Effective Project Bidding and Estimating

Know these techniques to win proposals.

By Ed Butts, PE, CPI

One of the most important responsibilities and tasks of a successful salesperson is preparing and providing
accurate bids and estimates to win proposals from our prospective customers.

It doesn’t really matter if the business is selling furniture, toothpaste, or water well drilling and pump installation services. The connections we develop and continue with our clients allow our businesses to continue, and at times, thrive.

Developing this necessary skill is not automatic nor gained solely through training. This somewhat intimate contact with customers requires a sufficient and effective blend of knowledge, experience, training, intuition, empathy, and a degree of inherent personality.

Most customers like to feel they are in control of the interaction. This often necessitates developing a feel for the customer’s actual needs, personality, available funds, and business acumen. And include intent, a sense of humor, and scope and cost flexibility. All this often requires years of experience and repeated exposure to both good and bad human nature.

With all of this said, I do not claim to be an expert on sales techniques; I only know I have had my share of successful sales based on what has worked for me for decades. Every customer and region of the country possesses their own unique characteristics that must be fully understood and adjusted to by a salesperson.

Although firm proposals are frequently issued in the water well industry, most well projects are estimated based on the number of feet to be drilled, sacks of sealing cement or bentonite, well casing and screen lengths, and development time. An estimate is only as accurate as the driller’s knowledge of local geological conditions, well drilling codes and regulations, drilling machine and laborer capabilities, and presumed
aquifer characteristics.

On the other hand, pump installations, pumping plants, reservoirs—particularly when performed for public works—are generally awarded based on the lowest responsible total proposal cost (i.e., low bid).

This month, as part of our year-long look at business topics, we will discuss a few ways to prepare realistic and accurate bids and estimates needed to win jobs.

Methods of Project Delivery

There are several methods used to ultimately deliver a project to the owner, referred to as a project delivery system. In the United States, construction management at risk, design-build, and design-bid-build are the three principal project delivery systems used for major projects. Each method has distinct advantages and disadvantages unique to the specific system including speed of completion, cost, liability, sole-source responsibility, and coordination between parties.

In the water well industry, the three principal methods for obtaining work are:

• Design-bid-build
• Firm itemized quote
• An estimate.

The design-bid-build method is generally applied to larger water well and water system construction where an owner retains the services of an engineer or other designer who designs the project and issues plans, specifications, and bidding forms to interested contractors who thereafter submit competitive bids to the owner.

The project is typically awarded to the lowest responsive bidder who agrees to deliver the project at the bid cost within a fixed period of time, and following execution of a contract, builds the project. Unforeseen or unexpected time extension, work, or material is usually covered through a change order. This method is commonly used for government and public works projects, as well as many commercial and industrial projects.

The remaining two primary methods, firm itemized quotes and estimates, are more commonly used for residential, irrigation, and light commercial projects and are generally a form of the design-build project delivery method where the water well or water system contractor assumes responsibility for the design and construction of the accompanying work.

A firm itemized quote includes a listing and associated cost of the various components, labor allotment, and other additional items needed to fully complete the project. These are generally submitted and accepted by the owner as a not-to- exceed cost for a fully delivered project. Water pump and system installations are generally based on a firm quote as the uncertainty of the well’s construction variables are typically known to the contractor.

An estimate, more common for water well work where the actual depth of well is generally uncertain, includes a contractor’s best estimate for the total depth to be drilled, well seal depth, length of well casing and screen, sacks of cement, and other items on an itemized unit basis (i.e., per foot or another applicable unit). The estimate is submitted to the owner with the understanding the unit prices will be extended by the ultimate total amount to arrive at the total billable line-item figure.

Regardless of the specific bidding process used, it is vital the prospective owner and contractor mutually agree on the specific scope and elements of the project. Bidding contingencies are often included in an estimate or quote to protect both parties from unforeseen or unusual cost increases, events, and jobsite conditions.

To Bid or Not to Bid? That Is the Question

Deciding to do work for the government is one of the most important decisions a contractor, regardless of trade or specialty, can make.

The obvious trade-off of secured and timely payment with most private projects is often offset by many other unique factors such as specific bidding laws, burdensome reporting and paperwork demands, delays in usually receiving the final payment (retainage), unforeseen contractual conditions, closer scrutiny of your business practices, and additional overhead costs to operate the business.

The paperwork maze and volume can be unbelievably burdensome to those not familiar with the way the government procures services and goods.

Obviously, the first consideration that needs to be made is: Do we even want to pursue government work? This question cannot be asked nor answered lightly. Prospective contractors usually want some assurance that he or she can secure the required bonding and insurance as well as make a profit by working for the government.

However, that can never be guaranteed, and quite often, an inexperienced or unprepared contractor will even lose money on a project for the government that would have yielded some profit from an ordinary Joe Consumer.

Prevailing Wages

One of the primary differences and inflationary costs between government and non-government work is the almost universal inclusion of lengthy contracts, bonding, and the requirement to pay employees prevailing wages, particularly on federally funded projects.

Sample contracts and prevailing wage rates are almost always included in public works bidding documents. A prospective bidder should always review the proposed contract and applicable wage rates before committing to bid the project.

The prevailing wage statutes began during the 1930s when the federal government implemented the Davis-Bacon Act. This act, passed by Congress in response to pressure from unions and the widespread unemployment impacts from the Depression, required the payment of specific wages to construction
workers based on their classification and location of the project.

During the Depression era of the 1930s, unscrupulous contractors would often pay low non-market wages to workers employed in often-dangerous public works, agricultural, and industrial occupations. This abuse, along with union pressure, necessitated worker protection legislation such as the prevailing wage and occupational safety laws. These abuses also led to the rapid rise and influence of unions, which remains an influence in many regions and occupations today.

The prevailing wage statutes vary widely from state to state, and some states do not require payment of prevailing wages for state-funded projects at all. However, the Davis-Bacon federal law remains in force and applies to any federally funded public works contract.

Since well drilling and pump installation are often performed for public works agencies, the real possibility of paying prevailing wages to employees exists and must be confirmed before bidding on such a project. Water well drilling and pump installation are often not specifically defined within project specifications due to the low occurrence of this trade in most government work. But ignorance of this is risky and frequently results in an undesirable outcome for a contractor who does not verify the applicable wage scale for their workers.

Often, the person who determines the wage scale for the project will lump a well driller or pump installer into the closest (or lowest) category or wage rate they feel fits. This can result in having to pay your workers higher wages comparable to plumbers, heavy equipment operators, or even pile driver operators.

Since these occupations can vary significantly in wage rates and fringe benefits, the impact on the unit labor cost of the project can also vary—in some cases up to $50 per hour per worker. For this reason, it is imperative that the individuals responsible for preparing bids on government projects verify and incorporate the applicable wage rate before finalizing a bid on the project.

Fringe Benefits

Of equal importance and often overlooked is the issue of fringe benefits. All prevailing wage projects will address fringe benefits in one way or another.

Fringe benefits for most public works projects generally exclude those benefits already required by law such as unemployment and workers’ compensation insurance, but can include other benefits like vacation, pension, and health and welfare insurance.

For a contractor to gain credit for these benefits that he or she may already offer to employees, they must ensure the benefits are paid to a third-party fund or into an approved plan. If the benefit funds cannot be approved or defended, then the contractor must pay the employee the cash equivalent to offset the benefits.

Benefits usually amount to between 20% to 40% of the hourly base pay rate, so it is obvious they can be a significant labor cost factor and must be considered.

Subcontractors

An additional factor that must be considered before bidding for a government project is the issue of subcontractors. Most contracts require the general contractor to perform a minimum percentage of the work himself.

This percentage can vary anywhere from 5% to 75%, but is generally required to ensure that the contractor has an active interest in the project and is not simply acting as a broker.

If you decide to act as a general contractor, I want to offer a simple word of warning. Since the need for subcontractors is often inevitable, make sure you pick only reputable and reliable ones to work with. As a rule, don’t use subcontractors with little or no experience in public works and always use financially stable and reputable subcontractors. Selecting a subcontractor based on bid price alone can lead to disastrous results.

In general, use contracts for all subcontractors that specify at a minimum the terms and conditions of the subcontractor’s scope of work and responsibilities, sub-bonding, costs, labor and wage provisions, insurance, conflict and dispute resolution, and payment terms.

Default or failure to pay suppliers on the part of a subcontractor will usually result in responsibility falling upon the general contractor or their bond. In extreme cases, this can lead to bankruptcy of the contractor.

One avenue of protection available to a contractor is requiring separate payment or performance bonds from the subcontractor. Bonds are basically an insurance policy that guarantees the subcontractor will complete their assigned tasks (and pay their suppliers) on the project or the bonding company will step in and either complete the project or pay the full sum of the claim to the aggrieved supplier or contractor.

Although this will generally raise the cost of the subcontracted work by 2% to 5%, it will assure the contractor and the owner that the project will be completed without the owner incurring financial risk.

Speaking of bonds, the prospective bidding contractor will want to remember that almost every government project requires some form of insurance and bonding. This will be discussed in greater detail in next month’s column.

Time and Equipment

Finally, one last factor to consider before bidding a government project is an easy one to ask but sometimes difficult to answer: Can we actually do it with the equipment and manpower we have and within the time allowed?

Although the answer to this question may seem obvious at first, many contractors have failed to really consider the impact of a government project on their operation. Accepting a government project means just that: You have accepted the obligation to construct the project in the time allowed and as specified.

The government representatives will have little or no sympathy for other conflicting work you may have that interferes with their project and will show little deference towards you or understanding of your broken drilling machine. Their only concern is to ensure you deliver the project to their client, agency, or employer, on time, as bid, and as designed.

For most projects, the responsibility to develop the plan, methods, and means to accomplish this task rests solely on the contractor. The contractor must verify before bidding on the project that they have sufficient equipment or at least access to the required equipment, adequate labor resources, and operating capital and cash flow to perform the project.

Considerations such as conflicting vacation schedules for key employees, pending weather concerns, funding or equipment requirements from competing interests, inadequate working capital, and work backlog must be fully considered before a wise contractor will risk their enterprise.

Cash Flow

Cash flow can be an especially important concern since almost all government projects are often subject to delayed payments plus a fixed percentage of each pay request withheld from payment to the contractor until the end of the project as retainage.

This percentage can vary from 5% to 15% of the payment request. It is withheld by the owner as an assurance that the general contractor will complete all elements of the project, including project startup and site restoration along with as-built drawings and all paperwork and is almost never available to the contractor until the closeout of the project.

On long and expensive projects, the retainage can amount to several thousands of dollars, which can affect the ultimate profitability of the project.

One avenue of protection available to a contractor is requiring separate payment or performance bonds from the subcontractor.

Contracts

If after heeding these warnings a water well or pump contractor is still interested in pursuing government contracts, one final word of advice: Make sure you and the individual responsible for preparing the bid fully read and understand all provisions of what are called the “contract documents.”

These include the technical specifications, plans, and drawings; bidding rules, bid item descriptions, quantities, and bid form; general and special provisions; equal opportunity requirements; prevailing wage classifications; rates, fringe benefits; and the contract stipulations themselves.

Many a contractor has gone down the road to failure simply because they did not read or failed to understand certain provisions contained within the contract documents. Although the language may seem dry and repetitious to you, you can bet that an attorney had his clever little hand in there somewhere, creating or reviewing those documents for the sole protection and interest of his client, the owner. His concern for the contractor’s outcome and success is marginal, at best.

If some of the provisions are confusing, I highly recommend you also seek some advice from counsel before committing your firm to the bid.

If a contract provision or specification doesn’t make sense or is not feasible or practical, don’t be afraid to bring it up in writing to the engineer or contract administrator—or as a last resort—even walk away from the project.

Most of these people really don’t want to look foolish to their client or employer and will readily welcome inquiries as well as constructive advice and suggestions if it means avoiding a potentially embarrassing or disastrous incident down the road.

As I often said to my employees and other associates, if you don’t want to take the time to read and fully understand every portion of a contract document, you really shouldn’t risk your business.

The Basics of Effective Estimating and Bid Preparation

The following suggestions are primarily directed towards those who may wish to become involved in public bid estimating and bid preparation but also apply to many private projects.

There are numerous ways to make a mistake while preparing a bid or estimate. One of the fastest ways to lose money on a bid lump-sum job is by misreading or incorrectly measuring underground or above-ground piping or electrical work.

This is generally not as critical of a unit price bid, as the engineer has usually provided estimated units for each bid item. Thus, the contractor is compensated for actual measured units.

A key component of a good lump-sum bid is an accurate material take-off. A quality take-off involves careful and accurate accounting of all equipment and material to be installed on the project. This includes all major and ancillary equipment and measuring and confirming all underground and above-ground pipe lengths and building and site dimensions.

Beyond the equipment, a material take-off also consists of determining the requirements for the service conditions (water, wastewater, or drainage), material type, fittings, pipes, connection types and details, and pressure class.

The electrical component of the project must include branch circuit, feeder, service, and instrumentation and control (I&C) raceway and wire/cable sizes, lengths, types, and installation requirements.

It may also include the impact from other trades, such as plumbing, landscaping, concrete, and building construction. The labor requirement to install the equipment and material is largely a judgement call based on prior experience.

First Steps

You must verify you can obtain the needed bid bond before you begin. This is a prerequisite for almost all government-funded projects as well as the subsequent performance and payment bonds that are established parts of government work.

A bid bond is usually around 10% of the total amount bid and is submitted with the proposal as an assurance the contractor has submitted a genuine and responsive bid. If a contractor is unable to obtain the required project bonding and insurance, proceeding to the next steps of preparing a bid will usually be a waste of time and effort.

The next step is to verify the architectural or engineering scale shown on the drawings. Use caution when working with architectural drawings as the scales are often difficult to decipher. Test the scale against a graphic scale, if available, or against something on the drawing with written dimensions.

Drawings are often reproduced from full-scale plans and reduced in size up to 75% from the original drawing. If you’re using electronic drawings, don’t solely rely on the printed scale or the settings of the file. Verify a few items before you start the actual take-off to ensure accuracy. A minor variance in the scale can result in a huge difference in actual measurements.

Scale dimensions should be noted on the drawing or within the title block, but the scale might be different on different pages or even in different sections on the same page. If you are not careful, measurements can be off by as much as 100%.

For example, you might think you are working with a ¼-inch per foot scale drawing but it turns out to actually be a drawing that is half-size set at ⅛-inch per foot.

An architectural or engineer ruler is often acceptable for a few quick measurements and verifying the drawing scale, but estimators may prefer to use a measuring tape for ⅛-inch and ¼-inch scale drawings in the field. An electronic scale wheel is usually the most convenient when completing an entire takeoff
since it can easily be set to multiple scales and includes a built-in counter to assist in the take-off.

Estimating Projects

While the duties of estimators may vary from contractor to contractor, the basic principles remain the same. The system must be efficient, accurate, and attempt to prevent common mistakes. Generally, the duties of an estimator include the following for public works and many private projects:

• Determine the purpose and scope of the project and if the firm is capable and qualified (with the firm owner).
• If required, submit prequalification forms to the owner that show the firm’s ability to perform the project.
• Verify ability to obtain a bid bond along with performance and payment bonds and insurance if awarded.
• Conduct an accurate equipment and material take-off.
• Solicit written supplier and subcontractor proposals with defined scopes for relevant items or work.
• Determine the labor tasks, classification, wage and benefit rate, and time requirements.
• If warranted, prepare a spreadsheet inventory for each task or item.
• Determine the itemized and total cost or estimate of the job and complete all bid forms.
• Ensure accuracy and verify bid items before submitting the estimate or bid.

An accurate estimate or proposal must include labor cost including fringe benefits, equipment and material costs, sales tax (if applicable), subcontract and equipment rental expenses, direct job expenses, and overhead. To determine the bid price, always include a reasonable margin for profit.

Each project has a unique set of challenges and estimators have their own way of preparing bids or estimates. You need to be honest and select the method that works best for you. Once you understand the fundamentals of manual estimating, you can determine which method is the most cost-effective for you.

Not all expenses can be anticipated in advance, but experienced estimators accept a satisfactory margin of error in the accuracy of their bid. If you break the job down into its smallest possible parts, then the magnitude of each mistake will be reduced and hopefully, the mistakes will cancel each other out.

Avoiding Mistakes

There are several reasons for errors to occur when preparing bids or estimates for private or public works projects, including the following that I view as the top 10 because they are
the most common:

1. For public works projects, failure to prequalify and secure needed bonds and insurance before bidding
2. For public works projects, failure to properly classify field workers and incorporate prevailing wages
3. Hasty or rushed bid preparation (inadequate time or incorrect take-off)
4. Using improper estimating or bid forms or the exclusion or omission of necessary forms
5. Failure to ascertain/verify plan scales and fully read and analyze specifications and drawings
6. Failure to request more information in order to resolve uncertainties or errors when they arise
7. Failure to include adequate mobilization, routine or special testing, or inspection charges into bid
8. Failure to include shipping and delivery fees into bid, if applicable
9. Inaccurate or incomplete determination of material or labor quantities or jobsite conditions
10. Failure to obtain written itemized sub-bids from subcontractors or suppliers.

In conclusion, experienced estimators will always heed the following guidelines:

• Read and understand every word of the contract documents and project specifications, particularly prequalification requirement, prevailing wage and Equal Employment Opportunity, bonding, and insurance requirements.
• Verify the plan scales and carefully study all plans, drawings, and special provisions.
• Question and resolve any doubts, errors, or inconsistencies before finalizing bid.
• Don’t prepare an estimate or bid a project when unqualified, rushed, distracted, uncertain, or tired.
• Refuse to submit a bid that is not accurate, complete, or properly prepared.
• Verify all subcontractor and supplier qualifications, quantities, price, discounts, and payment terms.
• Estimate and list each bid item in an orderly sequence with extensions; spreadsheets are useful for this task.
• If applicable, always use the proper or official bid forms.

Practices to Observe

In addition, when using the more informal estimating or quote forms, the following should be observed:

• Use standardized and typed proposal forms with the bidding firm’s name, address, city and state, email address, and date of proposal shown in the top of the document, with the prospective owner’s information filled in below. Handwritten entries must be legible and clear to avoid misunderstandings.
• All language and conditions must be accurate, concise, and legally appropriate. For added protection, an attorney should review bidding and estimating forms for their completeness and legibility.
• Proposal forms with specific line-items should accurately describe the item and length, volume, or number, when appropriate. Adequate space should be provided for special or unusual items or tasks.
• A carbon copy or true reproduction of the proposal should be retained by the contractor, with the original given to the owner.

This concludes this installment of Engineering Your Business. We will expand on this discussion next month with an overview of post-bid procedures, contracts, bonding, and insurance.

Until then, work safe and smart.

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Ed Butts, PE, CPI, is the chief engineer at 4B Engineering & Consulting, Salem, Oregon. He has more than 40 years of experience in the water well business, specializing in engineering and business management. He was honored by the National Ground Water Association with the 2025 Technology Award. He can be reached at epbpe@juno.com.