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Weathering the Storm of Rising Inflation
Your success as a general contractor or subcontractor relies largely on your ability to master the job bidding process. Doing so will allow you to secure more work, maintain backlog and enhance profits. The construction CPAsat Doeren Mayhew offer four best practices to incorporate into your job bidding process.
1. Secure a place on negotiated job bidding lists. Although not always possible, where you can, focus your efforts on obtaining private bid opportunities versus public bids. This will allow you to better compete in areas other than price, including your construction specializations, reputation, work quality and safety record.
Achieving favorable status starts with your work product and extends to your ongoing relationships with customers. That means consistently producing high-quality work, meeting project deadlines and minimizing risk. Other tips include:
Busy contractors lacking sales manpower may even consider implementing a CRM system with tools to help automate communication with customers and monitor sales opportunities.
2. Put your best bid forward. Bid accuracy and quality is fundamental, but in some cases, you may need to go beyond the basics to differentiate your bid and stand out in the price war. This is especially true for those who must compete primarily in the public bid space. Review past jobs similar in scope to ensure you aren’t overlooking special considerations. Have your best people review the job blueprints and maintain a high level of oversight on the bid process where price competition is a concern.
3. Consider contract terms. A little foresight in the bidding process can go a long way in controlling job costs and maintaining profitability on your projects. Consider where your risks are in terms of costs and cash flow, and incorporate terms to protect your business. Best practices related to contract terms include:
Subcontractors might consider adding a clause that they must be paid a certain number of days after the general contractor is paid. Another best practice is a “stop-work” clause freeing you to leave the project if you aren’t paid within a designated timeframe. For longer-term jobs, consider clauses to offset potential increases in material prices.
4. Ensure proper job cost accounting. Since control of job costs drives gross profit, it is critical that you understand them. Effective job cost accounting helps you determine and allocate your overhead and your burden within bids. Burden includes costs such as workers’ compensation insurance, payroll taxes, fringes and equipment costs. You can calculate burden based on a percentage of labor hours, dollars, revenues or other methods. By failing to accurately reflect these costs in your bid, you can actually lose money on a job that appears to be profitable. Your accounting system should allow for effective breakdown of this data. If not, be sure to check with your construction CPAs on how you can improve job cost accounting.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
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