Creating a successful bid is a foundational skill for any subcontractor. It requires a careful balance between submitting a competitive price that can win the job and ensuring that the price is high enough to cover all costs and generate a profit. A poorly calculated bid can lead to financial loss, even if you are awarded the contract. Mastering the ability to produce precise and professional bids consistently is what allows a subcontracting business to sustain itself and grow. This guide provides a structured approach to navigate the complexities of bidding.
Review the Bid Invitation and Project Documents
The bidding process begins when you receive an invitation to bid from a general contractor (GC). Before any numbers are calculated, a thorough review of all project documents is necessary. The accuracy of your bid depends on a complete understanding of the project’s requirements. These documents include the project plans, also known as blueprints, and the specifications, often called “specs,” which outline the technical requirements, materials, and standards of workmanship.
Your primary goal is to define the exact scope of work. The bid invitation contains the deadline and submission method, and may list mandatory pre-bid meetings or site visits. A site visit is recommended, as it can reveal challenges like limited access or unique site conditions not apparent in the documents. Pay close attention to any addenda or revisions issued by the GC, as these can significantly alter the project’s scope and impact your costs.
Calculate Your Direct Costs
Direct costs are expenses tied directly to a specific project and form the core of your estimate. The main components are materials, labor, and equipment.
Determining material costs begins with a “takeoff,” which involves reviewing project plans to quantify every material needed. Once you have a complete list, solicit current pricing from your suppliers, as market fluctuations can affect material prices.
Labor costs are calculated by estimating the total hours required and multiplying by the “loaded” labor rate. This rate includes the base wage plus payroll taxes, worker’s compensation insurance, health insurance, and any retirement or union benefits. Underestimating the time or using an incorrect labor rate can erode your profit.
Other direct costs may include fees for rented equipment, permits, bonds, or waste disposal. For example, if a job requires 40 hours of labor at a loaded rate of $65/hour ($2,600), $3,000 in materials, and a $400 scissor lift rental, the direct cost would be $6,000.
Account for Indirect Costs and Profit
Once you have calculated your direct costs, the next step is to account for the expenses required to run your business, known as indirect costs or overhead. These are costs not tied to any single project but are necessary for your company’s operations.
Indirect costs include expenses such as office rent, administrative salaries, vehicle insurance, marketing, and utilities. The standard method for allocating these costs is to calculate your company’s annual overhead as a percentage of your total direct costs or revenue. For instance, if your business has $100,000 in annual overhead and completes $500,000 in direct project costs, your overhead rate is 20%, which you would add to every bid.
After accounting for all costs, the final component is your profit margin. Profit is the money left over after all expenses are paid, allowing your business to invest, hire, and grow. Pricing jobs just to cover costs leaves no room for development or unexpected expenses. A profit margin can range from 10% to 15% but can be adjusted based on project risk, your relationship with the GC, and market conditions.
Prepare and Submit Your Proposal
With your costs calculated and profit margin set, prepare the formal bid proposal. This document is a professional presentation to the general contractor that should clearly communicate the value you offer and define the boundaries of your work.
Your proposal must include a clear summary of the scope of work you are bidding on, referencing the specific plans and specifications you used. This demonstrates you understand the project and helps prevent future disagreements. One of the most important parts is the list of inclusions and exclusions. Clearly state everything your price covers, and just as importantly, list items that are not included, such as temporary power or trash removal.
A complete proposal should contain:
- Your company’s name, contact information, and license number.
- A detailed summary of the scope of work.
- A specific list of inclusions.
- A specific list of exclusions.
- The final, total bid price.
- Your payment terms and conditions.
Finally, attach proof of your liability insurance and any other required documents. Submit the proposal according to the GC’s instructions and deadline.
Follow Up and Learn from the Outcome
The process does not end once you submit your bid. A brief email or phone call to the general contractor to confirm receipt demonstrates professionalism and ensures your proposal was received. This follow-up can keep your company top-of-mind as they review submissions.
Regardless of the outcome, treat every bid as a learning opportunity. If your bid is accepted, review your estimate against your actual costs as the project progresses to refine your accuracy for future jobs. If you are not awarded the contract, politely inquire for feedback. Asking the GC if your price was too high or if other factors influenced their decision can provide insight to help you adjust your pricing strategy and improve your bid-hit ratio over time.