The Construction Tendering & Bidding Process Explained

Mastering the tendering process is essential for general contractors and subcontractors alike. Across the industry, a hit ratio of around 5:1 is generally considered successful — meaning that for every five jobs you tender, you are awarded the contract for one of them. 

Being successful with tendering requires a deep understanding of the process and the strategy that you should take as a contractor. Read on for detailed information about each step of the construction tendering process. 

5 Steps in Construction Tendering

The construction tendering process is broken down into five key steps: tender solicitation, tender submission, tender selection, contract formation and project delivery. 

1. Tender Solicitation

During the tender solicitation phase, the property owner or their representative will typically issue an Invitation for Tender (IFT), a Request for Quote (RFQ) or a Request for Proposal (RFP).

For public project tenders, agencies are generally required to issue an open invitation to qualifying contractors who are registered to work on government construction jobs.

On private projects, tenders may be open or sent to a smaller group of contractors in a non-competitive tendering process. In some cases, tenders may be solicited through a tender management platform.

A Request for Information – sometimes called a Request for Clarification – can play a role in the tendering process. Tendering expert Janine Trinidad explains how and why.

Regardless of the project type, the tender package contains project details to enable contractors to produce an accurate tender, including:

• Construction specifications
• Project requirements
• Contract type
• Project delivery method
• Bonding & insurance requirements

The solicitation will typically also ask for additional information about the contractors who apply, including professional qualifications and examples of similar past projects. Project owners use this information to prequalify the contractors, ensuring that they will be able to complete the job as promised.

Contractors who meet the requirements and are interested in the job will be able to submit a tender. 

Contractor Tip: Pay close attention to the project requirements during the tender solicitation phase. Submitting a tender takes time, and one way to improve your hit ratio is to focus on the right jobs for your business – which means skipping some tenders entirely. 

2. Tender Submission

In the tender submission phase, interested contractors submit documentation about the project timeline and costs, as well as information about their business. During this phase, general contractors will often solicit their own tenders, proposals or RFIs from subcontractors they need to hire to complete specialized aspects of the job. The GC will combine the subcontractor proposals to prepare the tender they submit to the property owner. 

In order to create an accurate tender, contractors must create an accurate estimate of project costs, including:

• Labour
• Materials
• Equipment
• Overhead
• Profit margin

What is open-book contracting, and why does it matter to contractors and owners?

By reviewing the project specifications and bill of quantities, performing material takeoffs and calculating overhead and profit margin, contractors should be able to nail down a competitive tender. A good tender represents the best quality at the most reasonable price.

If required, the contractor will need to submit a tender bond along with the tender in order to be considered for the project. The tender bond serves as a guarantee to the owner that the contractor will be able to complete the project according to their tender.

Contractor Tip: Tenders should be as clean and organized as possible. A tender sheet serves as the face of the contractor. A professional tender with all of the correct documentation submitted on time serves as the first indication of a tenderer's reputation.

3. Tender Selection

When it comes to tender selection, property owners will often pick the tender with the lowest or most competitive price. On public projects, government rules often require that the lowest tender wins.

However, commercial project owners often take into account a variety of factors beyond price, including:

• Project experience
• Safety record
• Scheduling philosophy

Because contractors submit tenders in a variety of different formats and with a wide range of prices, the tender solicitor will typically go through a process called tender levelling. During tender levelling, the owner will attempt to standardize the tender formats as much as possible, enabling them to compare the similarities and differences between them. This process enables the owner to compare "apples to apples" to make a more informed decision about the right contractor for the job.

Contractor tip: Winning tenders require contractors to submit a price that is high enough to earn a profit but low enough to stay competitive. Losing tenders is part of the game; keep track of your unsuccessful tenders to learn for the future.

4. Contract Formation

After the owner selects a tender, they work together with the contractor to form a construction contract that both parties will eventually sign. While the type of contract (e.g. fixed-price, time and materials, etc.) is generally predetermined by the owner, contractors still have leeway at this point to negotiate the terms of the contract, as well as the final pricing structure. 

Contractor tip: After your tender is accepted, take time to review the proposed contract and make suggested changes. Don't allow the owner to pressure you into signing a contract that you haven't fully read or agreed with.

5. Project Delivery

Even though it's not technically part of the tender process, project delivery plays a very important role in tendering. 

Before tendering starts, the property owner will determine the project delivery method. Common delivery methods in construction include:

• Design-Tender-Build
• Design-Build
• Construction Manager at Risk
• Integrated Project Delivery (IPD)

During tendering, the project delivery method determines how tenders are solicited and submitted. For example, Design-Tender-Build solicits tenders from general contractors based on designs from a separate firm, whereas Design-Build employs a single firm for design and construction, so tenders are only received from subcontractors supporting that firm's work.

After tendering, the project delivery method often influences contract negotiations. For example, with the CMAR method, there is likely a guaranteed maximum price in the contract, which the construction manager will want to carefully negotiate to ensure project profitability.

Contractor tip: Make sure you're clear about the project delivery method and how it affects the tendering process. Contracting businesses tend to specialize in certain project delivery methods while avoiding others.

Types of Construction Tenders

When a property owner is ready to receive tenders on a project, they will choose a tendering method. The three most common types of tendering are open tendering, negotiated tendering and selective tendering.

Open Tendering

With open tendering, anyone is allowed to submit a tender on the project. This is the method most commonly used on government projects, and it is generally considered to create the most competition for a job, driving prices down. In fact, many public projects are required to solicit contractors through an open tender.

Negotiated Tendering

With negotiated tendering, the property owner identifies a single contractor to perform the work and negotiates a contract with them. This method of tendering is generally reserved for highly specialized projects, and it may be considered anti-competitive in certain cases.

Selective Tendering

Selective tendering is the middle ground between open and negotiated tendering: A small set of predetermined contractors is invited to submit tenders on a project. Typically, this method of tendering offers a balance between competition and simplicity in the tender selection process.

Serial Tendering

Serial tendering is used for situations where a property owner is soliciting tenders for a series of similar projects over a period of time. For instance, a housing developer may be building hundreds of residential homes over a three-year period. Serial tendering can reduce the burden of repeatedly soliciting tenders for similar projects, though it does potentially reduce competition.

Mastering the tendering process takes time.

Because contractor cash flow is heavily dependent on skilful tendering, businesses that tender well tend to outlast their competition. Learning to find the correct tenders, prepare proper estimates and submit professional tenders takes time, but it's worth the effort. Mastering the tendering process is essential for contractors who want to grow in the commercial or government construction sectors.

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