bids. Bid management tools are often included in construction management software and they help the GC manage the project through its lifecycle, from pre-construction to closeout.
Final Thoughts
As a general contractor, you want to win as many profitable jobs as you can staff. Many people are counting on you to provide a steady stream of work that provides them with employment. Developing a subcontractor bid management process for obtaining and evaluating sub bids will help you win more jobs with better profit margins, benefiting you, your family, and those who count on you for employment.
Further Reading – How to Establish a Construction Bidding Process