Sealed bidding is one of the best ways to promote fairness and transparency in the construction tendering process. Done right, this practice ensures every contractor has an equal shot, and bids are kept confidential until it's time to review them.
This article explores all things sealed bidding in construction, including what it is, how it works, as well the advantages and disadvantages of using it in your process.
Table of contents:
What is a Sealed Bid?
A sealed bid is a confidential offer submitted by a contractor, supplier, or bidder to secure a project or contract. Unlike open bidding, the details of the bid are kept private until all bids are simultaneously opened (which is similar to how a general sealed bid auction works).
This bid method is common in the public sector but can also be implemented in private projects.
Sealed bidding ensures a fair and transparent process where all participants have an equal opportunity to compete. It can also benefit owners and general contractors alike. Contractors are encouraged to present their most competitive, lowest bid, which could provide cost efficiency for the owner. Meanwhile, contractors benefit from fair competition where they compete on price rather than, say, previous relationships with the owner.
Standard vs. Electronically Sealed Bids
The main difference between standard and electronically sealed bids is how they're submitted and managed. Standard sealed bids involve physical documents placed in envelopes, which are sealed and submitted to the owner or procurement team by a set deadline. These bids are then opened in a formal process, often in the presence of witnesses, to ensure transparency.
Electronically sealed bids, on the other hand, are submitted digitally through secure online platforms. These platforms encrypt the bid data to maintain confidentiality until the official opening time. Unlike physical submissions, electronic bids eliminate logistical issues like delayed mailing or lost documents.
Traditional sealed bids offer a tangible process that some may find reassuring because it involves physical documents. That said, electronically sealed bids are beneficial for remote contractors and large projects with multiple stakeholders, as they streamline the submission process and allow for real-time tracking and confirmation of receipt.
Regardless of the format, both methods share the same core principles—confidentiality and fairness in the bidding process.
How the Sealed Bids Method Works
What does the sealed bids method look like in action? Here are the steps involved in the process.
Creating Bid Packages
It all starts with creating the bid packages, which include the following:
- Project scope and requirements - This stage defines the project's scope and requirements to ensure all bidders understand the expectations. This includes details like timelines, materials, labor, and specific deliverables.
- Bid documents -These include all necessary paperwork, such as plans, specifications, and instructions for bidders. When all these details are conveyed in the documentation, contractors can produce accurate and competitive bids.
- Bid bond requirements - Bid bonds guarantee that the contractor will honor their bid and sign the contract if selected. Including this requirement protects project owners from financial loss if the winning bidder backs out.
- Custom bid line items - Anything that makes it easier to compare the bids apples to apples.
Sending the Invitation to Bid
Once the bid package is ready to go, it's time to send an invitation to bid. Project owners identify potential bidders and distribute the bid documents. They also set a bid deadline, establishing a clear submission timeline.
From there, the bid goes to the contractors' court, and they begin reviewing the documents and preparing their proposals.
Submission of Bids
At this stage, contractors prepare and submit their sealed bids. There are several components involved here.
- Bid preparation - Contractors review the bid documents to get a handle on the project scope, requirements, and expectations. They calculate costs for labor, materials, equipment, and overhead to create a detailed and competitive bid.
- Bid submission - Bids must be submitted according to the owner's specified process, whether in physical or electronic form. If submitting through a standard sealed bidding process, the contractor ensures their bid is securely sealed in an envelope, clearly labeled, and delivered by the specified deadline. If it's electronic, they submit their bid through a digital portal, following the platform's specifications for file format and encryption requirements.
- Bid security - Contractors include bid security, such as a bid bond. This gives financial assurance to the owner and helps filter out non-committed bidders. Contractors must work with a bank or surety company to meet the owner's bid security requirements.
Bid evaluation
Once the project owner receives the sealed bids, they will review the submissions and determine the best candidate for the project. Here are the activities involved at this stage.
- Bid opening and tabulation - The bids are opened in a formal process, either physically or electronically. Key information such as bid amounts, project timelines, and compliance with requirements are tabulated so there's a clear comparison of all submissions.
- Bid analysis - The owner analyzes the bids to identify the most advantageous proposal based on cost, value, and compliance with project requirements. This involves reviewing each bid's pricing breakdown, timelines, and alignment with project goals.
- Evaluation criteria - Owners assess and rank bids based on predefined evaluation criteria, such as cost, experience, quality standards, and adherence to project specifications. That way, they stay objective and consistent throughout the process and select the contractor that offers the best value.
- Prequalification - Owners evaluate contractors and vendors on their financial, safety, and compliance risk before awarding the final contract.
Selecting the Winning Bid
Once the evaluation process is complete, the project owner awards the contract to the most suitable bidder by issuing a notice of award. This formal document notifies the winning contractor of their selection and outlines the next steps.
What happens next? Both parties execute the contract, solidifying the agreement and setting the stage for project kickoff.
Pros and Cons of Sealed Bidding
As with any practice, sealed bidding has advantages and disadvantages. Consider the following.
Pros of Sealed Bidding
- Fair and transparent process - Sealed bidding ensures that all contractors have equal opportunity to compete without the influence of bias or favoritism. The process keeps bid details confidential until the opening, which promotes trust among participants and reinforces the integrity of the process.
- Potential for competitive pricing - The confidentiality of sealed bids motivates contractors to submit their most competitive offers, knowing they won't have visibility into others' proposals. This often results in lower costs for project owners.
- Clear documentation and accountability - Sealed bidding requires detailed bid submissions that outline all project expectations, timelines, and costs. This level of documentation reduces misunderstandings and provides a paper trail that can be referenced in case of disputes. It also holds both contractors and owners accountable to the agreed terms.
Cons of Sealed Bidding
- Time-consuming process - Sealed bidding requires meticulous preparation of bid documents, detailed cost estimations, and thorough reviews of project requirements. For both project owners and contractors, this process can be time-intensive. Additionally, the formalities involved in bid submission and opening can extend project timelines, making it less ideal for urgent or fast-track projects.
- Risk of bid shopping and collusion - Although sealed bidding is designed to promote fairness, there is a risk of unethical practices like bid shopping, where project owners disclose bid details to seek lower offers. Similarly, collusion among contractors to manipulate bid outcomes can undermine the integrity of the process.
- Limited flexibility in negotiations - Sealed bidding typically doesn't allow for post-submission negotiations, which can limit the project owner's ability to refine terms or adjust scope based on contractor input. This rigidity may result in missed opportunities to optimize project outcomes or address unforeseen issues before awarding the contract.
- Hidden costs - A risk that owners may encounter with sealed bidding is that contractors might bid the bare minimum to stay competitive, potentially leading to hidden costs later. Consequently, contractors may try to recoup these costs through change orders after identifying changes once construction begins.
Benefits of Electronically Sealed Bids through BuildingConnected
If you're using sealed bidding, the digital route is the best way to go. Electronically sealed bids are faster, more efficient, and minimize the risk of errors. Whereas a standard sealed bid requires manual handling and physical submission, its electronic counterpart streamlines the process with automated tracking and secure submissions.
And with a solution like BuildingConnected Pro, you benefit from an intuitive platform that simplifies bid management and enhances accuracy.
When creating sealed bid projects on BuildingConnected Pro, the submitted bids aren't accessible until the due date has passed, and only the bid administrator can unseal the bids. The platform's enhanced security features protect bid confidentiality, which means bidders can trust the integrity of the process, and owners can avoid disputes over access.
Check out BuildingConnected Pro and learn how it can make your bidding process secure, efficient, and hassle-free.
