Managing the Bid Process with Building Contractors

In the bid process, a building contractor is typically considered a business that coordinates and manages the works, contracting large portions of the project to subcontractors to complete the specialist packages. According to the Collins Dictionary, a building contractor is:
“an individual or company that contracts for the construction of houses, etc.”

Law Insider further defines a building contractor as a company:
“…whose services are limited to the construction of commercial buildings and single-dwelling or multiple-dwelling residential buildings, which commercial or residential buildings do not exceed three stories in height, and accessory use structures in connection there with or a contractor whose services are limited to remodeling, repair, or improvement of any size building if the services do not affect the structural members of the building.”

Construction is an industry characterized by high levels of fragmentation. In 2013, Arcadis completed a study highlighting that a ‘typical’ project – in the £20 to £25 million range – involved the building (or principal) contractor managing upwards of 70 subcontractors, of which a large proportion are small – £50,000 or less. The subcontract sizes for a regional project may be smaller – £10,000 or less.

What Makes a Good Building Contractor?

Good communication up and down the supply chain is critical for any project’s success. With so many stakeholders in a project, all must be informed on progress, problems, and any issues that arise. Effective communication during the tendering process can indicate how a building contractor or subcontractor will perform throughout the project. Key factors to consider include their responsiveness to clarification questions, concerns about tender documents, logistics, or other practical matters. If the building contractor is adding value from the start, it is highly likely they will continue to do so during construction.

The reputation of any building contractor or subcontractor is directly proportionate to the quality of the work they have delivered in their portfolio. All reputable building contractors will have multiple means to get references. The best way to assess their reputation is by asking previous clients and completing a thorough pre-qualification process.

Pre-Qualification Process of Building Contractors

A pre-qualification process aims to assist in the selection by eliminating prospective contracting businesses until only the most suitable contractors remain to be considered. The evaluation process should reflect what is most important to you as the client in the procurement process.

It is always a good idea to start with financial background checks to establish the financial stability and viability of the business. These need to be approached with care as financial information is frequently outdated. Any recent events affecting a business’s financial security may not be reflected in the available financial reports, which could impact the bid process response.

Besides looking at the portfolio of jobs a business has carried out, it is essential to interrogate the building contractor’s capability and track record in carrying out the type of development planned to ensure that it has the necessary skill sets and experience to deliver the work in prospect. For example, a contractor capable of constructing two-storey load-bearing masonry houses may not be an appropriate choice for producing reinforced concrete framed medium-rise apartment buildings, irrespective of whether both are residential developments. This is crucial for evaluating potential suppliers and their ability to meet customer requirements.

Another critical aspect is capacity. Will the building contractor or subcontractor have the appropriate resources available to service your project? This is especially relevant where the project in prospect is particularly specialized. It might be better to postpone the start of a project to secure the right building contractor for delivering it rather than engaging one who is available but unsuited to provide its particular specialist requirements. This consideration aligns with the scoring criteria used during the evaluation process.

The location of the project and the head or regional office of the contractor under consideration for selection are relevant factors. A site remote from a contractor’s base is likely to suffer from a higher churn of site-based personnel and inadequate attention from office-based management, both of which are likely to affect the delivery of the project. This impacts the logistics plan and methodology proposed by the contractor.

I also advocate for references and recommend they be requested and taken up. As well as dealing with projects undertaken recently, the references should include all aspects of dealing with the particular company, including aftersales and commercial performance. This information is vital for the tender response and subsequent bid review.

Each contractor will be required to provide details of its insurance, claims history, health and safety procedures, and arrangements for health and safety management. This is where I would say it is appropriate to use a standard pre-qualification questionnaire format, which is part of the bid submission process.

These are the background checks on the business to gauge its overall suitability to carry out your project. I would then look for a project-specific response on how the project will be managed, including CVs and an organogram, a logistics plan and methodology, and an indicative programme. Whether it is feasible to do this in every case depends upon the project procurement route and the degree to which the project has been defined at the time the pre-qualification exercise is being undertaken. This is integral to the tendering process and helps in understanding the preferred supplier’s capacity and capability.

What Are the Good and Bad Signals from a Contractor?

If the pre-qualification process has been carefully prepared, the ‘bad’ signals should be apparent from the responses given or even from the information that is not provided (e.g., no referees provided, or references only available from projects completed over five years ago; no accounts submitted or overdue; no project experience in the particular sector). Equally, the opposite will be apparent from the ‘good’ building contractor or subcontractor. This is essential for making informed bid process decisions.

Many contractors might struggle to do a job that they haven’t got the experience to deliver. The pre-qualification process aims to sieve information and ensure that the selected building contractor is best-suited to carry out the project with the best chance of successfully delivering it, thus improving success rates.

How Do You Best Review Bids from Building Contractors?

The process to be followed may vary from one project to another since it should concentrate on the important things to your particular project situation, reflecting a tailored bid strategy.

What is critical to you as the client is to understand your requirements regarding time, quality, and cost and how those three balance against one another, as it is almost impossible to have a good quality, quickly delivered, and cheap project. This is crucial for evaluating bids based on your specific evaluation criteria.

This balancing act is often referred to as the “Scope Triangle.” Typically, one of the factors is fixed, and the other will vary in inverse proportion. For example, time is often fixed, and the quality of the end product will depend on the cost or resources available.

So, for you as a client, whether a property developer procuring a main contractor or a main contractor procuring subcontractors, how you review bids needs to consider how you value time, quality, and cost. This process will involve evaluating tender documents, clarification questions, and the overall bid response.

If you understand this and have completed a thorough pre-qualification process, you will be able to understand the following:
a) Which building contractors are most appropriate for your scheme, and;
b) Which building contractor best delivers the works, considering how you value the time, quality, and cost?

The bid process includes developing and publicizing tender documents, bidder conferences, and selecting a bidder. After the analysis is complete, the project team will be able to determine the nature of the contractual relationship needed with a vendor. It is then time to identify potential suppliers. Once the potential bidders have been identified, the project team will move on to bid solicitation. Once the bids come in, they are evaluated. Once the successful vendor has been selected, a contract is awarded. Let us look at each of these steps more closely.

Qualifying Bidders

Potential bidders are people or organizations capable of providing the materials or performing the outsourced work required for the project. On smaller, less complex projects, the parent company typically has a list of suppliers and vendors that have successfully provided goods and services in the past. The project has access to the performance records of companies on that list. On unique projects where no supplier list exists, the project team develops a list of potential suppliers and then qualifies them to become eligible to bid on project work. Eligible bidders are placed on the bidder’s list and provided with a schedule of when work on the project will be put out for bid.

The eligibility of a vendor is determined by the ability to perform the work in a way that meets project requirements and demonstrates financial stability. The ability to perform the work includes the ability to meet quality specifications and the project schedule. During times when economic activity is high in a region, many suppliers become busy and stretch their resources. Before they are included on the bidder’s list, the project team investigates the potential suppliers to ensure they have the capacity and track record to meet deadlines and quality expectations.

The potential supplier must also be financially stable to be included on the bidder’s list. A credit check or a financial report from a reputable credit rating agency (e.g., Dun and Bradstreet, Equifax) will provide the project team with information about the potential bidder’s financial status.

Solicitation

A solicitation is a process of requesting a price and supporting information from bidders. The solicitation usually takes the form of either a Request for Information (RFI), a Request for Quotation (RFQ), or a Request for Proposal (RFP).

An RFI is used to gather more information from the market prior to sending out tender documents to a set of selected vendors.

An RFQ focuses on price. The product, service, and/or materials are well-defined and can be obtained from several sources. The bidder that can meet the project quality and schedule requirements usually wins the contract by quoting the lowest price.

An RFP is issued when the project team does not know the required solution. The RFP is intended to solicit ideas on how to fulfill the project’s objective with specific solutions. This approach is used in projects utilizing the predictive (waterfall) and adaptive (agile) methodology. For instance, consider a project with the objective of streamlining a service process. The project will involve the introduction of a new service request application. In addition, since the existing desktop computers are too old to run the new application, the project team must upgrade all desktop computers. Since the project team does not know which desktop computer is most appropriate, they issue an RFP to three companies. This project could be following a predictive or an adaptive methodology.

The key is that the project team needed assistance in defining an aspect of the full solution. The RFP considers price, but it focuses more on meeting the project’s objective by selecting the appropriate solution. If several vendors have submitted proposals that successfully illustrate how they would support the project’s objective, the price can become one of the deciding factors. The process of developing a proposal in response to an RFP can be very time-consuming and expensive for the bidder, and the project team should not issue an RFP to a company that is not eligible to win the bid.

Invitation for Bid (IFB) – some companies utilize an invitation for bid (IFB) process where only selected companies are allowed to bid. Either all or part of the companies on the buyer’s preferred contractor list may be allowed to bid. IFBs are used in sealed bidding procurements for government agencies. These IFBs contain all the necessary technical documents, specifications, and drawings needed for a bidder to develop a priced offer. In sealed bid procurement, there are no discussions or negotiations, and the contract is always awarded to the lowest acceptable offer using a firm fixed-priced contract.

Also, Statement of Work (SOW) which is a narrative description of the work to be accomplished and/or the resources of work to be supplied, including terms and conditions, are included in the documents. Statements of Objectives (SOOs) for projects that are designed as “performance-based” efforts describe the project end objectives. SOOs include specifications such as design, performance, and functional. Performance-based projects are now the preference in the federal government procurements.

In response to a solicitation containing a SOO, the potential contractors develop and propose their own SOW that provides detailed specifics on how they intend to perform the work. The source selection process entails comparing the various contractor-developed SOWs, each contractor applying its own unique technologies, capabilities, and expertise to the project effort.

Evaluating Bids

Evaluation of bids in response to RFQs for commodity items (e.g., office supplies) is heavily weighted toward price. In many cases, the lowest total price will win the contract. This is because the vendors have already confirmed they are able to meet the specifications and delivery timelines, so price becomes the determining factor. The total price will include the costs of the goods or services, any shipping or delivery costs, the value of any warranties, and any additional service that adds value to the project. Evaluation of bids for non-commodity items (e.g., services) often considers the vendors’ past performance (obtained from reference checks of existing/past clients).

The evaluation of bids based on RFPs is more complex. The evaluation of proposals includes the price and an evaluation of the technical approach chosen by the bidder. The project team evaluating the proposal must include people with the expertise to understand the technical aspects of the various proposed approaches and the value of each approach to the project. On more complex projects, the administrative part of the proposal is evaluated and scored by one team, and another team evaluates the technical aspect of the proposal. The project team combines the two scores to determine the best proposal for the project. Quite often, the two scores are not weighted equally.

Vendor selection is another great example of how the weighted scoring model is used as an effective decision-making tool in project management. Once the bid documents are distributed, the buyer generally has a bidder conference to respond to clarification questions and provide clarifying information. The bidders develop their own responses and deliver them to the buyer by the date specified in the bid document.

Awarding the Contract

After the project team has selected the bidder that provides the best value for the project, a project representative reviews the contract terms with the successful vendor. Depending on the nature of the product/service to be purchased, some negotiation may occur. Negotiation typically does not occur on less complex awards, such as contracts for standard office supplies. More complex projects require a detailed discussion of the goals, the potential barriers to accomplishing those goals, the project schedule and critical dates, the processes for resolving conflicts and improving work processes, and any penalty clauses. Contracts have a penalty clause if the work is not performed according to the contract.

For example, suppose the new software is not completed in time to support the implementation of the training. In that case, the contract might penalize the software company a daily amount of money for every day the software is late. This type of penalty is often used when the software is critical to the project, and the delay will cost the project significant money.

In awarding the contract, strategies that may be considered are:

• Price-based award strategy – used when the contract will be awarded to the lowest-priced, technically acceptable proposal.
• Best-value award strategy – used when:
• • The contract may be awarded to either the lowest-priced, technically acceptable offer or
  • A higher-priced proposal offering a higher level of performance.
  • The procuring organization conducts trade-offs among price, performance, and other non-price factors to select the proposal that offers the overall best value to the buyer.

Once a vendor is selected, the project plans and documents are updated to incorporate vendor dates, resources, costs, quality requirements, risks, etc. The vendor then becomes a project stakeholder. Information in the Stakeholder Performance Domain and Measurement Performance Domain will apply to the vendor throughout the project.

Bidder conferences are also held as part of debriefing sessions whereby the bidders are informed as to why their bids did not win the contract. Bidders who feel that their bid or proposal was not evaluated correctly can submit a “bid protest.” A bid protest is not necessarily a complaint that the wrong company won the contract but that their proposal was not evaluated correctly.

An Alternative Approach to the Bid Process

The bid process should follow a strategic journey every time, rather than just writing a response. This approach increases win rates and reduces bid costs.

Opportunity Capture

This initial stage involves finding and qualifying opportunities:

• Bid Identification: Identifying the best places to look for opportunities and match them to your capabilities.
• Opportunity Analysis: Reviewing the opportunity with the client’s contributors and scoring it based on characteristics like realism, achievability, winnability, and profitability.
• Qualification: Running through the analysis again with formal documentation and determining the strengths and weaknesses for your business.
• Needs Analysis: Understanding the buyer’s drivers for change and profiling stakeholders to understand who influences and makes the decision to award.

Bid Proposal Stage

Careful planning and strong execution are key to success:

• Strategy: Defining a clear strategy, outlining key areas of focus, and developing win themes unique to the bidder and beneficial to the end client.
• Response Planning: Planning out the response, identifying resources, and creating a storyboard outline to avoid last-minute changes.
• Bid Writing: Drafting responses against the storyboard, focusing on high-scoring answers.
• Bid Review: Reviewing the final responses, providing feedback, and ensuring the bid meets the agreed-upon criteria.

Post-Proposal Presentations

Presentations are crucial for winning the deal:

• Preparation: Ensuring key messages and solutions are clear, demonstrating outcomes, and planning the presentation team and their roles.
• Handover to BAU: Involving the delivery team from the start to ensure a smooth transition to business as usual, which can increase spend by 40% in the first year.

Conclusion

The bid process in construction projects, especially when working with building contractors, is a complex procedure involving multiple steps, including the development of tender documents, qualifying bidders, solicitation, evaluating bids, and awarding contracts. Effective management of this process ensures that the most competent suppliers & building contractors are selected, which can significantly impact success rates and overall project outcomes. Utilising a comprehensive pre-qualification questionnaire and maintaining clear communication throughout the entire bid process are crucial for achieving the best results. By following a structured bid strategy, conducting thorough pre-bid work, and engaging the right bid team, organisations can enhance their chances of winning contracts and delivering successful projects with building contractors.

About Paul Heming

Paul was a Quantity Surveyor who gained 10 years experience of managing £200 million worth of flagship UK projects, including 20 Fenchurch Street and Battersea Power Station. In 2015, Paul founded C-Link with the intention of sharing his expertise of managing major projects with the SME market.