Planning
to build or undertake a major remodeling?
Get some sound advice you can take to the bank........
FROM THE CONSTRUCTION ZONE: How to secure your project construction costs at
a “Fair Market Value”
by Susanne Slizynski , Greencurve Design
Almost all of our projects go out for Hard Bids. Here are just a few examples of how comparative bidding can benefit you:
Example I
A 2500 s.f. project in Portland, OR, Dr. Jess B.
Dr. B. decided to go with a negotiated bid using a contractor with a good reputation.
Green Curve Studio proceeded with the design preparing all plans and a complete
project manual and submitted to the contractor for pricing. Our estimate was
that based on the level of design $100 per s.f., a total of $250,000 would be
adequate. We submitted all plans and documents to the contractor to provide
a number. In less than a week the contractor provided a bid of $350,000. Our
client was disappointed that we had over designed the project however we convinced
Dr. B. to have two other contractors bid the project. On Wednesday we informed
the original contractor we were putting the project out to bid. By Friday of
the same week the original contractor submitted a revised figure of $250,000
instead of the $350,000 originally submitted. We went ahead and obtained the
competitors bid at $255,000 which verified our estimate of $100 per sq. ft.
It was apparent the contractor put out the figure of $350,000 to see if Dr.
B would accept it. We did actually decide to go with the original bidder due
to their experience, but we saved $100,000. How long does it take you to earn
$100,000?
Example II
A 2600 s.f. project in Maimi, FL, Dr Maria Y.
We determined from early on that we would put the project out to 3-4 contractors
to bid. Dr. Y. was leaning towards a contractor she new personally who was spending
a lot of time with her selling her on his quality. This particular contractor
came in at $75,000 more than the middle bidder and $150,000 more than the lowest
bidder. The lowest bidder actually had the most experience and was a large firm
with good cash flow. We decided to use the lowest bidder and saved the client
$150,000. There were a few minor touch up items but they did an excellent job.
Example III
A 3200 s.f. project in Springfield, MA, Dr. Mike M.
We had 4 contractors on the bid list. The project was a 4 star level of design
with a lot of special effects. We had met 2 of the contractors and we believed
one to be best qualified for the project. The contractor we did not meet turned
in the lowest bid of $400,000 but would not provide an itemized bid. It’s critical
that an itemized bid be provided so that Dr. M. would not be exposed to change
orders. It’s easy to go back to an itemized bid to see that the sub trade is
included. The other 2 bidders turned in a bid of $459,000, providing itemized
bids. The lowest bidder would not take our calls and actually did not call during
the bidding process for any clarifications. In talking with the other two bidders
they both said the lowest bidding contractor was known to low-ball the project
and make up the difference in thousands of dollars in change orders. We compared
the highest bidders itemized bid with our national averages for each sub trade
and noticed he had substantially padded many of the subtrades. Our next step
was to negotiated with the best choice higher contractor. We called the contractor
on behalf of the client and disclosed that we had a lower bid of $400,000 and
we told him who the name of the lower bidder. As it turned out he was just itching
to get back at the lower bidding contractor who had beat him out of several
projects by low balling the bids. He was very pleased to have an opportunity
to win the project and he immediately offered to the difference and offered
to give us $25,000 off the bid. Sensing that we could get more we suggested
that he go back to his subs and ask if they could work on their figures to help
bring the bid down more. The next day he called and we asked him if he had a
chance to talk with his subs. He said “I don’t need to talk with my subs I can
bring it down to $410,000. We took this number back to Dr. M. and we decided
to use this contractor because of his reputation for completing upscale projects.
The contractor only showed a mark up of $49,000 on his original bid, so this
means that he had padded the bid easily by another $40,000 for his profit. We
did not pay a dime above the final bid price and the contractor was one of the
best contractor we have ever worked with.
Example IV
A 3500 s.f. project in Seattle, WA Dr. Seigfried N.
A Ground up project. After completing the interior design and coordinating the
architectural, mechanical, plumbing & engineering we put the project out to
5 contractors to bid. Three of the contractors dropped out. The final two bidders
turned in extreme pricing. The lower bid at $750,000 and the higher one at $880,000.
After some research we found out the lower bidder had some bond issues and so
we decided to go back to the highest bidder and negotiate. We used a middle
bidder price $815,000 to negotiate with the higher contractor. His first offering
was a discount of $15,000,we told him we did not think that would be enough
for Dr. N. so we asked him to speak with his subs and see if they would work
with himHe called back the next morning and offered a $40,000 reduction. We
told him that we would take this number back to Dr. N. and that we would like
for them to meet. We instructed Dr. N. to keep his arms crossed during the meeting
and not to act too friendly because we wanted the contractor to come down lower.
It’s important on a new building to secure the best figure possible because
you will always end up with change orders on the site work. After that meeting
we were able to obtain another $20,000 reduction and Dr. N. felt comfortable
with it. We were both very pleased with the quality of work the contractor provided.
He was excellent. We did end up with about $30,000 in extra site work and some
interior upgrades but we are positive if this were a negotiated bid it would
have cost $1.2 million as suggested by the contractor.
Example V
A 2500 s.f. project in Houston, TX Dr. Ralph B.
Dr. B. leased space next to a dentist who had used a engaging and energetic
contractor to build out his interior. The contractor came with high recommendation
and had spent a lot of time with Doctor. We put the project out to bid. The
engaging contractor was the highest bidder by $40,000. The other 2 bidders were
close so we knew the project could be done for less. I knew the higher contractor
really wanted to build our “Show Case” project. He quickly matched the other
bidders, we felt he was the best qualified so we made a few minor adjustments
to our finish schedules. The project came in at about $100 per s.f.. Once completed
the doctor next door proclaimed he also paid $100 per s.f. but he didn’t have
a signature; front desk, lighting, finishes and ceiling details that Dr. B.
had. Dr. B. was thrilled to hear his comment.
NOTE: What you should consider is that if there are huge dollar differences when the contractors are providing a hard bid, how much more do you think they will add to a negotiated bid? What you should know is that the psychology of the contractor is to mark your project up as much as they can get away with. Because you most likely do not have national averages for each of the sub trades for your project you will not have a negotiating tool to work with, you will be stabbing in the dark. As Donald Trump recently stated “If you are not careful a contractor will pick your pocket and you won’t even know what happened to you”.
The process described above does take more time and should be calculated into your budget and time line for completion. If you are leasing you should have a clause in your lease that states you will pay rent 90 days after you receive your building permit. This is absolutely the best clause you can put in your lease agreement. Otherwise you may end up paying rent on an empty space for a month or two. However even paying the extra rent may be better than going with a negotiated bid and paying an inflated price for construction.
In the next article we will discuss the Negotiated Bid process, pros and cons.
You may direct any question to: Susanne Slizynski, Managing Partner Toll Free: 1-877-752-6748 or 503-629-5150. Web site: www.greencurve.com
Email: sas@greencurve.com