In previous articles, we’ve discussed building contractor selection. Part of this process is determining what type of contract you want. Projects generally fall into two categories: negotiated bid and competitive bid.
Both new construction and remodeling present challenges because owners are often unsure of exactly what is involved in relation to the associated costs. If they take their “wish list” to an architect or designer, the result may cost more than their budget, which could require additional redesign to meet the budget.
To help ensure that designs and budget coincide, a good contract option is a negotiated bid. This process involves the owner, contractor and design professionals working together from the beginning to balance the aesthetics of a remodeling or new construction design with structural limitations and costs. This ensures that the architectural plans incorporate the client’s priorities while maintaining the budget and avoiding costly and time-consuming home construction errors.
The term “negotiated” generally means that the owner is presented with several design, material and price options. At the beginning, the contractor’s overhead and profit costs are negotiated and established. It is important to realize that because the customer has engaged the general contractor (GC) to work in his best interest, prices are competitively bid among several subcontractors and suppliers, with quotes available for review so the customer can clearly see and discuss his options. This also allows greater flexibility within the budget. For example, granite countertops might be more important than upgraded flooring. The goal is for the customer to get exactly what he wants within his set budget.
To proceed with this process, meet with the contractor you have selected to review the scope of work. At this point, list everything you would like to do, in order of preference. An experienced GC can point out underlying considerations such as bearing walls and code requirements that may affect the project. Most owners already know their budget and financing options; sharing this information with the contractor will start moving the design process toward the targeted budget. If not, the GC can generally “ballpark” a budget range to see if it is a feasible project for the owner.
Once you have selected a general contractor for a negotiated bid, it is customary to enter into an engagement contract, which may include some design fees, as well as architectural and engineering costs. Once the scope of work and specifications are fully developed and a budget is agreed upon, the construction contract is executed.
The other option, a competitive bid, requires that a complete set of building plans are available, as well as a detailed set of specifications (i.e. window type, roofing material, flooring selections, trim details, lighting and plumbing fixtures, cabinets/countertop selections, etc.). If a particular selection is not yet decided, budget allowances are established and shared with each bidder. The downside of this is that sometimes a plan is developed that cannot be built for the owner’s budget. Before even starting preliminary drawings, it is important to have a general idea of square footage costs, but even this can vary a great deal, depending on the complexity of the project.
Once the project is placed out for bid, the customer should require that the responders complete their bid on a standardized format (often provided by the construction lender), to assure that line items can be easily compared.
When comparing bids, the lowest may not be the best bid. Quality, dependability and timeliness are all considerations.
No matter which option you choose, take the time to thoroughly understand every aspect of this very important investment you are making in your property. FBN
By Kevin Baltzell, Harmony Builders (928) 779-2347
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