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Competitive Bidding vs. Cost PlanningCompetitive BiddingIt is a very common practice for clients who already have a home design to ask several builders to give them “bids.” A bid may be a flat price for the project, or it may be an estimate.When you shop for price, as you do when you request competitive bidding, you may find enormous variations in the price of labor and material. How are you to know exactly what would be the differences in the final product? Not every stick and nail will be spelled out. You will be given a price, with some specifications, by each builder. But the specifications are likely to be on different items from builder to builder! One builder may be very specific about the type and grade of siding he plans to use. Another builder may be rather vague about that, but be more specific about the thickness of the asphalt drive. Two such bids would not be comparable. It would be like comparing apples to oranges when trying to determine the price of “fruit.” To truly compare bids, you would have to have a full list of specifications and make sure that each builder described each one. This could involve thousands of items. Since a builder is generally not paid to provide competitive bids, he is unlikely to be able to afford to spend a great deal of time and effort in detailed analysis. To save time, the builder may use reference books, software, or a system of his own to estimate items in the bid.
Specifications in the BidThe bid will usually include allowances for various fixtures and materials, or a list of specific items upon which the bid is based. To improve the accuracy of the bid, decide what are the actual products you will want the builder to use and provide that data in advance. Still, when you receive the bid, you may find that there are other items specified which you did not think about and even some you did not know about. Whether the specifications are provided by you or by the builder, there may be extra charges later if you decide to use different materials or fixtures.
Specifications in the ModelOne of the attractions of a model home is that, theoretically, it is a promise that other homes based upon it will have the same materials, fixtures and methods, unless specified otherwise. If true custom design is not important to you, you might consider having built a variation on a model home. There might be fewer surprises. First, make sure that you are perfectly satisfied with the quality of the workmanship and the materials, and that the contract is clear in its specifications.
Specifications not in the BidWhen you accept a builder's flat-price bid, the price of the project is set (with the exception of price variations or homeowner changes which are allowed by the contract). But the only specifications that are set are those included in the final contract. The builder is not committed to use any other particular materials or methods. Any specifications which are not listed in the bid or clearly indicated on the plans will be determined by the builder.For example, if the bid simply states, “8-inch tight-knot cedar siding,” the following aspects are omitted:
If the builder has set a flat price for the job, then he has planned a certain portion of that to cover the costs of the project. The remainder will be his own earnings. If the costs are lower, his profit is higher. The lowest bid must have the lowest costs in material and labor. One way for him to keep the costs under control is to compromise on specifications. The low-bid contractor must keep material quality (and therefore costs) as low as the specifications allow. Also, he must hire the cheapest labor available, and then get them to create the product in as few hours as possible. A truly disreputable builder could cut corners extensively to achieve maximum profit. It would be difficult for most clients to be able to tell what corners were cut. But even a competent, well-intentioned builder may simply choose not to spend more money on a particular specification, because he doesn't see it as important or because it isn't his own preference. What the client wants might not be a factor, if the item in question is not delineated in the contract. Or, if unforseen factors have caused other costs to be unusually high, the builder might find he must reduce quality in order to complete the job profitably, or in order to complete the job at all. Given the choice between going out of business and down-grading the quality of their work, most builders would prefer to stay in business. Beyond what is stated in the contract, the client has no control over specifications or quality. Now, in theory, one could write an exacting list of materials and an intense description of structural and craft quality. But such a list would hardly attract the low bidder. Also, who would enforce the criteria? Would it be necessary to hire and pay someone to supervise construction? Some architects and designers will perform inspection services to make sure that their design is being faithfully rendered, but even that would not prevent all possible alterations or affect the choice of all materials and techniques. And finally, if the specifications have been violated, what recourse is there (other than to spend money on a lawsuit)?
Construction MethodsHow can you know what particular methods will be used by the builder in construction? To become familiar with his work, you can probably visit homes which he has built, and at least see them from the outside. Look at all the construction details you can see. If you are not familiar with construction techniques, try to take someone with you who is knowledgeable.
Cost PlanningMore and more builders and designer-builders are adopting a different method of pricing, sometimes called “cost analysis” or “cost planning” or even “value engineering.” (The term cost plus may or may not refer to this system.) In the cost analysis method, the builder goes over his rates and fees for general contracting, administration, and labor, including his price for doing a cost analysis. If the client then decides to order a cost analysis, the builder obtains prices, quotes and estimates from subcontractors and suppliers. He gives quotes for those portions of the project that will be built by his own company. This is all put together into charts and compared with the client's budget. If the project appears to be over-budget, the client alters the specifications of the job or increases the budget. In this way, the builder and the client work together to make the client's expectations and budget meet. With the “cost planning” approach, the builder and the client form a team.
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