Construction Accounting Article -
4 Final Bidding Factors to Consider

Target Audience: Construction Industry Professionals, Contractors, Construction Business Owners, Low Cost Solutions

Making an effective bid in today’s construction industry involves much more than just crunching a few obvious numbers. To win business, you must look at not only your direct costs, but also a variety of other elements. Here are four final bidding factors to consider:

1. Every cost is key. Your direct costs — including materials, labor and subcontractors’ fees — will play the lead role in determining your bid. Only after calculating these costs can you determine your profit margin for the job.

But remember to continually evaluate your indirect costs as well. Administrative overhead, vehicle and equipment expenses, communication costs, and other items will always be present and significant. Regularly reassess these costs and include them in your bid pricing.

2. Project particulars can make or break you. Most contractors have run across a job that, in hindsight, they wish they’d priced higher because of its unique challenges or extra costs. When putting together your bid, pay special attention to aspects of the project that might be a problem. For example, you may need to:

• Rent extra equipment,
• Build in a hard-to-access location,
• Work under dangerous conditions, or
• Perform services, such as demolition, that may lead to other challenges.

It’s often difficult to assign a dollar amount to circumstances such as these. But look to similar jobs you’ve worked on or study industry benchmarks and adjust your profit margin accordingly.

3. Relationships play an important role. Consider the people and groups you’ll be working with if you win the project. Owners, architects, inspectors, other contractors, and city officials and workers could all be part of the job.

Have you had bad experiences with any of these people? Or do any have a reputation for being hard to work with? For instance, a local official who likes to run contractors through hoops and avoids returning phone calls could cause unexpected delays and job costs.

Conversely, you might have a great rapport with some of the key players, which may save you time and money. Keep such an advantage in mind as you assess your final bid.

4. Competition figures heavily. The number and quality of your competitors can seriously affect your bid. If two of your main competitors are notorious for their low bidding, you may have to reduce your bid comparatively.

Yet you need to think about how much you want the job — and whether it’s truly wise to take a lower margin to win it. Maybe this project will open the door to future jobs, and, therefore, a lower bid now may pay off in greater profits later. Then again, this could be one of those projects that looks deceptively easy at the outset but ultimately leads to unexpected complications and expenses.

Any or all of these four factors can significantly affect the amount of your final bid — or even whether you should bid at all. Take the time to review all aspects of your next bid before submitting it.

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