The Scottish Building Federation said member firms are spending nearly £100m a year on tendering for public sector contracts.
A federation survey found that firms spend an average of almost £1,000 per £1m of public contract value on filling out pre-qualification questionnaires.
Once shortlisted, they spend an average of almost £3,700 per £1m of contract value to complete the procurement process.
Contractors said that their expenditure on tendering for public contracts had gone up by between 20% and 50% in the past five years.
Firms highlighted bid races where up to 15 firms were shortlisted.
Federation managing director Vaughan Hart said: “Even at the best of times, construction is not a high margin industry.
“If you consider that the cost of tendering for public sector contracts is now more than 4% of contract value, most contractors will be fulfilling these contracts at best at break even and at worst at a financial loss.
“With budgets as tight as they now are, public authorities are sharper than ever before on price. I know a number of contractors are actively avoiding the public sector market because they feel they’d have to make suicidal bids to secure the work.
“The solution must be to introduce a financial incentive for public authorities to run a more efficient and cost-effective tender process.
“They should be encouraged to consider a means of reducing the tender costs to shortlisted contractors or reduce the amount of shortlisted companies in the first instance.
“Consistent enforcement of the standard pre-qualification questionnaire would help to reduce public procurement costs further.
“Recovery in the private sector remains very slow and construction firms are more dependent than ever on the public sector for a reliable long-term pipeline of work.
“That being the case, action is urgently needed to ensure that public procurement is internally efficient. Otherwise, the substantial costs of procurement to building contractors will continue to impede industry recovery.”
The Scottish Government is currently carrying-out a review of public sector procurement.
