How to Level Bids, Spot Red Flags, and Negotiate a Fair Commercial Contract

You sent out the drawings. You waited three weeks. Now you're staring at three bids: $800,000, $1.0 million, and $1.4 million.

Same plans. Same specs. Same scope of work. Someone is either trying to steal from you, or someone's planning to cut corners. You're not sure which.

This is where most commercial real estate owners make expensive mistakes. They chase the low number and get burned, or they overpay for peace of mind that never arrives. The reality is more nuanced than it looks, and more manageable.

This guide walks you through the path from bid receipt to signed contract. You'll learn how to decode the numbers, vet the people behind them, and negotiate terms that protect you when things go sideways. Because on commercial projects, things always go sideways.

Understanding Why the Numbers Don't Match

Before you can evaluate the bids, you need to understand why they're so different. It rarely reflects greed or incompetence, despite what your gut might tell you. More often, it's about fundamentally different interpretations of what you actually asked for.

The Low Bidder

The contractor at the bottom is usually there for one of three reasons:

1. They're desperate. Cash flow problems, empty pipeline, need to keep crews working through a slow season. Desperate contractors underbid to win, then make it up through change orders.
2. They misread the scope. Maybe they missed the elevator spec buried on sheet A-47, or assumed the HVAC work was someone else's problem.
3. They're actually more efficient. Better subcontractor relationships, lower overhead, smarter sequencing. But this is rare enough that you should treat any dramatically low bid with suspicion.

The High Bidder

The highest number isn't necessarily a rip-off. High bids typically mean one of several things: they don't really want the job and priced it to compensate; they see risks you haven't noticed yet; they're including items others excluded; or their overhead structure genuinely requires higher margins.

The high bidder might be telling you the truth about what your project actually costs. Question is whether you're ready to hear it.

The Scope Gap

Most bid variance comes down to what I call the scope gap (items some contractors included and others didn't). Common culprits:

• Dumpster and debris removal
• Permit fees and inspections
• Temporary utilities and site logistics
• Final cleaning and punchlist labor
• Weekend or overtime allowances
• Escalation clauses for materials
• Builder's risk insurance

Until you reconcile these gaps, you're not comparing contractors. You're comparing shopping lists of different lengths.

Leveling the Bids

Bid leveling means stripping proposals down to their raw components so you can actually compare them. Done right, it often reveals that the "low" bidder isn't actually low, and the "high" bidder isn't as expensive as they looked.

Start with a Master Scope List

Build a comprehensive list of every work item your project requires. Organize it by CSI division or by trade, whatever makes sense for your project. Include general conditions, site work, concrete, structural steel, building envelope, mechanical, electrical, plumbing, fire protection, interior finishes, and any specialty items.

Map Each Bid to Your Master List

Go line by line through your master list for each contractor. Some will use different terminology, others will bundle items together. Your job is to decode their structure and map it to yours. When you find gaps (line items with no corresponding entry), flag them.

Request Clarifications in Writing

Send each contractor a formal RFI asking them to confirm whether specific items are included. Be precise: "Please confirm whether your bid includes all permit fees, or whether these are to be reimbursed as a cost-of-work item."

Get responses in writing. Verbal confirmations disappear when the invoice arrives.

Normalize to a Common Baseline

Once you have clarifications, adjust each bid to include everything from your master scope. If Contractor A excluded dumpsters but quoted $800,000, and dumpsters typically run $35,000 on a project this size, their adjusted bid is $835,000. Do this until all three bids reflect identical scope. Only then can you meaningfully compare the numbers.

(Don't build this spreadsheet from scratch. A good bid leveling template saves hours and ensures you don't miss critical items. Reach out if you want ours.)

Vetting the Contractor

Leveling the bids tells you what the project should cost. Vetting the contractor tells you whether they can actually deliver it. The math may be right, but if the contractor is financially unstable, poorly managed, or has a litigation history, you're buying a lottery ticket, not a building.

This is a core part of our Contractor Selection & Construction Administration service. Here are five documents you need before any contractor touches your contract, and what to look for in them.

1. Certificate of Insurance

Every contractor hands you a COI. Most owners glance at the coverage limits and move on. That's a mistake. The COI is where sins hide. You need general liability, auto, umbrella, workers' comp, and (if they're providing any design-assist services) professional liability.

Walk away immediately if:

• The general liability policy is claims-made rather than occurrence-based. A claims-made policy only covers claims filed while it's active. If your contractor lets it lapse after project completion and a defect surfaces two years later, you're exposed.
• You see a residential exclusion on a mixed-use project.
• The contractor resists signing your contract form while their policy says "additional insured as required by written contract."

Proceed with caution if:

• Aggregate limits seem thin relative to project size.
• The carrier is unfamiliar.

Pro Tip: Call the broker directly. Ask about claims history. Ask if the policy is auditable. Five minutes can save you from disaster.

2. Audited Financial Statements

Not a bank letter. Not a bonding letter. You need two to three years of actual audited financials. Contractors who refuse are hiding something.

Walk away immediately if:

• Current ratio is below 1.0 (current liabilities exceed current assets).
• You see increasing accounts payable alongside flat or declining accounts receivable (they're slow-paying subs).
• "Related party transactions" suggest money is being moved to shield assets.

3. Bonding Capacity Letter

Should state both single-project and aggregate limits, dated within 60 days. Bonding capacity can evaporate overnight if a contractor has trouble elsewhere.

Walk away immediately if:

• The surety is a surplus lines carrier or isn't on the Treasury Department's approved list.
• The bond rate exceeds 3% (pricing reflects risk).

4. Experience Modification Rate (EMR) and Safety

The EMR is a workers' comp metric comparing a contractor's safety record to industry averages. 1.0 is average. Below 0.85 is good. Above 1.2 is a problem. This number is the single best predictor of site management quality.

Walk away immediately if:

• EMR exceeds 1.2.
• They can't produce OSHA 300 logs (they're not tracking incidents).

5. Project References (Verified Your Way)

Every contractor gives you three glowing references. These are useless. Instead, request a comprehensive project list from the past three years, then select projects yourself. Contact the owner and architect independently.

The Move Most Owners Miss: Pull subcontractor payment history. Ask for lien waivers from the contractor's last three projects. If they can't produce them, their subs are getting squeezed. Those subs will either cut corners on your job or file liens.

Negotiating the Contract

The bids are leveled. The contractor is vetted. Now you need a contract that protects you when reality diverges from the plan. Every construction project encounters changes, disputes, and unexpected conditions.

Five Non-Negotiable Contract Clauses

1. Right to Audit: You should have the right to audit the contractor's books, subcontracts, and cost records anytime during construction and for three years after completion.
2. Conditional Lien Waivers: Every progress payment should be conditioned on receipt of lien waivers from the contractor and all subs for the previous payment period.
3. Retainage Release Terms: Standard practice holds 10% retainage until substantial completion. Negotiate the triggers carefully to ensure you hold retainage for at least 30 days after final completion to allow latent defects to surface.
4. Change Order Protocol: The contract must specify how changes are priced and approved. Establish markup caps for contractor overhead and profit. Require written approval before any change order work begins. (See our guide on Managing Change Orders).
5. Key Personnel Clause: Name the project manager and superintendent in the contract. Require that any replacement be approved in writing by the owner.

Structuring the Payment Schedule

Payment structure is where owners most commonly end up "upside down," owing more money than the value of work in place. The solution is tying payments precisely to measurable progress using a schedule of values. Pay only for work in place, verified by your own inspection or your Owner's Representative.

The Hand-Off

You've signed the contract. The bids are behind you. Now the real work begins. The transition from contract execution to construction kick-off is where many projects lose momentum.

• Schedule a formal kick-off meeting: Walk the site with the superintendent and foremen.
• Set up document management: Ensure every RFI, submittal, and change order lives in a centralized location.
• Maintain diligence: The questions you asked about safety records and payment history don't stop mattering because the contract is signed.

A Final Word

This process takes time. Leveling bids, vetting contractors, and negotiating protective contract terms requires effort many owners are tempted to skip.

Why not just sign the low bid and get started? Because construction is a long game. The decisions you make before breaking ground echo throughout the project. An extra two weeks of due diligence can prevent two years of litigation.

If this feels overwhelming, you're not alone. Most commercial real estate owners didn't get into the business to become experts in bid leveling. That's what DeVore Consulting does: we provide the expertise and bandwidth to protect your interests when you can't be everywhere at once.

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