An Owner’s Guide to Evaluating a Construction Proposal

January 10, 2020 Grace Ellis

Ultimate Checklist to Evaluate Contractor Bids

In 2015, one of New York City’s largest construction companies, was ordered to pay $7 million in penalties. Why? A fraudulent overbilling scheme. During the construction of a city charter school, the company inflated labor foremen’s time sheets. As a result, the company was billing its client for work that did not occur. While this project may be one extreme example of fraud, the lesson is clear. For owners, it’s critical to evaluate contractors through a thorough evaluation of the construction proposal.

A construction proposal is often your first introduction to a contractor. Think of the bid like you would a resume. Instead of laying out the prospective employee’s experience, the proposal lays out their vision for the project at hand, and how the company works to make that vision a reality.

Like resumes, you’ll see a wide variety of bids. Some contractors offer exceptionally detailed proposals. They’re well written, cover all of the specifications for their portion of the job, and indicate a good business acumen. Some contractors hand in sparse bids.

You might immediately think that the more detailed and professional the proposal is, the better the workmanship. That’s not necessarily the case, though. Some contractors operate a small office with limited staff for administrative duties, such as bid preparation. But their specialty is in a particular type of project or trade. Despite their construction proposal, their workmanship on the job might be exceptional, which is what you’re really looking for in a winning bid.

So how do you choose between bids?

Below, we’ll discuss the importance of finding the right contractor for your project. We’ll also dive into what you should be considering when evaluating construction proposals, to help you focus the decision-making process.

The Importance of Hiring the Right Contractor

Hiring the right contractor is essential to the success of the project. Their company, after all, is executing on your project and the design team’s vision. It’s vital that you can count on them to carry the work according to the project’s scope and maintain a high level of quality that you are paying them to do.

Most owners have horror stories about awarding a contract to the wrong GC firm. Some of the most common negative repercussions that stem from working with the wrong contractor include:

Inferior Workmanship

The last thing you want on your jobsite is a GC who hires incompetent or untrained subs. This might be a matter of cutting corners or ineptitude with the type of project they’ve been hired to complete. Whatever the reason, poor workmanship will cost you time, can damage your reputation and may even need extensive rework to fulfill the requirements of the scope of work.

Scheduling Delays

Scheduling delays cost more than time–they produce a large headache in trying to juggle the rest of the tradesmen and their portion of the project. Not to mention, adding more cost overruns to your project. Contracting with a company that’s unreliable in their time frame can cause a domino effect, pushing back the rest of the project or necessitating overtime hours in other areas.

Poor Communication

Your contractors may use different communication techniques than your company does and they may not be using the same construction technology, if at all. When there are barriers to communication with the rest of the crew, updated specifications can get missed, and confusion can cause costly mistakes. Communication issues also can occur from frustration resulting in personality conflicts on the jobsite. Collaboration and a good rapport are essential aspects of an efficiently run jobsite, and without it, projects will inevitably suffer.

Legal Disputes

Construction is a highly regulated industry, which is why it’s important to adopt contracts that cover your legal requirements, as well as your contractors. In some of the worst cases of contracting with the wrong company, disputes can arise causing legal ramifications that can be costly and lengthy to resolve. As a rule of thumb, always aim for team-friendly contracts when possible, beneficial for both owners and contractors alike.

Safety Concerns

In the construction industry, proper training and protocol mean adhering to safety regulations. A poor contractor or a contractor who hires unqualified trade contractors might pose risks in safety, such as not properly cleaning the jobsite or disregarding OSHA standards. This can put your company and other crew at risk, physically and legally.

Incomplete Projects

In severe cases, general contractors have failed to complete a project. This might be due to inferior workmanship, a subcontractor’s lack of reliability or improper project closeout. This may mean going seriously over budget and hiring a new firm to complete the work, especially if the original contractor has already been paid for a portion of the work.

Benefits of Hiring the Right Contractor

As you know by now, a poor choice in contractors can cost you time, money and even your reputation. On the flip side of the coin, awarding the contract to a quality firm can reap you benefits on the current project and even into the future if you continue a long-term relationship with the company. There are heaps of talented and professional general contractor firms out there; it’s just a matter of finding the best one for your project.

A few benefits to finding the right match for your project include:

Reliability

A good contractor is a reliable one, meaning their crew shows up on site exactly on time. They adhere to the proposed schedule and scope of work. They become an extension of your team that you can trust.

Improved Productivity

With the right firm, productivity will be improved throughout the course of your project. Other contractors find them easy to work and collaborate with and they don’t cause schedule delays. Overall, a good contractor adds to a harmonious jobsite.

Stays on Budget

The right contractor considers the exact scope of work and specifications in their initial bid, or at least as close as possible. They provide you with value, staying on budget and providing the high quality of work you need, without over excessive change orders or issues in completion.

Forges an Ongoing Relationship

When you find a great contractor, you can build a relationship with them to work on future projects together. It always serves your company to have a few trusted contractors to turn to when awarding contracts for important projects. Furthermore, your working relationship will improve over time, as you both begin to gain a better understanding of each other’s needs.

What You Should be Looking for in a Construction Proposal

If you’re not familiar with the contractor, the construction bid proposal will provide you with most of the information you need to make the right decision.

Details on Pricing

While not the ultimate deciding factor, the price is another important factor, but not for the reasons you may be thinking. Instead of seeing how high or low the contractor is bidding, it’s critical to see how the price is presented, especially to see how the budget is broken down and allocated. While there are some indications in the overall price itself, that can give you a feel for how professional the contractor is and how knowledgeable they are about the project. For instance, a bid that’s far too low might indicate that they don’t have much experience or are padding the budget in other ways, like through change orders. It might also mean that they are missing some portion of the scope of work, which could create conflicts and legal issues down the road. On the other hand, a bid that’s far too high might not fit into your budget for the project and can also indicate that the contractor doesn’t understand the project.

Nonetheless, the more accurate a bid is regarding price, the better chances the firm understands the scope of the project. For instance, is there a general line item for “light fixtures” or is there something more specific like “45 wall-mounted light fixtures”? While you should always evaluate the number and specifics they are proposing; an experienced firm will generally be more specific in their bid.

No matter what the price is in the construction proposal, do your diligence to find out the why when making your decision.

Understanding of the Scope of Work

The way that a bid presents information is a good indication of the company and their understanding of the project. The construction proposal should illustrate that the company grasps the scope of work for this project. But the level of detail depends on a few things. Was the GC furnished with comprehensive plans, drawings, specifications and scope of work prior to bidding? Not every project has that level of information available initially, so those things should be considered when reviewing the proposals.

(Almost) Error Free

Some contractors may not have the aptitude for excellent business writing. That might be fine if they are precise in what’s included in their final estimate, but if the proposal is chalk full of errors and omissions, this might be a good sign they’re not the one for you.

The actual construction proposal can give you a firm grasp of the project specifics and professionalism overall. The price will often give you a good indication of the type of materials they use, man hours they estimate, and their experience in the industry. While these two factors are essential, use your assessment of their written proposal as a sort of introduction. Don’t make your decision based solely on the professionalism of the proposal itself. Nonetheless, if you see a lot of errors, dive deeper to find out why before making the final decision.

Credentials, References and Certifications

On any project, you’re likely to garner more than a few proposals for each trade. While the proposal should contain the bulk of the information you need about the firm’s ability to conduct the project, you should always evaluate your top choices before making the final call. For basics, the decision-making process should include checking the firm’s references, certifications and credentials.

While you’re looking for the best fit for this project, you should also be looking for long-term relationships with reliable companies. Sometimes that can present itself with newer contractors who are just starting out (which means their proposal might not be the fanciest). Sometimes it will come from tried and true companies with a great track record.

Here are some things to verify before awarding the contract:

Better Business Bureau Rating

This should be one of the first things you check. A poor rating is a red flag. In today’s online world, you should also do a quick search of their website and any online reviews to get a good overall feel for their work, if it’s available.

Check References

Ask for references from previous projects, if they didn’t provide any in the proposal. See if they came in on budget, have a history of many change orders, and were reliable.

EMR Rate

Ask for their Experience Modifier Rate, (EMR) Rate. Fundamentally, the EMR rate is a record of the firm’s safety track. A good safety record will reduce your insurance cost and overall risk.

Qualify

While on most commercial construction projects, licenses will be a given, it’s still critical to check to reduce your overall liability. Does the bidding firm have the right certifications, licensing and insurance for the project? Are their subcontractors also licensed and bonded? Do the contractors have a history of safety incidents. Use prequalification software to evaluate your risk before hiring.

Union or Trade Organizations

Do they belong to a union or trade organization? If so, are they in good standing? Knowing these details will speak more on the public reputation of the company.

Benefits of an In-Person Meeting

Your construction proposal will indicate a great deal of information about the firm’s ability to complete your project. Nonetheless, sometimes that added level of interaction makes the difference. Perhaps the most influential portion of your decision-making process should be in an in-person meeting. You can get a better feel for the company and staff by meeting them in-person. If possible, visiting them on a jobsite can give you an excellent insight into their professionalism.

While you’re entering a business agreement at the end of the day, knowing if you can personally work with a company can make or break your project. If you have the chance to visit a jobsite, you should look for the following:

  • How well are they working together?
  • Has the site been kept clean?
  • Do they use construction technology on site?
  • Are they professional?
  • Do you have a rapport with the team?

Choose the Right Construction Proposal, Reduce Project Risk

At times, construction can feel a bit like playing a game of chance. You essentially need that perfect storm to come together, at the right time, to win. As critical players in the game, you need contractors to be your teammates, project partners and committed to the outcome. In the end, the right contractors with a winning construction proposal will reduce your overall project risk and improve your chances of hitting project gold.

Want to improve your bidding process? Learn more about BuildingConnected.

The post An Owner’s Guide to Evaluating a Construction Proposal appeared first on Autodesk Construction Cloud Blog.

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