Now that you're appropriately licensed or registered with your state, you're ready to send out your bids (or proposals) for new work. However, since most installers and tradespeople work on the job site and not in their employer's office, you might not know how the bidding process works from start to finish. So today, we'll break down the cycle one step at a time, from take-off to contract award.
Step 1. Find projects you can bid
A local plan room is the most obvious source for finding new construction projects. Typically a general contractor or the project owner provides the plans, specs, and necessary bidding forms (if applicable) to the plan room. Then, the plan room adds the new drawings to its project list and notifies its members. The notifications can occur via email, snail mail, or SMS (text message).
Plan rooms come in all shapes and sizes, ranging from regional to statewide. Others provide national coverage with a virtual plan room in every state. As a result, their costs and services can vary dramatically based on your specific needs.
Most plan rooms fall into one of three different categories.
Physical plan room - to view the plans, specs, or addendums, you'll need to visit the plan room during business hours. After you sign in, locate the projects you need and do your take-off. If someone is already looking at those plans, you'll have to wait your turn or plan another visit.
Digital plan room - after you log in to their website, you can view the plans, specs, or addendums any time of the day or night, including weekends and holidays. Since the project info is digitized, two or more people can view the plans simultaneously. In addition, you can print full-size drawings for further review if you have a plotter. Finally, and perhaps most importantly, you can quickly check for last-minute addendums before hitting the send button.
Hybrid - combines the physical and digital options into one platform. The physical or digital-only option will work for most contractors, but sometimes you just need to see the physical drawings for extra clarity regarding details or cross-sections.
Plan rooms usually charge a membership or subscription fee based on a specific bidding area such as city, county, or state. The more plans or locations you have access to, the higher your membership fee.
Foundryy Insider Tip: Sign up for one city or county area; after completing a few projects, you can expand your bidding area.
We've included links for some of the more popular plan room companies for your convenience.
If you're not ready for a plan room subscription fee, here are some other options.
Builder and Contractor Associations - some groups provide plan room services for their members, especially in rural areas. You can do a Google search for "builder associations in (your state)" or "contractors associations in (your state)" to see what is available.
General contractor offices - if you're a subcontractor, you can contact local GC offices and ask if they have any projects that still need pricing for (your specific trade).
If the answer is yes, offer to come by their office, do a take-off for the project, and submit your best bid.
And if the answer is no, ask them to add your company to their subcontractor database. Then, the next time they get a new set of plans, they'll send an ITB (Invite to Bid) and request a bid.
If you happen to be a general contractor, you can use the same strategy with one minor change. Instead of contacting other GCs, start connecting with architects and real estate developers. Once they have a potential project, they'll contact you for a bid.
Step 2. Complete Your Take-Off
Before we jump into the take-off process, you'll need to create a take-off form to use as you scale the plans. Again, Excel (or another spreadsheet program) is an excellent option since you can create as many rows or columns for your trade.
Here's an example of a basic square footage form
room # | length | width | sq ft |
Add a formula to multiply the L x W and display the result in the square foot column. Once you've completed listing the areas, you can use another formula to total the square footage for the building or area.
( I can create a simple excel form for square footage take-offs and make it free and downloadable for visitors/members).
If you're using an estimating program, simply choose the best template for your needs from those available. Some programs allow editing to these forms, and others let you upload a spreadsheet of your own.
Here's where your trade experience will begin paying dividends. Since you're a framer, roofer, or (insert your specific trade), you should be familiar with reading blueprints for your scope of work. And it would be best if you had some basic knowledge of the adjoining trades work.
For example, a roofer might only need to concern themself with
Chimney or skylight locations
And an insulation contractor needs to understand
You'll need to review the project spec book (if applicable) or finish schedule to determine the materials required.
Now that you have your materials list, it's time to start your take-off process. Depending on your trade, you may need to review one or several different pages or sections of the plans.
Organize your notes by building number, section, or room number to ensure you don't miss any areas.
Start by checking the drawing for any notes, keys, legends, and details. Then, add the applicable notes to your take-off form, so all the information stays together.
Double-check the drawing scale and grab the appropriate scale tape or scaled rule. Or select the correct scale from the tools panel (digital plans).
Start scaling the drawings and transfer the information you need onto your take-off form.
Check the sheet details for additional material and labor requirements.
Check enlarged building sections or floor plans for additional info not included elsewhere.
Double-check the building cross-sections and exterior elevations for additional notes and hidden details.
Once you're sure you have gotten all the information you need, get up and walk away for 5-10 minutes. Then, before logging out or rolling up the plans, go back through your take-off with fresh eyes and double-check yourself.
Step 3. Request Pricing from Supply House
You're ready to assemble your material list and request a project price quote. But first, you'll need to convert your take-off info from square feet to the unit of measurement for the materials required.
Instead of asking for 1000 square feet of drywall pricing, convert the footage to sheets based on size.
1000 sqft of 4 x 8 sheets = 31.25
1000 sqft of 4 x 10 sheets = 25
1000 sqft of 4 x 12 sheets = 20.83
Foundryy Insider Tip: One of the most common mistakes made by new contractors involves the waste factor.
Electricians deal with waste when pulling wires and cables. Sometimes what's left on the spool isn't long enough for another run between j-boxes and the electrical panel.
Plumbers deal with a similar issue; pipe or tubing cutoffs that don't get used go straight to the recycle bin.
Drywall has one of the highest waste factors at 12%, while insulation has virtually no waste factor.
So, looking back at our drywall example above, you should add 2-3 sheets of waste to that material list. Of course, a few extra drywall sheets won't break the bank on a 1000 sqft job, but let's expand those numbers and see what happens.
100 sheets of drywall = 12 wasted sheets
1000 sheets of drywall = 120 wasted sheets
5000 sheets of drywall = 600 wasted sheets
The average cost of a 4 x 8 sheet is $15, so let's see how much the waste factor affects the bank account.
12 sheets will cost you $ 180.00
120 sheets will cost you $ 1,800.00
600 sheets will cost you $ 9,000.00
Waste is unavoidable, but you can work to minimize it.
OK, back to the material list.
You should have a list that includes the number of units, the product number, and a brief product description. (Please see choosing your supply house page for more information)
Now it's time for the incidentals and accessories you'll need, such as
Pins and shots
Blades, cutters, and drill bits
Safety and PPE supplies
It only makes sense to include these items on your material list to avoid any price increases between today and when you start the project.
Once your material list is complete, please send it to the supply house for a price quote.
Step 4. Specialty Equipment
Here is another common pitfall for new contractors, equipment rental or purchase costs. Again, the decision to rent or buy is pretty straightforward. If you only need the equipment for a specific job or two, rent it. Anything beyond that, buying might make more sense.
Some of the most common specialty equipment includes
Depending on your needs, request the daily, weekly, and monthly rental rates for the equipment to include in your bid.
Step 5. Calculate Your Labor Costs
It's time to lean on your trade experience again. But, first, you should know what an average installer can do in a day during the different job phases. These calculations typically reference square footage or other trade measurements such as sheets, yards, rolls, or fixtures.
Your specific location and the local economy will dictate the wages you pay yourself and your employees. For example, the installer who makes $35 per hour in one state could make only $25 for the same work in another.
So, let's say you're looking at a new project, and decide it will take 4 days to complete.
And let's also say that you pay yourself or employees $30 per hour for your trade or $240 per day.
You can multiply 4 days x $240 = $960.00 or $30 per hour x 32 hours (4 days) = $960.00
And you're done, right?
Nope, nope, and nope.
The math above calculated your unburdened or straight labor costs.
You need to add on your labor overhead costs which include.
Unemployment insurance - based on your application to the state agency, you'll be assigned a base percentage for calculation and payment purposes.
Worker's Comp insurance - ditto; based on your application to the state agency, you'll be assigned a base percentage for calculation and payment purposes.
FICA - please don't shoot the messenger, but this is another stumbling point for many new contractors. If you look at a recent paycheck, you'll see the FICA deduction for Social Security and Medicare. If you multiply your gross earnings x 7.65%, you'll see the FICA amount listed on your paycheck.
Most employees don't realize that the employer must match and pay this amount every pay period from their pocket. Per the IRS, the current tax rate for social security is 6.2% for the employer and 6.2% for the employee, or 12.4% total. The current rate for Medicare is 1.45% for the employer and 1.45% for the employee, or 2.9% total.
Since you're both the employer and employee, your "self-employment tax rate" is automatically set at 15.3%, no matter what you pay yourself. But if you pay yourself and employees the same hourly wage, you’re more expensive than an employee.
You - $30 x 15.3% = $4.59 FICA or $34.59 per hour
Employees - $30 x 7.65% = $2.39 FICA or $32.395 per hour
Please note that these figures do not include any unemployment or worker's comp costs and are only for demonstrative purposes. And remember, these are state and federal requirements, and they are non-negotiable.
Other labor overhead items can include.
401 K/retirement fund
You can take the annual cost for the benefit and divide that amount by the number of hours worked annually to determine a per-hour price or percentage.
So, if your medical plan costs $5000 per employee annually, 5000 divided by 2000 (50 weeks of 40 hours) = $2.50 per hour or 8.5% (of $30).
Let's total these labor overhead costs.
15.3% for self-employment tax
7.2% for unemployment
5.8% for worker’s comp
8.5% for health insurance
Based on this fictional example of rates and a labor rate of $30, this contractor's labor overhead totals 36.8% or an additional $11.04 in expenses for every hour worked.
Step 6. Establish Your Profit Margin
Yes, we've made it to the good stuff; the profits!
And the good news is that you can pick any number for your profit margin, well, sort of.
There's nothing to keep you from using 50-75-100% as your profit margin except for your specific location, local economy, and common sense.
Setting your (initial) profit margin at 50% of your overhead labor rate is a good rule of thumb. Sticking with our fictional example above of a 36.8% labor overhead rate gives us an 18% profit margin.
Send out a few bids and track the results. If your prices (profit margins) are too high, you won't land many contracts. And if your prices are too low, you'll land almost every project.
Your profit margin is the most flexible of all the different components involved in preparing your bid. Every other contractor bidding on the project will have similar labor and material costs; the most significant variable is the profit margin.
Step 7. Preparing Your Bid
You will determine the price by adding the labor, labor overhead, materials, and profit margin together.
Yes, it's that simple.
You may have noticed that we don't mention a single word about "marking up" material costs, and here's why.
Let's say you purchased $1,000 of material from the supply house and then marked up the cost to $1,500 for your customer. As far as most states are concerned, someone (meaning you - because you were the final retailer of this transaction) owes the state sales tax for the additional $500 markup of the material sales price.
Another option is to request a reseller permit from your state. This permit allows you not to pay any sales tax at the supply house, but you'll need to collect the sales tax for the final selling price and send it to the state.
Both options result in additional paperwork and payments for you.
So, let's look at another option.
When you purchase $1,000 of building materials, the supply house collects the sales tax and sends it to the state—transaction complete. Then, you sell the materials to the customer for the same price, with no extra paperwork or payments.
If you insist on marking up material costs, bump your profit margin slightly instead of dealing with sales tax issues. Remember, your profit margin is calculated based on the total labor and material costs combined.
Some projects include bid forms, and if you don't use their paperwork, your proposal goes into the circular file. Double-check the specs or project guide for bidding proposal requirements to ensure your bid gets reviewed.
When you write your proposal, it should read something like this:
Our company proposes to provide the following:
Products/systems as outlined in the specs/finish schedule, as shown on drawings # # and #, dated (insert the date noted on the blueprints).
Our price includes addendums #, #, and #, dated (insert date)
Our price is for a complete installation and includes all applicable taxes and insurance.
List payment terms, progress billing, deposit and payments, etc.
This price quote is valid 30-60-90 days from the date of this proposal. Always include an expiry date for your bids.
And then list the price like you do when writing a check. The price should appear numerically as $10,225.00 and get written out as Ten Thousand Two Hundred Twenty-Five Dollars.
(include an image of a completed proposal form for illustration purposes?)
Step 8. The Contract Award
The award process will vary depending on the project owner.
Public projects, such as libraries, schools, and hospitals, usually have a public opening of the bids. Then, the proposals are reviewed and sorted based on the trade or spec section.
With the proposals organized, reviewers find the lowest bid and place that proposal on top of the stack. Then, as additional bids come in, reviewers check each one against the top of the stack proposal.
Finally, the reviewers gather up the top-of-the-stack proposals and announce the apparent low bidder for each trade or specialty. A few days after the bid opening, the owner or agent will finalize the winning bidders' list and notify each contractor.
Private project bid openings can occur after the bid deadline, subject to the owner's discretion. However, they have no legal obligation to open all the bids, choose the lowest price, or even announce the results.
Since most contractors work with similar labor and material costs, the deciding factor might not involve your pricing. Instead, other factors such as trade experience, personal/professional relationships, and recently completed projects can win or lose a private bid for you.
If you submitted a winning bid, you should receive an award announcement from the owner or GC. Again, there is no formalized structure to this process, but you should get notified
Via a letter, call, or email.
Via signing your proposal and returning it.
Via an LOI (Letter of Intent) to contract with your company for the project.
Via an MOU (Memorandum of Understanding) that states you plan to enter into a contractual agreement for the project.
Most owners and lenders want to get their contractors' list finalized sooner rather than later because most subs won't begin ordering materials without a signed contract.
But when the contract arrives, don't just sign and return it to the contractor. Instead, you'll want to review the entire document, including all the subsections, requirements, and especially your scope of work.
We'll do a contract review page soon, but you should have a good grasp of the costs and factors required when preparing your bid.