What Are the Types of Bidding in Construction? A Deep Dive Into the Basics

Bidding allows project owners and general contractors to streamline operations, manage risks, and secure the best prices for their construction projects. Through this process, they can assess different subcontractors to identify those with the right experience and skills for their construction jobs.

But here's the thing – not all project owners and GCs follow the same approach to bidding. They may choose one bidding process over another depending on project specifics, time constraints, or personal preferences.

Primary bidding methods include:

• Negotiated Bid
• Open Bid
• Selective Bid

In this guide, we'll delve into each bidding method, shedding light on their pros and cons. But before we explore these methods, let's explain what construction bidding really means and what goes into it.

Construction Bidding Definition

Construction bidding is the process where individuals or companies submit proposals to project owners or GCs, offering to either complete a structure or manage its construction under specific terms and a set price.

Bidding vs Estimating

Let's now clarify a common confusion among contractors—the difference between bidding and estimating.

When contractors bid, they try to present themselves in the best light to win the contract, share their past successes, and prove they understand what the project needs.

On the estimating side, it's about doing the math carefully. Estimators need to figure out the best prices for materials, talk to suppliers to get favorable deals, account for the construction procurement methods, and calculate exactly how much of everything is needed.

To put it simply, while bidding is about presenting a compelling proposal, estimating is about the careful calculation of costs, and each requires a specific skill set for making informed decisions in construction projects.

What Are the Types of Bidding in Construction?

Let’s look into each bidding approach in detail: 

Open Bidding

Open bidding operates on a straightforward premise: any contractor can submit a proposal to complete or manage a construction project. 

Here’s a simple breakdown of how it works: 

• The project owner or GC advertises the construction contract, notifying potential contractors that the project is open for bidding.
• Contractors, in turn, prepare and submit their bids, outlining terms and pricing, and expressing their interest in securing the construction contract.
• The project owner reviews the submitted proposals, considering both terms and pricing. The chosen bid, offering the most favorable terms and the lowest price, secures the contract.

In more complex projects, a pre-qualification process may come before the open biding process. This involves filtering out unqualified candidates through questionnaires and interviews. Following this, qualified candidates get invites to submit their bids.

Note that this prequalification process differs from selective bidding. In selective bidding, project owners invite contractors from a pre-selected list to participate in the bid process (we’ll explain this in more detail below.)

That said, one major benefit of open bidding is its inclusivity. Every contractor, regardless of their experience level, has an equal opportunity to participate. This process removes any bias and favoritism, providing a level playing field where even newcomers in the construction industry can compete.

There's a downside, however. The bidding process can be sluggish and laborious, and comes with its fair share of expenses. The project owner often has to examine a large list of applicants, and there's a risk of choosing a contractor just because they are offering the lowest price, even if they might not be the best fit for the job.

Pros

Any contractor (whether experienced or inexperienced) can apply to the open bid, and this fosters openness and healthy competition.

Project owners and GCs can secure the most favorable deal due to the fierce competition among contractors.

Most of the time, the contractor selection process is unbiased, providing every participant with an equal chance to secure a contract.

Cons

With so many applicants vying for the same project, the bid list may be extensive, leading to a time-consuming and costly process.

Almost all of the contractors invest time in preparing bids that may not even be considered, meaning they end up wasting their resources.

Selective Bidding

Consider selective tendering as a blend of open tendering and negotiated biding. It involves inviting specific, pre-selected contractors to submit their bids, and here’s how it works: 

• The client compiles a list of pre-selected contractors they know for their track record, based on previous work experience or reputation.
• The client then approaches the selected contractors to inquire about their interest in biding for the construction contract. 
• Based on the responses received, the client narrows down the list and invites a limited number of contractors, often less than six, to submit their construction bids.
• After receiving the bids, the client assesses and selects a preferred candidate.

Private construction companies often prefer this bidding method for projects that demand specialized construction expertise. The reasons for this preference are twofold.

For one, it streamlines the bidding process, saving both time and resources. With no pre-qualification hurdles, only qualified contractors with a proven track record submit bids. This gives clients confidence that the chosen contractor will meet the project requirements. 

The swift bidding process also facilitates a quicker project kick-off, reducing potential delays during construction.

But selective bidding doesn’t come without its drawbacks. 

With a limited pool of contractors, clients may face higher prices, as there is a risk that subcontractors may inflate their bids due to decreased competition. 

Another challenge is the perception of exclusion, especially for new or smaller contractors trying to establish themselves. The selective process may unintentionally overlook these potential contributors, sparking concerns about unfair treatment or hidden preferences in the invitation process.

Pros

Promotes the efficient use of contractors' resources.

Reduces tendering costs by inviting fewer contractors to submit bids.

The tender process is short and straightforward, allowing for quicker project initiation.

With only a few options to choose from, it allows the client to select the most cost-effective offer from qualified contractors.

Clients don't have to go through a lot of paperwork to choose a contractor as only a shortlist of candidates is invited.

Cons

New contractors often find it difficult to get invites for such projects.

Because there are only a few candidates, the competition is low, and the bidders may overprice their services.

Negotiated Tendering

With this approach, a project owner directly negotiates with a contractor or a few contractors to establish favorable terms. This way, they avoid the headaches of bid leveling, pre-qualification lists, and long negotiations that come with other construction tendering methods. 

This strategy works best under these conditions:

• When there is a longstanding business relationship between the contractor and project owner.
• When the projects are complex and demand the expertise of an experienced contractor.
• When the projects are urgent and their progress needs to be fast-tracked 
• While negotiated tendering offers perks like risk reduction and a quicker selection process, it has its limitations. 

One of these limitations is that project owners don’t get to compare prices from multiple competing bids, and this often means missing out on potential cost savings.

To address this, some clients hire an in-house construction estimator and a construction manager. These experts help ensure that realistic cost estimates guide every step of the construction project, reducing the risk of a subcontractor overpricing their services or exceeding the guaranteed maximum price.

Pros 

The tendering process is very straightforward, allowing for the swift selection of the most suitable contractor.

Subcontractors bring their expertise to the project early, contributing to the design and overall concept before it takes off

In specific circumstances, such as emergencies and urgent projects, clients frequently choose this bidding method.

Cons

Like selective tendering, it raises the entry barrier for new and inexperienced contractors, denying them an opportunity to prove their capabilities

Subcontractors are inclined to propose higher prices compared to more competitive options, like open tendering.

What Are the Steps in Construction Bidding?

Here is a quick overview of the construction bidding process: 

Step 1: Bid Solicitation

At this stage, project owners and GCs can send either of the following to a select group of contractors:

• Request for Proposal (RFP)
• Invitation for Bid (IFB)
• Request for Quote (RFQ)
• Request to Tender (RTT)

These documents contain crucial information on the project specifications, project delivery method, and any other requirement.

Step 2: Bid Submission

The subcontractors, upon receiving one of those documents, proceed to review the project scope, examine the details, and bid for specific areas of work like plumbing, landscaping, roofing, or electrical work. This phase may happen before or after the GC secures the tender.

Step 3: Bid Selection

The subsequent step involves the project owner choosing the most competitive bid, typically based on price and convenience. However, other factors, including contractor experience, scheduling philosophy, safety records, among others, may also influence their decision. 

Step 4: Contract Formation

Once the project owner arrives at a decision, the two parties involved proceed to formulate a contract. This phase allows the bidder and the client to discuss final pricing and address any unclear contract clauses. The goal is to establish a legally binding agreement that outlines the terms of the construction project.

Step 5: Project Delivery

The final phase, project delivery, marks the start of actual construction. All aspects of the construction project need to adhere to the legal terms agreed upon during contract formation. 

And while timelines may be subject to change, subcontractors and general contractors bear the responsibility of ensuring the project proceeds smoothly.

Construction Bidding Made Easier with Downtobid

The construction bidding process is often a grueling marathon for project owners, GCs, and subcontractors. 

Particularly challenging is bid leveling, where GCs and owners tirelessly inspect numerous proposals to not only find the lowest price but also meet all the construction bid package requirements. 

Traditionally, this process has relied on manual methods – pen, paper, and basic spreadsheets – where bids are organized into columns and carefully compared item by item. 

Thankfully, platforms like Downtobid are changing this laborious and error-prone task into a swift, accurate, and stress-free experience.

With Downtobid, for instance, you can: 

• Send bid invites to contractors: The platform focuses on bid package identification and subcontractor invitations Downtobid uses AI to identify bid packages, aiding subcontractors in understanding the project scope.
• -Downtobid's AI generates complete bid packages and draft invitations to bid from construction plans

Subcontractors also face a tough time dealing with bid invitations that don't match their expertise and getting too many repetitive updates for the same project. 

When there are changes or additions to bid dates, it results in a flood of notifications, making everyone from the chief estimator to bid coordinators spend a lot of time combing through messages. 

Downtobid comes to the rescue by allowing you to:

• Automatically decline, accept, or assign bids based on the rules you create.
• Track all bids in one collaborative workspace, eliminating the need for manual data entry.
• Receive valuable feedback on your bids through the proactive feedback module.
• Maintain active engagement on your construction bids using clever, contextual, and personalized outreach.
• Send proposals, respond to RFIs, ask for clarifications, and even invite others to bid—all within your bid board.

Downtobid simplifies construction bidding tasks, allowing project owners, GCs, and subcontractors to shift their focus from paperwork to partnerships. Ready to experience a more streamlined bidding approach? Try us now for free today.