Pricing the Job: Overhead & Profit
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Once you’ve got a detailed plan for your project, described in accurate drawings and written specifications, it’s time to put your project out to bid. Whether you are hiring a general contractor to perform most the work, or you are an owner-builder soliciting bids from subcontractors, the same strategies apply. The goal is to get the best work at the lowest price.
MARKUP & PRICING
Once a contractor has come up with his estimate of hard costs to complete the job, he will mark up his costs to determine the bid price. The hard costs – the money paid out for labor and materials — is marked up to cover the contractor‘s overhead and profit. Every company calculates overhead and profit a little differently, affecting the price they will bid on your job. Read More
The most common approach to is to provide the same plans and specs to two or more contractors (typically three or four) and ask them to bid the project. Each then submits a price and proposal and you select the winner. In most cases, the owner selects the low bidder, but in some instances you would be wise to choose another bidder. Read More
Some contractors state flat out, especially when times are good, “I don’t do competitive bids.” Can you blame them? After all, spending 20 to 100 hours on a highly detailed bid that they have maybe a 20% chance of winning can seem like a big waste of time. But negotiated bids can work for homeowner as well under the right conditions. Read More
Design-Build offers an alternative model based on collaboration rather than an adversarial relationship. In this world-view, the owner trusts one company to come up with a design that works functionally, aesthetically, and financially. In design-build, you give up the checks and balances (sometimes illusory) of the adversarial process, but gain the benefits of everyone working together to a common goal. Is this approach right for your project? Read More
Cost-plus bids are often used on jobs with a lot of unknowns and hidden conditions, such as repair work. While generally used for smaller jobs, these contracts are sometimes used for large jobs as well. Whenever the plans and specs are fuzzy for whatever reason (never a good idea), cost-plus may be the only way to proceed. On jobs with many unknowns, the client can benefit from cost-plus pricing, in theory, because the contractor does not have to add big “fudge factors” into his fixed bid to cover the unknowns. Without adequate protections built into the bid, however, the owner is taking on an enormous risk that job costs will spiral out of control. Read More
Online Platform to Solicit Bids?
Is there a platform or anywhere, where you can put a construction project out to bid ?
I’m not aware of any such online platform.
I’m not sure what type of project you have in mind, but most large residential projects (additions, major remodels, new homes) involve a fair amount of discussion between the owner and contractor before the contractor will take the time to work up a detailed bid. Also, to get apples-to-apples bids from competing contractors, you need very detailed plans and specifications.
If it’s a simple project such as a re-roof, maybe this approach would work. But you would still need to meet with bidders, at least the ones you are considering, to go over job details and see if this a person you can trust with the job. Naturally, you’ll want to check references as well.
And remember the low bidder is not always the one you want for the job. You want the lowest qualified bidder.
So even if you can find this type of platform, it would be more of a starting point than ready to sign a contract
Steve Monhollen says
What issues make for an inappropriate or even illegal bid process? For instance, Board member A is given responsibility to gather bids, does so and sends bids to the entire Board in advance of the next meeting. Board member B favors one of the vendors and lets them know what the other bids include so the favored vendor can give the lowest bid. Is this illegal or just underhanded?
Or, after Board member A sends out all the bids to the Board, Board member B calls all the vendors except the favored one to tell them that the Board has chosen another vendor.
Thank you for your insights and advice
I assume you are talking about the board of a condominium, coop, or homeowners associate — correct?
What you are describing certainly sounds unethical, but is probably not illegal unless this is a government contract of some sort and therefore governed by law. It may, however, be in violation of the bylaws of the homeowners’ association.
A private party who asks multiple contractors to bid on a project has the right to reject or accept any bid. The process can be very informal — like calling three roofers on the phone to submit a bid to reroof. Or it can be a formal procedure with a lot a paperwork, complex plans and specs, bid forms and so on. In general, small projects are handled informally and more formal bidding is only done for large projects.
The customary procedure is to accept the “lowest and best bid,” that is the lowest bid of a qualified contractor. If the board feels that the low bidder is not qualified in some way and cannot deliver the desired work under the desired schedule, that that would be a legitimate reason to reject a bid. Or a bidder may be so low that it is likely that the bidder has made a mistake, not understood the plans, or is “lowballing” the job — that is coming in with a low bid with the intention of making up their losses with change orders — a not uncommon tactic, especially in large commercial and public works projects. A unrealistically low bid will end badly one way or another.
A wide range of bids could also indicate that the owner (board) did not provide clear enough plans and specs to the bidders, so the bids do not reflect the same scope of work.
For a competitive bidding process to work correctly, both sides must act ethically. That is, the owner should give all contractors the same information (the bid package) and give them all a legitimate shot at the work — as opposed to having already selected his cousin and is just getting other bids to keep their cousin honest. On the other side, all the bidders should include all the required work in their bids — and communicate any errors, omissions, or ambiguities they find in the contract documents.
One way to avoid the problems you are describing is to hire an architect or construction manager to run the bidding process, which can be pretty complicated for a large project. All the bids are typically opened at the same time and evaluated by the owner (or board) with the help of the construction manager or architect if they are involved. The owner may have follow up questions for one or more of the bidders before making a final decision.
Finally, whether or not all bids are made public to the other bidders is up to the owner and should be determined beforehand and communicated to all the bidders in the bid package. Sometimes all the bidders are invited to attend a meeting where the bids are opened; sometimes the bids are emailed to the other bidders; sometimes they are all kept secret by the owner.
I don’t know the particulars of your case, but if one board member is going around the rest of the board and undermining the bidding process, it sounds like the board needs to address the issue. Whether the association is getting the best job at the best price seems to be in question. Good luck!