- PlanHub
Ultimate Guide To Construction Bid Leveling: Process, Definitions, and Best Practices
Key Takeaways
- Bid leveling helps general contractors easily compare the bids they’ve received, making it easier to decide on the best fit for the job.
- Soliciting bids and sifting through the many options can be a challenge for any construction business, so bid leveling helps improve a company’s ability to make the most informed decision.
- Phases of bid leveling include preparing bids, analyzing all bids, normalizing and adjusting discrepancies, clarifying and negotiating any ambiguities, and making a final decision.
- Bid leveling tools and technological advancements make bid leveling an easy addition to workflows with real-time comparisons and side-by-side views.
Navigating the Complexities of Construction Bids
Bidding is a crucial part of construction, allowing project owners and contractors to choose the best partners for implementing a project. However, sorting through what can be dozens of bids at a time and landing on the ideal one for the job may be a challenge.
Bid leveling is a key equalizer in construction financial management, giving clients and general contractors the ability to easily understand the price for each bid and the scope of what they’re offering. Apples-to-apples comparisons are never easy when you have to weigh contractor expertise, cost, deliverables, and countless other factors – bid leveling simplifies them.
A thoughtful approach to bid leveling is valuable for making consistently accurate assessments of their needs and understanding the options available. This guide outlines the value of bid leveling and the best practices for implementation.
What is Construction Bid Leveling?
Construction bid leveling is the process of placing competitor bids side-by-side to compare critical information. This process allows comparisons beyond just pricing, showcasing all the value that each contractor offers to make choosing the right fit easier. Bid leveling helps contractors see not just the overall number, but also scope, material costs, and expertise offered, all in one place.
Keep in mind that bid leveling is an exercise in assessing value, and not just cost. Bid leveling paves the way for effective bid analysis. Once the top bids have been placed side by side and have had any disparities addressed, scope gaps filled in, and scope overlap accounted for, then the bids can be effectively analyzed.
Example of Bid Levelling
For example, if a contractor presents a bid that’s 50,000 lower than the other average bids, but they left out the costs of materials, you’ll have a misleading representation of which is more valuable. Bid leveling lets you compare side by side and create an even playing field.
Using “Total Bids” To Compare True Value
Bid leveling allows clients and general contractors to see the full picture behind the total value a subcontractor will provide. Think in terms of the “Total Bid”, which considers not just the listed number but also the scope of work, the cost and material breakdown, and the expertise behind those numbers. Total bid includes any cost adjustments for missing scope items and adjustments for risks, like construction delays or material shortages. The formula is as follows:
Total Bid = Base Bid + Plug Numbers + Risk Adjustments
Key Terms and Concepts in Bid Leveling
- Leveling Sheet: The spreadsheet/matrix used to compare multiple bids against each other.
- Plug Number: A cost allowance inserted by the general contractor to cover a missing scope item in a sub’s bid.
- Scope Gap: Work required by a client’s initial plans but missing from a subcontractor’s official bid.
The Construction Bid Leveling Process: A Step-by-Step Workflow
Bid leveling relies on five phases as the industry standard, often made easier by modern software handling the heavy lifting. Refine your bid leveling process by following the steps below.
Phase 1: Preparation and Standardization
The first phase in soliciting and leveling bids is to ensure they are in a readable and easy-to-understand format. Have a standardized format for assessing and organizing bids that aren’t.
A bid management software platform like PlanHub helps contractors and stakeholders collect bids in a readable format that supports standardization and uniformity before bids are even submitted.
Phase 2: Detailed Analysis and Discrepancy Identification
Place the bids you’ve received side-by-side to understand how they compare and identify any discrepancies between the bids and their offerings in a line-by-line review. Scan for mismatched line items across multiple bids, such as Bid A citing paving as part of their services and Bid B leaving the service out.
Example of bid leveling through the PlanHub platform:
Phase 3: Normalization and Adjustment
Normalization and adjustment helps you compare each of the bids in a 1-for-1 and direct manner by filling in missing information to make multiple bids comparable, a process known as plugging.
For example, if Bid A omits the cost for insulation and Bid B does not, the general contractor can add an estimated cost to Bid A to better compare the two.
This step isn’t altering the bid officially, but it does allow you to fill in placeholder values so you can get a more accurate interpretation of what the total bid will cost to improve your ability to compare them.
Phase 4: Clarification and Negotiation
If you single out bids that check most of the boxes, you can negotiate terms or request clarification through requests for information. Go back to the subcontractor to ask questions like, “Did you account for the specified brand of materials?” or “Have you included the consumables like nails and fasteners?”
As you review the bids in the final steps, you have the option to negotiate terms with the subcontractors that you are most interested in working with. If you are interested in working with a subcontractor because of their skill and labor rates, you can ask them if they’d be willing to add a service to their scope to meet your project needs.
Phase 5: Final Evaluation and Recommendation
Finally, with all the information you’ve gathered and compared, you can select the ideal contractor for your project. Make your decision considering the Leveled Bids rather than the base bid price. In other words, be sure to balance price with their ability to perform the job effectively.
Think in terms of the value of what they are planning to provide at their price point rather than just deciding on the lowest raw number granted in the proposal.
Best Practices for Superior Bid Leveling
For superior bid leveling, be sure you have a consistent process that is used across your organization. You can do so by incorporating the following best practices.
Implement Robust Internal Processes and Standards
Have a consistent process and data format for all estimators in the company to ensure data uniformity. Consistency and transparency are key to ensuring every decision is reasonable and defensible. Have clear standards that highlight crucial staff practices, such as always using the latest set of plans and addenda, following a similar leveling template, and using the best tools for the job.
Enhance Clarity and Communication
Bid leveling is a communication tool, encouraging the general contractor and the subcontractor to talk through details, which reduces concerns later on. If you have questions about how one company’s bid compares to another, then this stage in the process is a good opportunity to open up a line of communication. Having clarity upfront makes the “I thought you were covering that” conversation much less likely.
Focus on the “Why” Behind the Numbers
Bid leveling encourages you to think about the “why” behind the numbers. For example, one bid might be higher because a subcontractor understands the complexity of a job better than the others. After looking at costs, review factors like contractor expertise, specialized certifications, and supplementary services offered.
Building a Skilled Bid Leveling Team
Your bid leveling team must have the experience and know-how to understand estimates in context. Estimators must be able to understand both the math and the construction behind the math so they can determine whether the numbers make sense.
For example, they may be able to sniff out when a section of the estimate seems off, such as an estimate for sourcing lumber being a little too low. Build a team of experienced estimators while also ensuring you have adequate training to support your team in comparing bids and spotting discrepancies.
Ethical Considerations and Transparency
Consider the ethics of bid leveling – leveling should be part of your selection strategy, and not used for manipulation or “bid shopping”. While leveling does allow you to compare your options in context, it’s frowned upon to use one subcontractor’s leveled price as leverage against another to try to knock down their price. Use bid leveling to understand what each subcontractor is able to accomplish, and then make your decision while respecting their professional input.
Simplify Bid Leveling with PlanHub
PlanHub’s bid leveling tool empowers general contractors to find the right fit for every project. Also featuring virtual bid coordination, prequalification matching, and takeoff and estimation tools, it’s an all-in-one resource.
Leveraging Technology and AI for Enhanced Bid Leveling
Technology like AI can help professionals summarize bids, extrapolate key information, and simplify the bid leveling process. With an increase in the availability of tools, professionals no longer need to manually sift through bids and build out their own tedious spreadsheets.
Bid Leveling Software and Platforms
Bid leveling software and platforms can vastly streamline the process by making bids easy to sort through and compare. Platforms can organize information, fill in gaps with accurate estimations, and more when you choose the right tool.
Key features to look for include:
- Cloud integration
- Ability to import data from PDFs and other sources
- Side-by-side comparison views
- Bid prequalification tracking
- Automated ITB distribution and project updates
A general contractor bid management software like PlanHub offers all these features and more with our integrated leveler inside a robust bid management system. Also acting as a virtual bid coordinator with an organized bid board, you can manage everything from the ITB to the signing of the contract.
The Role of Artificial Intelligence (AI) and Large Language Models (LLMs)
The rise of artificial intelligence and large language models has made reading through bids and organizing information easier than ever before, as tools can help you extract valuable information from bids so that you can compare information even more quickly. AI and LLMs can pull information from bids, search for keywords and synonyms like “drywall” to compartmentalize information and easily identify the scope of work and value offerings from each potential client.
Future Trends and Considerations
Evolving technology has already brought forward an optimized bidding process, but future advancements will streamline bid leveling even further. Future updates are likely to be able to level bids in real-time, parsing out the key details and flagging outliers without human intervention.
Overcoming Common Challenges and Mitigating Risks
Bid leveling is crucial for accurately assessing bids, but it’s important to be aware of the potential pitfalls, ranging from simple input errors to overlooking key details.
Common Pitfalls
Be aware of these common challenges to get the most out of bid leveling:
- Human error: Human error in manual data entry is one of the most common errors and can lead to comparisons made from inaccurate numbers.
- Failing to update: Failing to update a leveling sheet when you receive a new addendum means working without all the correct information.
- Misjudging a blank cell: assuming a blank cell means “zero cost” can cause issues when it actually means an item was overlooked.
Strategies for Risk Mitigation
Take these steps to overcome these common pitfalls:
- Digital tools: Digital tools can simplify the transfer of information and reduce errors related to typos.
- Careful review: Verify the scope of each bid at least twice, and with multiple pairs of eyes from your team; If a number looks too good to be true, it just might be.
- Clarify everything: address any ambiguities or points of confusion with subcontractors to ensure you understand the scope and cost.
The Strategic Impact: Why Bid Leveling is Critical for Project Success
Bid leveling clarifies expectations and ultimately protects profit margins. When comparing bids against each other, you have a greater understanding of what’s worth your time and energy and can move forward with a clear foundation.
A leveled bid results in an agreeable contract with better alignment and fewer change orders.
Key advantages of bid leveling include:
- Cost Certainty and Budget Control: Directly comparing subcontractors allows you to identify the subcontractor with the best value for the job, often resulting in reduced costs by about 8-10%.
- Enhanced Project Performance and Quality: A clear scope allows for a smoothly run job site, timely material delivery, and defined expectations between stakeholders.
- Reduced Project Risks and Legal Exposure: A well-defined and agreed-upon scope prevents contract disputes and litigation, acting as documented proof of what was agreed upon.
- Driven Value for All Stakeholders: Deciding on a leveled bid results in the owner getting a fair price, the general contractor protecting their fees, and the subcontractor getting a clear scope of work.
Altogether, bid leveling as a critical first step helps set expectations and set the stage for a project.
Master Your Bid Leveling for Construction Excellence
Bid leveling is a valuable strategy when reviewing and assessing bids, giving you an accurate picture of how bids compare in terms of price and value so you can weigh the strengths and weaknesses of all your options, find the right fit for each project the first time, and avoid hiccups later on. A bid leveling tool can optimize this process, saving you time and energy by letting you easily compare your options side by side.
PlanHub’s integrated bid leveler slides right into a complete toolbelt of bid management solutions, like an organized bid board, a nationwide directory of thousands of contractors and suppliers, and integrated takeoff & estimation tools. Our general contractor bid management software equips you to solicit bids, match with qualified subcontractors and suppliers, plan projects, and much more.
Book a PlanHub demo today.
