Soliciting Bids from Your Contractors

Learn how to solicit and evaluate bids to determine the best contractor for your Rehab Projects.

Soliciting Bids

Step #1 Create a Scope of Work

Before you solicit bids from your Contractors you need to have a detailed Scope of Work that details all of the work that needs to be performed by the Contractor.  Your Scope of Work should include:
  1. Detailed List of Repairs
  2. Materials List
  3. Plans/Drawings
Having a Scope of Work for your Contractors ensures that all of your bidders are bidding on the same Scope of Work which will make bid comparison and evaluation easier.  You want to be comparing 'apples-to-apples, not apples-to-oranges'.

Learn How to Write a Scope of Work

Step #2 Setup a Property Walk Through

Once you have setup your Scope of Work, you need to setup a property walk through to have your bidders  walk the property, review the property's condition and take measurements.  Walk-through the property with your Contractor, discuss the Scope of Work and answer any questions the Contractors have on the project.

Don't discuss anything that is not in the Scope of Work document.  If your Contractors make a suggestion on alternative ways to build something, then have them price that separately as an 'alternate'.  Remember, you want all of your Contractors bidding the same thing so you can easily compare their prices.  If the Contractors start bidding whatever Scope they want, then it will be impossible to effectively compare their bids.

Step #3 Set a Bid Date

Once your Contractors walk through the property establish a reasonable bid date that gives your Contractors ample time to fully evaluate the Scope of Work and put together an accurate Bid Proposal.  Generally, about a week should be a reasonable amount of time for a Contractor to send you a Bid.
House Flipper
Why does it take so long to get a Bid from Contractors?
​Creating Bid Proposals takes time because:
  1. Contractors are Busy - You are not the Contractor's only client so often times the Contractor is working on projects during the day and creating Estimates at night or weekends.
  2. Quantifying Labor & Materials Takes Time - Your Contractor needs to quantify the amount of Labor & Materials that will be required for the project.
  3. Researching Materials Takes Time - If you are having your Contractor include finish materials they will need to research the material SKUs and prices
  4. Waiting on Subcontractors Takes Time - If you are hiring a General Contractor, they may be waiting to receive bids from Subcontractors that will be performing the work.
  5. Breakdown Pricing Takes Time - The more you breakdown the pricing by Category or Room, the longer it will take for the Contractor to provide a price.
The key is to be patient with your Contractors and give them an ample amount of time to evaluate the Scope of Work so they can provide you an accurate estimate.

Evaluating Bids

Once you start receiving Bids from your Contractors, you need to determine the 'lowest, qualified bidder' (emphasis on qualified!).  
House Flipper
What does 'lowest, qualified bidder' mean?
Lowest qualified bidder means the lowest bidder that is actually qualified to do the work.  A 'qualified bidder' should have the following qualifications:
  1. Bid that Competes on Price - The Bidder doesn't necessarily have to be the lowest, but is at least competitive with the other Bidders.
  2. Complete Bid Proposal - The Bidder has a complete Bid Proposal that includes everything in your SOW with minimal exclusions.
  3. Competitive Completion Date - The Bidder provides a completion date that is reasonable and competitive with the other Bidders.
  4. Contractor's Availability - The Bidder should be able to commit ample amount of time, manpower and resources to your project.
  5. Experience/References - The Bidder should have experience building similar projects and be able to provide references from past clients.
  6. Licensed & Insured - The Bidder should be Licensed & provide their own General Liability & Workers' Compensation Insurance.
  7. Reasonable Payment Terms - The Bidder should agree to reasonable Payment Terms that don't require a large down payment upfront.

Bid Proposal Red Flags

Once you start receiving Bids from your Contractors, you need to determine the 'lowest, qualified bidder' (emphasis on qualified!).  
  1. Not Responsive / Late Bid - If the Contractor showed up late to the walk through and/or was late to provide a Bid Proposal it could be an indicator of tardiness.
  2. Unreasonably Low Price - If the Contractor provides an unreasonably low Bid compared to your other Bids, they could be trying to get the job for cheap and bill you for expensive Change Orders down the road.  
  3. SOW Exclusions - If the Contractor has a long list of exclusions in their proposal they may be cheaper simply because they don't have everything their Competitor's have in their Bids.
  4. Doesn't Want to Provide a Detailed Breakdown by Scope - Having a detailed Cost Breakdown by Scope Category helps you evaluate bids, manage your budget & Contractor Payments.  If the Contractor doesn't want to or can't provide a detailed breakdown of costs it will make it difficult to compare bids and create a reasonable Payment Schedule.
  5. Want Too Much Money Upfront- Contractor's may ask for a small % upfront to help pay for 'start-up materials', but any Contractor that is asking for more than 10% upfront should be a major concern.
  6. Don't Want to Pull Permits - If the Contractor doesn't want to pull permits for the project it likely indicates that they don't have the proper Licenses to install the work, which should be an indicator that they are not qualified.
  7. Don't Have Insurance - If the Contractor doesn't have General Liability & Workers' Compensation Insurance.

Selecting Your Contractors

Once you've fully evaluated all of your Contractor's Bid Proposals and Qualifications and selected the 'lowest, qualified bidder', you can negotiate and award contracts.

To hire a Contractor you will need to negotiate the Terms of your Agreement which should include:
  1. Contract Amount
  2. Scope of Work
  3. Completion Dates
  4. Payment Terms
  5. General Contractual Responsibilities of Both Parties

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