Growing your construction business is exciting, but it can be intimidating to make the jump to larger projects than you’re used to. How do you know if now’s the time? What can you do to prepare so you know you’re ready to handle more complex work?
Use these tips to get your business ready for this big next step, and then start looking for those million-dollar jobs.
The Elements of a $1 Million Construction Bid
As far as the makeup of large-scale bids, they don’t differ significantly in structure from the smaller commercial construction proposals you’re accustomed to. You’ll need to perform your takeoff, create an estimate, and generate a proposal as usual.
But you’ll need to be sure your construction documents stay extremely organized, and you’ll want your legal I’s dotted and T’s crossed.
Construction Document Management
One thing that will surely set you off course as you scale up to more complex projects is the lack of a system for handling plans, specs, and other construction documents. If you’ve ever spent any time searching for something related to a project, that’s a sign you need to develop a system before you make the move to those bigger jobs that come with larger plan sets.
The fact that documents come digitally nowadays doesn’t make it any harder to misplace them. Now, we often spend far too many minutes searching through emails and folders instead of file cabinets and plan rooms.
Take advantage of the built-in organizational system your takeoff and estimating software should have to create standardized file naming conventions and folder structures that make sense to you and your team. Get everyone on the same page and using the system consistently before you set out to bid that first large-scale project.
The Basics of a Construction Contract and Legal Considerations
If you’re not already familiar with what to expect in a construction contract, it’s a good time to learn when you’re preparing to go after larger projects. You’ll need to agree to the terms of the general contractor’s contract after you win the bid and settle on any negotiations.
What Is Included in a Contractor Agreement?
There are multiple types of contracts, such as fixed cost, cost-plus, and time and material. Depending on your trade and the nature of the project, you might encounter any of them. Some language to watch out for in construction contracts include clauses like no-lien, damages for delay, subordination, and pay-if clauses. It’s in your best interest to truly understand all the legalese in a contract before agreeing, so you may want to consult legal counsel or even take a course in construction contracts at this stage of your company’s growth.
Developing Your Own Terms and Conditions
It may be worthwhile to create your own set of terms and conditions that you can include in each proposal you submit. These can indicate your own company policies, although you will still need to sign a contractor agreement with the GC. Consult your legal counsel to draw up boilerplate wording you can reuse for each bid.
A Word on Working with Partners
Partnering with another company on a large bid is sometimes a great way to get your foot in the door to those more complex projects. But if up to this point, you’ve operated on your own, you’ll want to put plenty of thought into how this partnership will function. Your LLC, corporation, or S-corp status places limits on your personal liability, but there are no such limits on a partnership, and you might find yourself liable for debts incurred by your partner. So, again this is a good time to bring in legal assistance to determine if this is the right step for you.
Tips for Estimates and Proposals for a Large-Scale Construction Bid
You may want to handle your preconstruction process a bit differently when you move up to bigger jobs. The essentials are the same – using your takeoff measurements as a starting point to understanding your project costs and building your estimate from there. But, especially if you’re used to marking up labor and indirect costs by intuition to meet your profit goals, now is the time to get more granular in your estimating process.
Construction Estimating for Complex Jobs
Construction estimating is important for any project, but when you’re going after larger-scale work, an accurate estimate is even more crucial. A bid that’s too high will price you out of the job, but a low bid can just as easily cost you the job, or cause you to lose money if you do win. As you move into bigger jobs, it’s essential get as close as possible to the number the GC has in mind.
The way to the most accurate estimate possible is to break your cost estimate down into separate categories (which you may or may not choose to make visible to your client). At a minimum, estimate categories should include:
– Material costs
– Expected waste costs
– Sales tax
– Any other indirect costs (equipment rental, waste disposal, etc.)
Having these key pieces broken out separately allows you to more easily see where you might be able to cut back on some expenses, or which areas might be problematic. With a clear picture of your true costs, there’s no ambiguity in the space between your project cost and the selling price you need to meet your profit goals.
Creating Professional, Branded Proposals
The higher the stakes of a job, the more a general contractor expects of the subcontractors they evaluate for tasks. If your typical proposal is a hastily created Microsoft Word document with only a price indicated, now is the time to put forth more effort to make your bids stand out.
How do you generate a professional bid? One option is to hone your design skills and lay out a proposal template in a tool like Adobe Indesign that you can then convert to a sleek PDF. Include your brand’s logo, as well as your boilerplate terms and conditions, as discussed earlier. You might want separate template options for single-price proposals vs. times when you want to break costs down by line item.
If that sounds a bit more complicated than you’d hoped, you can instead look for a comprehensive preconstruction platform that allows you to generate a professional, bid-ready proposal directly from your cost estimate. Some tools, like STACK, allow you to save your boilerplate wording, your company logo, and easily toggle between simple and line-item proposal breakdowns, a process that can save you a lot of time if you’re bidding several jobs.
Examine Your Policies and Data
Labor hours can make or break a large-scale construction project in terms of profits. You can have a perfect material estimate, but If you underestimate labor hours, you’ll be eating into your profits – you have to pay your crew to complete the job no matter what.
Communicate HR Policies to Avoid Surprises
To be sure your plan for labor is watertight, you first need to have clear internal policies on scheduling, breaks, PTO, sick time, and overtime. Do you require your crew to request holiday time weeks or months in advance? Do you have backup personnel available if someone is sick? Do you require supervisor approval for working overtime? Making sure everyone is on the same page regarding these policies prevents surprise schedule delays due to lack of staffing as well as unexpected OT payouts, so you can stay on target.
Know Your Numbers
Before bidding a million-dollar-plus construction project for the first time, you should be in the habit of conducting project reviews upon completion of a job. You need to examine where every discrepancy occurred in actuals vs. estimates, and this will give you the historical data you need to calculate typical labor requirements and rates with confidence.
Other Factors for Putting Together a Successful $1 Million Bid for a Construction Job
A few more things to take into consideration before you plan on scaling up to those larger projects include evaluating staffing and financing, and planning for change orders.
Appropriate Staffing for Complex Construction Projects
As you move into the world of bigger bid opportunities, not only will field work increase, but there will be more white-collar responsibilities to handle within your company. Determine if you’ll have enough office support, including administrative assistants, estimators, project managers, accounting, and HR staff in addition to your trade contractor crew.
Because payment cycles in the construction industry are notoriously slow and you’ll need to purchase materials for your projects upfront, securing financing can be essential to freeing up your cash flow. You’ll need to weigh your options, from credit cards to bank loans. One option that can be more advantageous to growing contractors is a solution like Billd, which pays for your materials while offering you 120-day repayment terms. Check into this if more financial flexibility appeals to you.
Scope Creep and Change Orders
Larger projects often come with more complex changes. Expect change orders to happen from the beginning and plan for how to handle them. Make sure you include verbiage in your legal documentation that covers how you’ll charge for work outside the original scope and how it will affect the project schedule. You’ll also want to designate someone on your team, likely your project manager, to be on the lookout for any incoming change orders so they can be dealt with right away via your documented process, rather than allowing your crew to start work on them without a new estimate.
Checklist for a Large-Scale Construction Bid
Need the TL;DR version of these guidelines? Here’s a handy list, and you can download a complete checklist below.
– Document management system in place
– Thorough and clear terms and conditions (construction contract)
– Preconstruction software for generating takeoffs, estimates, and proposals
– Detailed estimates broken out by category
– Professional, branded, easy-to-replicate proposals
– Clear internal policies on labor and OT
– Historical data and understanding of what it means
– Rock-solid, appropriately sized crew
– Documented process for handling change orders
– Secured material financing
– Plan for project data review