Figuring out what a project will cost can be difficult and takes substantial time to complete. There are many ways to estimate a job, and because every job is different in one way or another, it can take hours, days, or even weeks to put together an accurate proposal. If the project is large, such as a kitchen, basement, full renovation, or an addition, the chances of missing something can become a very real possibility.
The task of creating an accurate proposal for a project not only includes accounting for all the materials and labor to build the job, and overhead costs such as insurance, rent, equipment and tools, the scope of work also needs to adhere to the residential building codes. These codes dictate how a project will be built, and if any work specified doesn’t meet these requirements, it can result in extra costs to the homeowner if they aren’t dealt with while the contractor is creating the proposal.
And don’t forget about design work. Most homeowners need help to select the right materials, colors, layouts, and design themes for their project. There are many decisions to be made before a proposal can be given to a homeowner. There can be as many as 150 different materials to be installed even for a small project such as a 2nd bathroom renovation, and each material requires a decision from someone on how it will be installed.
When you consider all of the things that need to be addressed to provide an accurate proposal, how reasonable is it for a homeowner to expect a general contractor to deliver his proposal within a week? Here’s how it will happen: the general contractor hopefully has been in business for a while and has completed similar projects, so he or she will go through the estimates for those completed projects and use those numbers to create your estimate, making sure to adjust quantities, square footage, and hopefully account for hidden or unique conditions that might be present in your project. He will do this at his desk and most likely will not call any of his trade contractors for input, and worse, he’s creating this estimate based only on the notes and crude sketches he made during the initial visit. This estimate is not a fixed price proposal, and it should be.
What’s wrong with this process?
- Construction plans were not created. These are essential for a trade contractor to be able to correctly bid the job.
- The full scope of work was not listed. How can anyone create an accurate estimate if every detail isn’t accounted for?
- The design work was not completed. The design and layout of materials can increase the labor cost depending on how those materials will be installed.
- Materials were not selected. The general contractor is going to provide allowances for the major materials, and he may go low on these to make his estimate look better (lower). And, what if his quantities and measurements are wrong?
- And most importantly, the trade contractors did not visit the house to do their own inspections to find hidden conditions, they never received construction drawings, and they have no idea what materials they will be installing.
What will happen when this incomplete estimate is delivered to the homeowner?
- Their budget and project is probably doomed right from the beginning.
- The project may not get finished because the money will run out.
- rade contractors may not get paid for their work, and they might file liens on the property.
- The homeowner is going to blame the general contractor, and rightfully so.
- The contractor will have to deal with an unhappy client.
- The contractor most likely will receive a negative review online.
- The contractor will take a very hard hit to his business because he didn’t make any money on the job.
- The contractor will have to charge more on the next several jobs to make up for the loss on this one.
- And – nobody wins. It’s a losing proposition for everyone involved.
And who’s fault is this? Both the general contractor AND the homeowner.
The definition of an estimate is: to roughly calculate or judge the value, number, quantity, or extent of something. An estimate is ok to use for providing a low and high ballpark figure for a project during the initial visit; it is not ok to put in a contract. When contractors provide rough estimates and say those estimates will be the actual cost of a project, they are setting themselves and the homeowners up for failure.
General contractors roughly pay the same for all materials and labor, and have about the same amount of overhead. So how is it possible for a homeowner to get multiple estimates that vary widely in price? There are many reasons, but the main ones are: the contractors didn’t account for all the materials and labor to build the job, they don’t know how to price their services, meaning they have no idea what their markup should be, and – this is the big one – they are guessing at what their overhead and profit should be, and are only focused on being competitive to get the job. They don’t have the business skills to properly run their business, they don’t know how to budget, and they don’t know the difference between gross profit and net profit.
The definition of a contract is: a business arrangement for the supply of goods or services at a fixed price, that is legally enforceable. If you think that an estimate will be the same as a fixed price quote, think again.
Why would a homeowner accept an estimate as the correct price for their renovation project? The homeowner is investing their hard-earned money into their home, so they must know what the total and correct cost will be to complete their project, and it’s the contractor’s job to provide this.
If the contractor and homeowner take the time to develop a complete, fixed price proposal, the homeowner will know exactly what the job will cost, before construction begins. And, the contractor will know what he’ll be paid and when. Yes, the fixed price proposal could be more than the rough estimate (ballpark figure), but most importantly, it will be an accurate cost of the project, which the homeowner must know in order to make the right decision to do the job or not. The general contractor owes it to the homeowner to give the right price, no more and no less. The homeowner owes it to the contractor to pay the right price for the job, so that the general contractor can stay in business and continue serving others.
Our policy is to enter into a planning phase contract with our clients for any project costing more than $15,000, which we charge for because it takes time and resources to complete the process. The time spent in the beginning to develop plans and a scope of work, select materials, and have the trade contractors do their own site visit to get familiar with the project and the client, will most likely result in a great relationship where an accurate proposal is delivered, the project gets completed within budget, value is added to the home, and trust is built. Everyone wins!
The construction industry doesn’t have the best reputation because general contractors won’t take the time to properly estimate a job (and learn how to operate their business), and because homeowners mistakenly assume an estimate is going to be the actual cost to complete their project. If all general contractors would use planning phases, homeowners would find that getting multiple proposals for their project will result in very close quotes instead of wide variances in prices that we see all too often. Then the homeowner will have an easier decision making process in selecting their general contractor because the decision will be based on reputation, knowledge, and integrity, and not price.