Someone, somewhere, at some time decided that one must solicit bids from "at least three contractors" for every remodeling project.
An astonishing number of people have come to believe that soliciting multiple bids is an essential part of the remodeling or building process. Why is this so?
It is undoubtedly true that homeowners believe they will pay too much if they fail to introduce the element of competition into the process of choosing a contractor. Does this make sense? Certainly. A well-organized bid process can result in savings. But, as with many other things in life, there are two sides to the story!
There are several distinct business models used in the remodeling industry. This is the first in a series of posts in which I will explore diverse remodeling business arrangements and contracts. Each has merit. Each has shortcomings. It is my aim to provide you with sound information you may use to decide which model is best for you.
Let us now return to the subject of soliciting multiple bids, or as the process is commonly called - competitive bidding.
In years past, it was common to engage an architect to design and manage one's remodeling or building project. With a fully-developed set of plans completed, the architect initiated and managed a competitive bidding process with three or more contractors in his acquaintance. Then, as now, contractors prepared their estimates using the architect's plans.
During the estimating process, contractors encounter omissions in the plans. Good architects don't often make serious omissions, but it happens occasionally. Virtually all plans contain a some omissions. When they are found, contractors seek clarification from the architect. When clients manage the process, the architect may be less likely to respond contractor's concerns. He may feel that his obligation to the client(s) ended when the plans were delivered.
Another potential impediment to development of a sound estimate arises when the plans indicate that certain decisions are To Be Determined by the contractor, in the field. What does this mean? The short answer is that no architect will (or can) commit to paper, every possible detail involved in the construction process. To be sure, there are many architects who prepare highly detailed plans. Many others do not.
If you intend to remodel or build a custom home, it is very important that you understand this fact: Design is ideally a collaborative process involving both the architect (or designer) and the contractor.
Even if the finest architects in the world are engaged to design a project, the contractor will still - by necessity - make innumerable decisions in the field. If he did not, he would never complete a project. Notwistanding this, a surpising number of people imagine that all the details have been recorded by the architect for the contractor's use. They erroneously imagine that the plans constitute a veritable "how to" manual for the contractor to follow. This, of course, is not true.
It should now be clear that when multiple contractors develop competitive bids, the estimates are invariably different because each contractor has his own ideas, methods, and mental images of the best way to approach the project.
Some contractors will notice omissions that others do not, and add-in extra expense into their bids to cover them. Through experience some develop a dddddd "nose" for problems, especially those that cannot be seen before demolition and construction begin. Accordingly, they build a cushion into their price to meet such contingencies.
Some contractors will take a more costly - but better - approach to anticipated difficulties that come under the heading of To Be Determined. Others will "low-ball" the price to win the contract and run the risk that they can cut costs by hiring lower quality subcontractors, using cheaper materials or employing other shortcuts to mitigate potential losses. In a worst case scenario, contractors of this persuasion pack-up, and leave jobs unfinished when they cannot work the magic necessary to complete the job, even at the poor level of quality to which they aspire.
Unethical bidders simply submit a price they know is too low in order to get the job. From the start, their plan is to get your money by way of "change orders". They know that you will want to make a few changes once construction is underway. Almost all homeowners do. They bill their clients for every change as it is made. But, the unscrupulous man who submits a low-ball bid will not limit the use of Change Orders to their intended role and scope. Rather, he expects to recover costs that should have been included in his bid! Homeowners are shocked and dismayed as they are pressured to sign-off on reams of Change Orders. They stand by in a state of fear and loathing as they watch the price of their new kitchen or room addition skyrocket to levels far in excess of the bid price.
isIt It is unusual nowadays for architects to perform management services during the bidding or construction phase of a project. It happens sometimes, especially where the project is complex, has a very high value, or when highly compensated artisans or unusual trades are required to complete the project. In such cases, the expenses associated with management services are often warranted. The point is, that the architect - in these circumstances - is fully engaged with the project from beginning to end. He aids the homeowner in evaluating the bids and interpreting the responses in such a way as to provide an "apples to apples" comparison.
Under normal circumstances, the architect's participation in the process is concluded when he hands off the plans. At that point, you will be in the driver's seat, so to speak. Your architect will probably give you a list of three to eight contractors. It is your job to contact them and manage the bidding process. You, not the architect, will evaluate the bids.
You, and only you, will be responsible for finding out if you are really comparing apples-to-apples as you review the bids. Moreover, you must perform due diligence: Does the contractor have recent references? Does he use a third-party quality assurance firm to interview his clients at contract signing, closing and after completion of each job? Is he willing to share this information with you - warts and all? Is he prepared to take you to see recent examples of his firm's work? All of this work now falls to you!
Now consider that it will also be entirely up to you to ascertain whether or not you are comparing apples to apples when the bids come in. It is a daunting task, is it not?
But there's more. As you begin to telephone the contractors on the list provided by your architect, several simply decline to bid! They say, "No thanks!" or "Not Interested!" Your initial reaction is, "How rude! How do they expect to get any business if they simply say 'no' out-of-hand!" Why would they pass-up an opportunity to bid? Why indeed?
We have arrived at the heart of the matter.
First, preparation of a bid on a project of medium size, scope and complexity can consume from twenty (20) to forty (40) hours of an Estimator's time. There are often other costs to the contractor as well - as much as $750 or more.
Further, the contractor may decline because he has learned that you have invited several contractors to bid. As the number of bidders goes up, the likelihood that he will get the job declines.
The contractor knows all too well that unscrupulous contractors will enter the contest and submit low-ball prices. The old saying, "you get what you pay for", persists in our culture for a reason - because it is true! For reasons that are not clear to me, people continue to act contrary to their own interests every day.
As if these problems were not enough, the homeowner who has sought no input from any contractor during the design phase is often angry and shocked when he learns that the architect has drawn-up plans for a project he simply cannot afford! Why is this so? It is the simplest thing in the world to explain: Most architects have no idea how much it will cost to actually build the thing they have designed. They really don't know. More importantly, many have no interest in finding out.
The majority of architects never actually "build" anything. If an architect should appear on a job-site, everyone would be amazed. Of course there are a few architects who serve as contractors too but, not many.
It is a sad truth that a large percentage of architect-designed projects are never built. As designed, they are often magnificent structures that evidence great creative talent, but they simply cost too much to build. Homeowners are obliged to put their plans on a shelf and take another approach.
Increasingly, good contractors choose not to go the route of competitive bidding. The explosion of low-ball bidders in a difficult economy coupled with price driven buyers who are susceptible to their well-oiled pitch, make it very difficult for good contractors to compete. Add to this, the disconnect that lies between the fertile imagination and creative heat of a great architect and their client's budget, and it becomes a easy to see the shortcomings of the competitive bid approach.
Under the best of circumstances, it is difficult to make an accurate apples-to-apples comparison among several bids even when all of the bidders are first-rate contractors.
For many reasons, models that involve close collaboration between architects and contractors have become increasingly popular. This is not to say that soliciting competitive bidding is always a bad idea. By no means is this true. When the participants are honest, capable, competitors, the process sometimes works reasonably well.
But, when contractors say, "No Thanks" it may be time to explore alternative avenues for getting what you want at a fair price!
In the next installment, I move on to one of several alternatives to competitive bidding.
I shall be happy to receive your questions or comments.
Thanks for dropping by!
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