It's hard to say what the most important part of the construction process is for contractors, but the bidding process surely ranks pretty high. For it's here that you take your best shot at getting dibs on the contract and, assuming the legalities can be worked out, procuring the job. So do your bidding practices have room for improvement? At a time when, in many markets, construction work has almost never been as competitive, it's an important question to consider.
Know your market
Begin by looking at your local market and asking yourself one simple question: What has changed?
For example, if you're a custom homebuilder, you may decide, as many builders have, to build slightly smaller houses to better target baby boomers who wish to downsize their homes as they near retirement and customers in the middle-income range. Before getting started, look at how much the market will bear for new home prices, and what customers expect for that price.
If you're a commercial builder, keep your eye on major employers that are moving into or out of your area and what tax incentives may be available to build certain types of projects. If you're in a very competitive market, avoid incorporating into your bid a lot of high-end finishes, fixtures and other expensive features that can price you out of jobs.
For you to understand the market, you also must know who your competitors are and how many of them are bidding for the same work you're going after. Owners may believe that the best way to get a low price is to have a lot of bidders. Some contractors decline to bid, however, if they think the number of competitors is excessive.
Think about costs
Along with a general concept of your market, the raw dollar amounts you include in your bids warrant a careful review.
Many contractors do a good job determining their direct costs for a project, but often fail to consider their indirect costs and thereby don't get a handle on all their true costs. If you're too busy to give your costs the attention they deserve, talk with your CPA. Contractors that don't properly allocate costs to their projects are missing out on opportunities to recoup expenses and submit accurate bids.
Set your profit margin
From a business perspective, this is the trickiest part of any bid. Obviously, you want to offer a good price to keep in the running for a job. But you're in business to make money, so one of the most important elements of a successful bid is for it to be profitable.
Carefully consider the profit margin of each job, taking into account direct and indirect costs. The greater the perceived job risk, the higher you need to place the profit margin to accommodate possible losses. Experience helps here. If you bid work in which you're experienced, the risk generally will be lower, so your profit margin can be lower and your bid will be more competitive.
In some instances, underpricing a job may make sense. You could offer a lowball bid to get a foothold in a new market or account, for example, or to build a relationship with a customer who might provide more business down the line. But before you give away your profit, make sure you've hit your "sweet spot" for the year. That is, make sure your business is close to or has already reached its ideal profit margin.
Sharpen your skills
If you've been in business for any length of time, you've likely bid on many jobs and may be quite set in your ways. But bear in mind that times — and markets — change. Taking a critical look at your bidding practices can help you sharpen the skills that have kept your construction company successful up to this point.
