Contractors often develop strategies on how to win the bid they submit. The principal aim of the strategy is to weigh the market and commercial factors and decide on a bid price. However, it is to be just low or attractive enough to become the preferred bidder.
Why a bidding strategy?
Contractors cannot afford to bid unsuccessfully for too many jobs. Therefore, they must select the jobs they do bid on carefully. Sometimes, contractors will submit bids even without any expectation of winning. It is to test a new market that they may be looking to enter.
Contractors may also chase a declining market to take work where there is little chance of making a profit. Sometimes, it may be to enter a new market, develop a relationship with a new client, or simply to maintain their operations. Sometimes it can be to contractors’ advantage to enter into a joint venture on a bid to win working market areas where they have less experience or where there is high risk.
Definition
Bidding strategy can be defined as the decision by a company on which work to price for and the level of profit to incorporate for successfully securing the project and maintain the financial security of the business.
There are several bidding strategies used by different contractors depending on the situation.
Quantity bidding
The most widely used bidding strategy by many contractors. It is simply submitting a bid on every job that comes along. This high volume approach is based on the belief that putting out a large number of bids means that they can win at least a certain percentage of them. This strategy is very time-consuming.
This approach is most effective for newer companies with little name recognition in the industry. It is also a good strategy for companies struggling to find works. If the company has a large number of employees who are not busy at present, then they also can use this approach.
Selective bidding
This is a more effective strategy. The contractor can carefully evaluate bid opportunities based on quality, and to pass on bids that are profitable for the company. Estimators also can take their time on each bid, recalculate their prices, which will help to result in more successful bids.
Negotiated bids
In the public sector, most bids called are sealed bids. Normally lowest evaluated bidder is selected for the construction, without allowing for negotiation of prices. However, in the private sector, there is room for negotiation between the client and the contractor. In this type of works, bidders rely on a personal relationship with the client. These will often come with higher profit margins and lesser communication problems.