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Contractor glossary

Bid

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Definition

A bid is a firm price a contractor submits to win a job, usually in competition with other contractors and priced to plans, specs or a scope someone else wrote. If it's accepted, you're expected to do the work for that price on the terms of the bid.

Also called: Bid price, Proposal

Bid, estimate or quote

The words overlap, but a bid usually has three features an estimate doesn't:

  • Someone else sets the scope. A general contractor, property manager, HOA board or public agency sends plans, specs or a written scope of work, and every contractor prices the same thing.
  • You're competing. Several bids come in, often by a deadline, and the buyer compares them side by side.
  • The number is meant to hold. An estimate says the price could change if conditions differ. A bid is an offer to do the defined work for a defined price.

For a homeowner, "bid," "quote" and "estimate" often mean the same thing. For a GC or a public owner, a bid is a formal document with rules about how and when it's submitted. Read the bid instructions before you price.

Where home-service contractors meet bids

  • Subcontract work for a general contractor on a remodel or new build
  • Commercial accounts: a property manager asking three companies to price annual pressure washing or HVAC maintenance
  • HOA and condo association projects, like a roof replacement or common-area lighting
  • Public work for towns, schools and housing authorities

Many public and private contracts require surety bonds, and the SBA guarantees bid, performance and payment bonds issued by participating surety companies to help small businesses qualify for them 1. A bid bond backs your promise that, if you win, you'll sign the contract and provide the required performance and payment bonds 1. Line up a surety agent before the first bonded job, not the week it's due.

How to build one

Price a bid the same way you'd price any job: materials, labor hours at a real labor rate, equipment, permits, overhead and profit. Then add what bidding demands:

  • Walk the site if you're allowed. Plans miss things a five-minute look would catch.
  • Read every addendum. Buyers can change the specs before bids are due. A bid that misses an addendum can be thrown out or priced to the wrong work.
  • List exclusions and assumptions. "Excludes drywall repair" and "assumes the existing panel has capacity" are what let you write a change order later instead of eating the cost.
  • State how long the price holds. Material prices move.

Example: A property manager asks for bids to wash 12 buildings twice a year. A washer counts 4 crew hours per building per visit, so 12 × 4 × 2 = 96 hours. At $100 an hour of cost plus $1,200 for chemicals and fuel, the cost is $10,800. Pricing for a 40% gross margin gives $10,800 ÷ 0.60 = $18,000 a year. The numbers are made up for illustration.

Common mistakes

  • Bidding low to get in the door. The client who picks you on price alone will drop you on price alone. Bid what the work costs plus profit.
  • Copying the spec without reading it. A spec can require a brand, method or warranty you don't normally offer. Price what's written.
  • Treating every bid as worth chasing. Bids take hours. Track your close rate on bids separately from residential estimates, and stop bidding for buyers who never award you work.
  • No follow-up. Ask when the award will be made, and ask for the bid results if you lose. Knowing where your number landed is how you price the next one.

Go deeper

GuideHow to Follow Up on Quotes Without Being PushyA quote follow-up plan for contractors: a cadence by job size, text and call scripts for each touch, honest options, when to stop and how to track close rate.GuideMarkup vs Margin: The Difference That Costs Contractors MoneyMarkup divides profit by cost; margin divides it by price. The formulas, an exact conversion table, the costly mix-up and how to price to a target margin.GuideHow to Handle Change OrdersA contractor's process for change orders: the contract clause, what to say on site, what the form must include, how to price changes and how to bill them.GuideHow to Set Your Labor RateBuild your labor rate from real costs: billable hours, payroll burden, overhead and profit, with worked examples from HVAC, roofing, plumbing and other trades.
EstimateAn estimate is a contractor's expected price for a job, based on the scope as it's understood before work starts. It tells the customer the price could change if the work turns out different, but whether it binds you depends on its wording, the customer's acceptance and your state's law.Scope of workA scope of work is the written description of exactly what a job includes and what it excludes: the tasks, materials, quantities, locations and standards of finish. It's the part of an estimate or contract that defines what the price buys, so anything outside it needs a change order.Close rateClose rate is the share of quotes or leads that turn into booked jobs over a set period. It's jobs won divided by quotes given (or leads received), times 100, and it's most useful split by lead source, job type and who quoted.Contractor license bondA contractor license bond is a surety bond that a state or local licensing authority may require before it licenses or registers a contractor. It protects your customers and the public, not you: if the surety pays a claim against your bond, you generally have to pay it back.Change orderA change order is a written amendment to your contract that changes the scope of work, the price or the schedule, approved by the customer before the changed work starts. It records what changed, the added cost or credit, the new contract total and any new completion date.OverheadOverhead is the cost of running your business that isn't tied to a specific job: office and dispatch wages, rent, insurance, marketing, software, phones, accounting and similar costs you pay whether or not today's jobs happen. Your prices have to recover it.

See every term in the glossary

Sources

  1. Surety bonds U.S. Small Business Administration

Rules and figures change, and many requirements vary by state and city. Check the current version of each source and your local authority before acting, and talk to a licensed professional about your specific situation.