Construction Contracts: Competitive Bidding Process



The competitive bidding process can be beneficial when starting out on a construction project with a strict budget, or when the owner does not have a particular contractor in mind for their project. The process requires invited contractors to provide the best possible pricing for a project with a defined scope of work. This method enables the owner to compare prices before work begins. Often, when the competitive bidding method is used, the lowest bid is selected.

Related-A Breakdown of the GMP Construction Contract

Typically, the project architect and engineer will have created a set of plans and specifications of the facility. The plans are based on the objectives and requirements of the owners, as well as the layout and infrastructure of the new space. Then, the general contractors are invited to bid for the opportunity to execute the project. Your owner’s representative can oversee the bidding process, in collaboration with the architect, engineer and owners.

The bidding period \allows for enough time for the contractors to ask any questions about the project, or solicit any additional information needed to submit final bids. The owner stipulates whether the final bids should be submitted on either a lump sum or unit price basis. A ‘bid’ is made up of two basic elements:

  • The estimate of the direct job cost, including labor, material, equipment, field supervision, etc.
  • The markup, which must be sufficient to cover the GC’s overhead and allow for a fair profit on the investment

Related- Integrated Project Delivery

When using the competitive bidding method, it is important to remember to take into consideration the experience of the general contractors that have bid on your project. All general contractors should have a thorough understanding of the bidding process. Make sure they have adequate experience in both winning jobs through this method, accepting bids from subcontractors and executing jobs on budget. While the lowest bid can be tempting, consider who you are trusting to execute your company’s new project.

Katie Craven
Katie Craven is Marketing, Communication and Brand Manager at Watchdog Real Estate Project Managers, a real-estate consulting firm that provides owner’s representation and project management services. More about Watchdog Real Estate Project Managers as well as additional blog posts can be found here.
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