How to Bid a Remodeling Construction Contract
The construction renovation and remodeling industry is a competitive arena where you need to be on top of your bidding game to come out the victor. Losing a bidding war and underselling your construction company are two of the most frustrating problems that remodeling contractors face.
Do a Walk-Through With the Client
A walk-through is one of the most important steps a contractor can take to make sure the job is appropriate for their firm. A quick walk-around can help the contractor understand their client’s specific expectations, the starting condition of the home, and can help the contractor gauge whether or not the client will be difficult to work with. Look for potential areas where a subcontractor might be needed. Most projects will require on the minimum a licensed plumber or electrician and some may require HVAC professionals.
Learn What the Client Expects
Ask for any mock-ups or drawings the owner may have relating to the project. These could be some sketches the owner made in a dream space notebook or drawings done by a professional. While you are at it a set of blueprints will always come in handy if the owner has them available.
Don’t be afraid to ask questions—make sure you and your client both understand the job’s expectations before creating a bid. Of course, the client will have champagne dreams on a beer budget, but with conversation and compromise, you can come to a happy equilibrium.
Bidding Software to Calculate Material Costs
All construction projects require a certain level of supplies, man hours, paperwork, and project management. Fortunately, construction bidding software can help cut down on juggling all these variables, allowing contractors to create a neat, organized list of the job’s credits to your firm.
Further down the line, construction bidding software can also help you make quick changes to the job. Perhaps the client changed their mind about countertops or tile. These changes are easier to calculate when using bidding software. Changing the estimate is a click away instead of needing to repurpose the entire proposal.
Make Sure You Will Make a Profit
Know what it will cost you to complete the job. This includes not only the material and labor costs but overhead expenses as well. Homeowners expect contractors to charge 10% for overhead and 10% profit.
Don’t fall into this trap—the average remodeling contractor has overhead expenses—also known as general condition expenses—ranging from 25% to 54% of their revenue. These expenses include the cost of accounting and bookkeepers, legal advice, licensing, office space and related office expenses like rent and utilities. They also include the price of equipment that will be necessary to complete projects.
Most remodelers only maintain a slim 3% profit margin. There is no reason to lose money on a job—mark up appropriately or you will end up doing the job for free—or worse—at a loss.
While knowing your competition’s prices may limit the amount that you can inflate your final bid, bear in mind that they are suffering through the same markup difficulties as you. Don’t match or undercut your competition when you know that you will probably lose money on the job. If your competition wants to drive themselves to the poorhouse, you don't need to be riding shotgun.
Present the Final Bid
After tallying all your costs and ensuring that your company will make a profit, it’s time to present your bid to the homeowner. Make sure that the final proposal is professional. Most construction management software that offers bidding features can create a well laid out final document from the information you’ve put into the system. There are also a plethora of free online templates that construction managers can choose from.
Regardless of the layout of your bid, make sure you include the following:
- An itemized explanation of costs
- A payment schedule
- Payment requirements
- Explicit information on whether the costs presented are fixed or estimated prices
- Suppliers, if necessary
Talk Through the Bid With Your Client
Your potential client is most likely not a construction expert. Talk through the bid with them—make sure they understand all the costs associated with their project. Take the time to answer their questions. And if they catch an error, make sure to fix it immediately. At this point, your part in the bidding process is done, and it’s up to your potential client to decide whether they will move forward with your company.