Last week, I attended an event hosted by the NHCA’s San Diego chapter focused on best practices for bidding and estimating on residential and commercial construction projects. One theme came through loud and clear: contractors are worried about how to protect themselves in the face of rising construction costs.
With inflation, ongoing supply chain disruptions, and a persistent labor shortage, costs continue to climb—and the financial pressure is landing squarely on contractors. For many, especially subcontractors operating on narrow margins, one bad estimate or a poorly structured agreement can wipe out the profit on an entire job.
Now more than ever, protecting your business means rethinking how you approach both bidding strategy and contract structure. Below are two key steps that can help contractors—not just survive—but stay profitable in this shifting landscape.
1. Be Strategic About Bidding and Bid Validity
Let’s start with bidding. In volatile markets, material costs can change overnight. If you’re issuing bids with no expiration date or overly long acceptance windows, you’re giving away control over your pricing. Instead, clearly define how long your bid is valid so you’re not held to prices that are outdated by the time the client decides to move forward.
If you’re a subcontractor, especially a small or Hispanic-owned firm, this matters even more. You’re often at the end of the chain—relying on general contractors to secure funding or approvals—which means your bid could sit idle while prices rise. Many Hispanic contractors operate without legal counsel or robust administrative support, which puts them at even greater risk of honoring underpriced bids.
To combat this, include supplier quotes as backup documentation when you submit your estimate. This gives you leverage if material prices spike and shows that your pricing is based on current market conditions, not guesswork. It also communicates professionalism and protects your credibility.
2. Choose Contract Types That Share Risk
Beyond bidding, the contract you sign can make or break your bottom line. Fixed-price contracts might look clean, but they’re risky in a rising-cost market—they put all the pressure on the contractor to absorb material or labor increases.
Instead, look at cost-plus contracts—especially cost-plus with a fixed fee or guaranteed maximum price (GMP) agreements. These allow you to recover your actual costs while locking in a fair profit margin. That’s key if prices go up after you’ve started work.
For subcontractors—many of whom are Hispanic-owned businesses—being boxed into a fixed-price subcontract can be devastating if the job drags on or materials spike. Ask for escalation clauses or language that allows for renegotiation in the event of significant price increases. Even a simple clause referencing material cost thresholds can give you room to breathe.
And remember, transparency goes a long way. Communicate with your general contractor early about potential cost changes. That conversation is much easier when it’s proactive—not reactive.
Construction is always a business of risk—but smart contractors know how to manage it. By tightening your bids and choosing contract types that protect your margins, you’re not just responding to rising costs—you’re building a more resilient business. And for Hispanic contractors working hard to grow and compete, these protections aren’t optional—they’re essential.