Why Are My Construction Bids Are So Far Apart?
Why Are My Construction Bids Are So Far Apart?
When you begin the process of building a home, you have likely met with an architect, feasibility engineer, builder(s), and other resources to help you create the luxury custom home you desire. In the quest to find the best resources and materials, you may begin the process of bidding out the project. Construction bids can be an extremely confusing and misleading process – if not approached methodically. In a lot of cases, client ask, “Why are my bids so far apart?” If your bids are more than 5-8% apart, you should immediately know that there is a problem. In this article, we discuss the construction bid process and common (and often costly) mistakes that are made. More importantly, we help you understand ways to avoid the confusion and begin a custom home building experience you can actually enjoy.
Construction Bids Must Start With Detailed Specifications
Just as you want to build a house on a good foundation, you want to have a good foundation for your overall specification, construction bidding, and selections process. The fact is, if this critical part of the process is flawed, the ripple effect is most likely going to be costly and full of surprises. We have found the most logical way to begin the process is with a very detailed set of specifications. What exactly does this mean? It means that every line item, every window, every cabinet, every fixture has a correlated level of quality and finish. Your bid process should require all builders to adhere to the specifications outlined and minimize “allowances”. Allowances, when used as the primary means for price estimating, can often leave a lot more questions than answers and interpretation versus selection. Allowances also make it challenging to ensure that you are comparing apples to apples and may create a wide variance of quality, from one bid to the next. One builder may use realistic allowances that align with the overall scope of a project while another builder may low-ball allowances with products that are substantially different in overall quality and design, relative to the project.
Recently, we received a bid for a project that was derived from a template that the architect had provided. While this can be a good start for conceptualizing desired selections, it falls far short of ensuring that bids will be apples to apples. In the majority of cases, a template or loose set of specifications leads to a lot of apples to oranges comparisons – which ultimately leads to construction bids that vary widely in cost. We highly recommend that you have a primary point of contact (typically a builder or architect) to help you develop clear specifications and that you require all builders to adhere to the specifications provided. This process often includes several meetings to review the exact products, quality, and materials you are selecting and how they integrate with your overall expectations and visions for the design of the project.
Not All Materials Are the Same
While it is entirely up to the homeowner to choose the products and materials they prefer, it is important to understand that not all materials are the same. Simply put, you get what you pay for. If your pricing between builders is more than 5-8% difference, there is a discrepancy in the quality or materials specified.
Some builders may suggest value engineering as part of the construction bid process, but this often leads to more confusion and an apples to oranges comparison. If you require each builder to stick to the specs, you will be in a better position to evaluate your builders and bids, equitably. Value engineering can be done as part of the final design and construction agreement process.
To illustrate the importance of your material selections, consider this recent example. A client provided us with a bid that was fairly detailed. It also correlated well to the architect’s design. We bid the project as specified, while another builder specified ‘alternative’ products, rather than following the architect design and specifications. As the bids came in, the client could not understand why there was such a wide variance in price. In this particular example, one builder quoted stock windows vs. the custom window sizes noted on the bid specifications, which correlated to the architectural design. The pricing on the window package alone was a $100,000 swing from one bid to the next. There were several other major categories where this kind of substitution occurred so the overall variance between bids was huge. This is an unfortunately common example of why clients end up with an apples to oranges comparison. Most importantly, it leaves a lot of questions about the final design considerations. Will the architectural plans need to be redesigned? Where else and what else has the ‘lower’ builder substituted to bid a lower price? And, at what point, will the client realize the impact?
In our experience, this kind of process leaves the client vulnerable to surprises, after construction has begun, and often leads to a less desirable experience and outcome. Be sure your builders are required to bid on the items, as specified. Value engineering can come later, once you have selected the builder you want to work with, for the next 12-24 months.
Keep in mind that some less than reputable builders may rely on change orders as a way to make up cost factors in low-bid situations. We discuss change orders in our book, but this article gives a lot of valuable insight on changes orders. Keep in mind that when you hear things like, “it’s all the same” or “this product is just less expensive,” it may be an indicator that a builder is quoting an inferior product. This process is not what we consider to be value engineering, rather it’s more likely all about the builder getting the bid, and making up the difference later. The client should focus on an equitable bidding process so that they can truly compare apples to apples. Remember, you get what you pay for. All builders have relatively the same pricing on the same products. If one builder’s price is significantly lower than another, this should be a red flag that there is a big difference in quality or design.
The Best Approach to Bidding
In our experience, over the past 30 years, we believe the best approach to bidding a construction project goes something like this:
- Assemble a team. When you assemble a team early in the process you get a variety of valuable input. Typically, this team includes the architect, builder, and/or designer and often a feasibility engineer. This approach helps you create a design that is within your budget and includes all of the lifestyle, preferences, and expectations you desire. Remember, you are not necessarily locked in to that builder, but they can certainly provide valuable guidance during the design process, that will save you a lot of headaches later.
- Hire a professional to help you create detailed specifications. This is typically the architect or the builder you are working with and collaboration is key. The charge to create specifications is minimal, when compared to the overall project, but can literally save you thousands of dollars and hours of confusion. If, after creating specifications, you want to bid the job out, you’ll have a very clear set of specifications that all bidders must follow to provide you an apples to apples comparison. If alternatives are recommended, they should be listed as an addendum and not substituted at the builder’s discretion.
- Select the right builder. After all the bids are reviewed, as noted above, you should be within a few percentage points from one builder to the next. This gives you the opportunity to select a builder that you would like to work with. Your builder should have an outstanding reputation which can easily be checked with references, reviews, and touring projects that are under construction. This due diligence can help you avoid a rocky relationship that may be full of surprises, as your project progresses, and that’s not a desirable scenario for anyone considering building a luxury custom home.
Building a luxury custom home should be an experience you will fondly reflect on for years to come. After all, you’re going to spend the next 12-18 months working side by side with your builder and you’re going to live in the home, that is ultimately constructed, for many more years to come. Don’t make this once-in-a-time decision and investment based on an apples to oranges comparison. Most importantly, if your construction bids are pretty far apart, you know you don’t have all the facts to make a sound decision.
If you are thinking about building your once-in-a-lifetime custom luxury home, be sure to download our FREE book: “Designing and Building Your Custom Dream Home: How to Create an Experience You’ll Love to Remember” or visit our website at MuellerHomes.com
Ready to get started? Contact Mueller Homes today, and let’s talk!