Commercial real estate owners’ primary mandates are creating value and maximizing investor returns. Informed decision-making contributes to better quality projects and reduced costs, leaving more capital available to ensure that owners will accomplish those goals consistently throughout the asset’s lifecycle.
With profit margins tightly compressed, mastering competitive bidding helps guarantee that owners meet their fiduciary responsibility to prudently manage costs for capital and construction projects. Leveraging purpose-built technology to support their unique needs, competitive bidding promotes transparency, prevents favoritism, and most importantly, drives down costs.
Mastering competitive bidding acknowledges the tremendous opportunity available when a larger number of qualified participants engage in the process. There is data to support the premise that “more is better.”
According to an independent investigation of bid price competition conducted in 2005,
...there is indeed a statistically significant relationship between the number of bidders on a project and the low bid received…
In nearly every case, less than 10% of the total project budget is spent prior to awarding bids. With up to 90% of the job’s budget at stake, the possibilities for savings make competitive bidding a powerful opportunity to drive cost-saving outcomes across a real estate portfolio.
Consider three compelling reasons to establish a scalable bid process:
1. SIGNIFICANT COST SAVINGS
Studies show that with each additional bidder, competition may result in savings of nearly 4%. Expanding the pool from three to five bidders generates more competitive bids and may drive as much as an 11.6% drop in the lowest bid. Greater competition yields measurable savings, consistently.
Whereas a $1 million job might deliver upwards of $40,000, smaller jobs with smaller budgets like interior common area renovations, even painting, and signage in the aggregate, return savings instantly available to be redeployed or reinvested. In this case, the marginal gains add up. How? According to industry data, 95% of all jobs have a budget of less than $1M.
2. ASSURE COMPLIANCE
Particularly among institutional real estate owners, internal controls mandate competitive bidding for jobs exceeding a specified dollar threshold. This helps satisfy their fiduciary obligation to maximize long-term value for stakeholders.
In addition to maximizing value, consistent, scalable internal controls contribute to bidding that is conducted objectively, ensuring fairness and consistency. Over time, these sustainable practices make outliers more apparent, which may contribute to additional opportunities to save time and/or money.
3. REDUCE THE RISK OF CHANGE ORDERS AND DELAYS
A properly run competitive bid process helps the owner and the winning bidder to understand the job at a greater level of detail, mitigating problems from occurring later in the project. During bidding, participates ask questions whose answers are shared with the pool. More participants increase the likelihood of more questions and more answers.
These questions may contribute to streamlining workflows, minimizing ambiguities that might otherwise impact the project budget and timeline. Time saved adds up.
Competitive bidding delivers the best services at the lowest price.
IMPLEMENT THESE PRACTICES TO GET MORE FOR LESS
Competitive bidding is a critical step in optimizing project and portfolio returns. A fair process delivers better quality and better prices. Increasing competition by enlarging the number of participants elevates the quality of services, attracts better providers and saves time and money. Over time, lessons learned through one bidding process may be applied across the portfolio, multiplying opportunities for owners to save dollars while building asset value.