Today, I want to talk a little bit about getting the right price for the home or business you want. There are several ways to use an architect to get the building permits. The cheapest is to hire them to produce what I refer to as a permit set. This is basically the bare minimum set of details to get a permit, it usually includes structure, fire ratings, egress requirements, and not a whole lot else. This is a great way to save money on the design phase if you’ve got a contractor or will be doing a Time and Materials Contract with a general contractor or construction manager, but it leaves you very vulnerable if your construction project is to be bid out. Keep in mind, when you save money in construction, it’s either in materials or labor. As bidding contractors are highly motivated to make your house as cheap as possible to get the bid, they will be looking to cut corners as many places as possible, including on the materials. It’s not often that a cheaper material is truly equivalent to another, so how do you set a floor under the contractor so you end up with the quality of construction you want at a realistic price?
The first method is to set up allowances. This method is simpler and cheaper at the design end, but a little more complex in the accounting. Basically, whatever details aren’t specified in the drawings, you give the contractor a budget for the materials and they then determine the amount of labor and add those two numbers together to incorporate into their bid. So, the drawings will list which rooms get hard wood flooring, or carpet, or tile, etc. and then the contractor will get a budget for these items. Once the bid turns into a contract, the contractor will send the client to showrooms to make final selections and the actual costs will be compared to the budget cost. If the actual cost is less, the owner gets a credit towards the original contract amount, if it is more, they add the difference to the contract. This method greatly decreases confusion as to the acceptable level of the finishes and takes the selections out of the hands of the contractors limiting surprises later when the client thought they were getting marble floors but the contractor only included carpet in his bid.
The second method is to make every single selection in advance of putting the contract out to bid through specification sheets or books. This method is relatively fool proof as the contractor knows exactly how many square feet of each type of material they need, how it is to be installed, and any other details that affect the price. The downside is that if something were missed or if the client changes their mind mid construction, you can end up with a real problem on your hands trying to negotiate a fair price for items not included in the original bid specifications.
The thing to remember with bidding processes is that, much like buying a car, the client’s maximum leverage is prior to the contract getting signed. The time to get good competitive pricing is while the contractor is trying to get the job. The more detail you can give the contractor, the smoother the process will be. I have seen a lot of jobs that were inadequately specified, and what happens then is that the bid is effectively worthless. From that point on, it’s a struggle to reign in costs while also achieving the desired outcome. No one wants a tract home style finish in their multi-million dollar beach home, but without the controls in place, that can very well happen, especially if someone was stretching their budget from the beginning to achieve their goals. Always remember, construction costs are pretty much what they are. The only real cost control a contractor has is his profit margin, so that cheap bid may end up being much less cheap when the project is said and done.