Archive for the ‘Your Project’ Category
Warning! Bids Gone Wild!
Monday, December 28th, 2009When the quote range on your job runs from $3,000 to $75,000 you’re in trouble. I actually got an email from an individual with that big of a spread for one, single job. He was using the spread to justify his amusement at how architects price jobs based on a percentage of the cost of construction.
He saw the spread of the bids he had received for his job as making his point. I saw something completely different in his example.
First, I saw a bid spread of 400%, which means total chaos. Either there were no construction documents what-so-ever, or they were little better than napkin drawings. Often the cause of such chaotic bidding is a complete lack of construction documents. The customer walks each bidder around the job site pointing here and there, explaining “exactly what they want.” Unfortunately, those explanations often vary wildly from one bidder to the next, so each bidder leaves with a different idea about the scope of work.
Second, I saw a customer who wanted to appear more knowledgeable about the building industry than they really were, which blinded them to the warning flags the bid spread should have sent up.
If all bidders are getting the exact same information about the scope of work, the normal spread in a group of bids should be around 25%. Most of this spread represents differences in each company’s overhead costs, and an assessment of risk involved in doing the job, which the estimator builds into the price. A smaller fraction will be made up of differences in the desired profit margin and crew efficiency. The actual underlying costs remain pretty much the same for all bidders. Pay scales run within the same range, and in most communities the bidders will all be buying their materials from the same suppliers.
So what do you do if you have your job bid and the results are wild? Take a good look at your job. Ask yourself these three questions and consider the solutions:
- Do you have as set of construction documents? If not, this may be a sign that you need to spend the extra money to have some drawn up by a professional. Depending on the size and complexity of the job, you might also consider hiring a professional to manage your job and advocate for you. A construction manager can sometimes save you far more than they cost.
- Did everyone get the same information? If you didn’t have a set of drawings and specifications to hand all your bidders, did you work off of an outline? Unstructured “walk around tours” are nice and all, but you have to make sure you show the same things, and make the same points, to each bidder.
- Did you use the bidding process as an opportunity to gain information about your job? This is a really common practice. And it’s a mistake! Collect information first. Decide exactly what you want done. Pay to have construction documents drawn up if need be. Then get bids on those documents.
Once you’ve identified and corrected the problem(s), you’ll have to go through another round of bidding. Responses from the first set of contractors is likely to be mixed. Working up a bid is a lot of work. It therefore costs money for the contractor to do each and every one. So some will happily come and re-bid the job, others will decline. Be prepared. (This is one instance where a construction manager can be a big help.)
But I can guarantee, if you utilize the tools above, the results will be well worth the time, effort, and money in the quality of bids you receive, and therefore in the quality of building professionals you end up working with.
Soliciting Bids During The Recession
Thursday, November 13th, 2008Back a couple of years ago, during the housing bubble, I heard a lot of complaints about how hard it was to get a contractor to even return a phone call, never mind scheduling the work. And, with that much work around, there were also lots of complaints about the high prices.
During the boom, understanding the difference between (self) employment and running a business was optional. If you knew how to estimate materials correctly and had an idea of what “everyone else” was charging for “similar jobs”, you were golden. That’s really all it took. Demand kept prices high, so even the least business savvy contractor was almost guaranteed to make money.
And believe it or not, that helped you, the customer. The contractor was making enough money to pay all the bills associated with the job. So even if the contractor you hired was a terrible business person, the chance that you’d get slapped with a mechanics lien by some subcontractor or supplier because your contractor didn’t pay them was reasonably low.
Not so today. Now that the bubble has burst, jobs are not so plentiful. Competition for those that remain is much higher. And while you may think that’s a good thing because it means you’ll get your job done cheaper, keep in mind that beyond a certain point, “cheaper” also means riskier. Sometimes, much riskier.
Back in February I told the story of a career carpenter, now self-employed, who was working for the same hourly wage he’d been paid as an employee.
Now you might think: “Wow! I can get this job done really cheap with this guy.” And, if all goes well, you might be right. Or, you might find out the hard way just how expensive this guy really is — not because he doesn’t know his trade, and not because he’s dishonest. Rather, because not being a business person, and therefore not knowing how to correctly price himself and his job, he leaves both himself and you vulnerable.
For an example, let’s suppose Mr. Carpenter here owes some back child support he hasn’t been able to pay (probably because he’s not really making any money on these jobs he’s doing). So, while he’s working for you the State decides to exercise its right to drain his bank account to collect. Well, Mr. Carpenter owes the Home Depot money for the materials he’s bought for your job. And the State just took the money and gave it to his ex-wife! They not only took that money, they also took the money he needs to live for the next month.
So now he has no money to pay for installed materials, no money to by food, no money to put gas in his truck to get to work (your job), and no money to fix any of his tools that might break on the job.
But all of that’s his problem, right? Yup — until it becomes yours!
Because in most states, Home Depot has the legal right to place a mechanics lien on your house for the materials Mr. Carpenter bought and installed in your home — whether he was a licensed contractor or not; whether the job was finished or not.
Now, I’ll admit that this is an extreme example. But in this economic climate, as contractors (and their former employees) get more and more desperate for work, you’re going to see more and more bid that are not just low-ball, they’re down right ridiculous.
In my article on how to choose a remodeling bid I provide some common sense ideas on how to at least winnow down the bids to those that make sense. Those same techniques will also eliminate individuals and contractors like Mr. Carpenter. Because this information is so important, especially now, let me repeat it here:
- If you have a bid that’s disproportionately low, throw it out. “Low balling” is a bidding tactic that some contractors use to get jobs that is, in my opinion, dishonest. Basically the contractor deliberately under bids the real price of the job in the hope of being the lowest bidder. Then, after s/he’s gotten the job and the work has started, s/he finds reasons to get you to sign Change Orders that progressively raise the price up to what the bid should have been in the first place. In some states, I understand a contractor can be disciplined for using this type of bidding tactic.
Another reason a contractor might submit a low ball bid is because they have no intention of doing the work! They take your money and disappear with it. This year was a particularly nasty one for transient operators.
In either case, this isn’t the kind of person you want to hire.
- If you have a bid that’s disproportionately high, throw it out unless you can find a darned good reason for the high bid — or you and this person just really hit it off.
- That leaves you with a pile of middle bids that are all worth your consideration. All other factor’s being equal, I recommend picking the contractor you get along with best, not the lowest bidder — though the two may be the same. Because remember, this individual and his or her crew is going to be around five or six days a week for months on end! You don’t want the industrial version of your mother-in-law!
Good luck evaluating the bids for your project!
Powered by ScribeFire.
Understanding The Design/Build Method
Saturday, March 1st, 2008The design/build method of building isn’t exactly new. But it’s growing popularity in commercial and public construction has taken time to trickle down to custom home building.
And for good reason.
Design/build is a very different animal. Even if you’ve had a home built before, and so are familiar with the standard architect/design and construction contracts, design/build can seem as mystifying as it is attractive. The advantages:
- Design/build is usually a “turn-key” operation. Your building project is overseen by an architect or general building contractor who acts as your representative for the whole project: From earliest conception to handing you the keys.
That can take lot of stress out of what is, for most people, a very stressful project.
- Because the project is under one firm’s management, the entire project is streamlined, which aids in budgeting control and time management.
This reduces costs and decreases the amount of time it takes to deliver the project.
- You don’t don’t have to shoulder the burden for making decisions you might not feel comfortable with: Like selecting a good builder or plumber or making the testy bureaucracy come to the table so you can get on with things.
Your design/builder is (or should be) a professional. S/he knows how the system works, and knows whose going to do a good job building your new home.
How A Design Build Contract Works
Unlike a standard construction or remodeling contract, where the contractor is handed a set of construction documents and asked to quote a price, the design/build project starts with no more than a budget and a conception. The conception is often no more than sketch drawn on a napkin over lunch. The purpose of the design/build process is to turn that napkin drawing into a finished project for the money in the budget.
To do that, the design build contract talks about phases of work, and uses control documents to allow you and your design/builder to manage each phase of the project with respect to the budget.
The first phase is the design phase: Here you and your design/builder turn your dreams into construction documents. In this phase your design/builder will be estimating prices for you from well known statistical data. Your design/builder will also be working with the various regulatory agencies to make sure that their requirements are met, and that there are no road blocks in the way that will prevent the project from ever seeing completion.
In my contract I call the first step in the design phase “project feasibility”: Can we build the house you want to build? Are there any impediments that will either be too costly or virtually impossible to remedy? Questions I like to answer for the customer before money starts being spent on designing a house that can never be built!
In design/build, project progress is usually controlled by a document called a “Notice To Proceed”. This is a document usually given to you by your design/builder, which you have to sign, that gives him or her your authority to proceed with the step. Along with the Notice To Proceed there is also usually some requirement that the design/builder provide you a budget estimate of what that phase of the design process is going to cost.
Personally, I break things up into three phases: Feasibility, design, and production of the final construction documents. That way, at any point along the way, you can stop if you need to. If fixing some site problem is going to bust the budget, we’ll end up stopping in the feasibility phase. If I can’t seem to get the floor plan to look like you want, we’ll never get past the design phase. You’re free to hire someone else to move the project forward. But if we make it through the first two hurdles, then we’re ready to nail down the final construction documents needed to begin construction.
Which brings us to the construction phase: In a linear sense, once the construction documents are completed, your design/builder will ship the plans off to the various suppliers and trade contractors who will be building (or bidding to build) your home.
In practice, the design/builder has usually already been talking to vendors and contractors about the project, so much of the preliminary budgeting and bidding work will have been completed by the time the building department signs off on the final documents.
In any event, when all the bids are in and the prices are known, your design/builder will present you the final price and time line for construction. This is usually done in the form of another (the last) Notice To Proceed with construction. This Notice To Proceed will look the most similar to a traditional construction contract, containing, among other things, the progress points at which you’ll be required to pay preset amounts on the project.
Until eventually you’re writing that final check and being handed the keys to your new home. Project, and contract, complete.
Things To Watch For
Unlike regular construction projects, your relationship to your design/builder is going to be a lot more intimate. There’s going to be quite a bit of back and forth as you make the hundred or so decisions that only you can make about your new home. At the same time, you need this person to be able to tell you when something just isn’t going to work for one reason or another. So your design/builder needs to be someone with whom you can develop a good working relationship.
It also needs to be someone who will treat you fairly. Be wary of contracts that lock you in early. I have heard that new AIA (American Institute of Architects) design/build contracts apparently make you pay a severance fee if you decide to let the architect go prior to completion of the project, for instance. This locks you into a relationship with a person you may hate to death, or forces you to pay a healthy fee to get rid of the git!
At the same time, realize you need to treat your design/builder fairly too. It’s unreasonable to expect your design/builder to put a month or more of time into initiating the construction process, lining up subcontractors, vendor pre-construction materials orders and delivery schedules, putting together a construction schedule so the subs know when they’re expected to appear and so on, only to then be told you’re letting them go. Many design/build contracts, including mine, do expect some compensation in that eventuality. But that’s very late in the process. And long before all that pre-construction time gets invested, you should know whether you want your design/builder actually building your house, or whether you want to put the project back on a more traditional design/bid/build track and look for someone else.
Make sure your contract keeps you in charge! I can’t emphasize this enough. Don’t be bamboozled by some fast talking contractor or architect. This is your home and your money. Certainly there are rights and commitments on both sides, but in the final analysis your design/builder is, or should be, working for you. The contract should reflect that.
In the same vein, don’t ever sign a contract that locks you into your design/builder’s schedule. The schedule should be something worked out between the two of you, and documented via the supplementary documents attached to the Notices To Proceed as circumstances and conditions dictate.
Finally, maintain your self awareness: Building a new home is more stressful that most people realize, even using the design/build method. If you need a break, don’t be afraid to tell your design/builder you want to put the project on hold for a few weeks while you take a vacation. (Don’t over look the fact that your design/builder might need a break too. S/he’s only human, and burn out is as common in construction as it is in other high-stress jobs. But they probably won’t ask. You’ll have to “recommend” it.) If you need to sign a change order to make that happen do it! Believe me, in the long run, losing a month to take a breather will seem a small price to pay for the increase in quality and satisfaction you’ll have with your new home.
Good luck with your design/build project!
Technorati Tags: construction contract, design/build contract
He Can’t Do It For That
Sunday, February 17th, 2008Last night I was chatting with a friend who related the lament of a contractor who had just lost a contract to a “kid” who had bid the job so low, the older, more experienced contractor knew the young fellow couldn’t complete the job for the contract price.
It’s a perpetual problem built into our American construction culture. Journeymen and master craftsmen are pretty much expected to become contractors themselves. Young people, attempting to avoid the minimum wage racket of fast food, take classes in school, leverage that into a part time job after school helping a builder, then work full time in the summer. By the time they’re 18 they’re almost journeymen; by the time they’re 25 they’re senior journeymen at their trade, and are crew chiefs or construction supervisors.
Many will decide to become a contractor. And there’s the rub.
Yes, they know the craft. But knowing how to build a house has nothing to do with knowing how to run a business, or how to accurately compute the cost of building that house. They don’t know the difference between their hourly wage and what it costs the boss to pay them that wage, and they have no concept what-so-ever of what it costs to run “the back office.” And ironically, even given another ten to twenty years in the trade, they still won’t know.
This was amply demonstrated to me many years ago. I was called out onto a job site on which a master carpenter was doing a beautiful job of fitting a hand made, cherry wood arched door frame into obtusely angled opening. The man had thirty years experience in his trade. All of it spent working for a company in Sacramento. Finally, he’d decided to strike out on his own. One day I had the opportunity to ask him what he was charging the customer. His answer: $25/hr!
I was stunned.
He was working for his former hourly wage, oblivious to some rude realities that were going to catch up with him at tax time: All those taxes his employer had paid for so many years — or had split with him — were now his responsibility. And then there are the hidden costs of being your own boss: Vehicle maintenance, bad debts, adverting, the non-billable hours of work that go into paperwork and bookkeeping, broken and worn out equipment — all costs not built into an employee’s salary. All costs the Boss has to factor into the price of every job.
There is a double standard in the construction industry, as in so many other professions. We expect people to go from being employees to business experts in their formerly salaried position with with the wave of a bureaucratic wand. Upon issuance, the master craftsman is supposed to be an expert on contracting law; to know how to bid a job, how to make payroll, how to write at least three types of legal contracts and a half a dozen other routine forms, none of which he’s likely ever even seen prior to striking out on his own.
There is no easy answer. In California the State License Board fails dismally in its task of attempting to turn craftsmen into business people by teaching them what the State thinks they need to know through the trade and License Law tests. But at least it’s trying.
In reality, this is problem bigger than, California. It’s a problem in all the States. The same mechanism that works so well in teaching young people the building trades — apprenticeship — fails dismally at teaching them to be contractors, and for good reason: Turning a young apprentice into a valuable employee is in the best interests of the employer. Turning a valuable employee into competent small business owner creates a competitor for the employer. Few contractors want to see yet another contractor succeed on their turf. Let the kid learn on is own!
And who gets to pay? Unfortunately, the public. Contractor horror stories are at least as common as medical horror stories. All too often the bubbly home owner’s enthusiasm at discovering they can get that new kitchen at a price they can afford turns into a nightmare of delays and cost over-runs that have them scrambling for money from everywhere they can find it, just to get a usable kitchen.
Sadly, often it isn’t really low-balling; it’s simply a lack of experience.
Technorati Tags: contractors, contracting, the business of contracting, estimating, bid estimating, building costs
