Building/Estimating Tips
In the building business, as with any business, there is a
learning curve. My Grandpa was a builder, Grandpa taught my Dad, my Dad taught me , I grew up
with a hammer in my hand learning the building business from the ground up. I
look back now and realize that 50 years ago, just about every week-end and
every summer vacation, I was in a school; it is now called on-the-job-training.
During the building business learning
process, you can lose a lot of money if you do not learn early on, the
importance of accurate estimating. Nothing
and I mean nothing will give you more peace of mind after submitting a bid, than
the knowledge that you know, as near as anyone can know, the cost involved in
the project. Does this mean you will land every project that you bid? Of course
not, but it does mean that there will be times after you lose a bid,
you will shake your head and feel sorry for the person that was awarded the
contract. Why? Because you know that they cannot complete the project for the price they
bid. How will you know this? You will know it because of your spreadsheet; you
know the numbers…and the numbers do not lie.
Several years ago I was competing for a job; it was a very
simple 1500 SF. house. But, the house was being built
by the city under a federal program, which made it a sealed bid project. An
architect was involved so there was a very detailed specification
book along with the prints. The great thing about a detailed spec. book is that it levels the playing
field; everyone is quoting the exact same items. The down side is , detailed spec books create a lot of time consuming estimating work. You have to find the price of every item
in the house. By that I mean, the EXACT item, brand, manufacturer, finish,
model number…etc.
This particular architect had expensive taste. Even tho it
was a small, supposedly low end, simple house, everything inside was EXPENSIVE.
If you were the type of builder that looked at a floor plan and based your bid
on a SF. price, you were fixing to get your butt kicked. You were going to get
a job, but you would lose money on that job.
The contract was awarded to a friend of mine. He was a
relatively new builder, a younger man and this was going to be his first new
home to build. Up to this time he had specialized in remodeling. His bid was about $20,000 under my bid.
My young builder friend stopped by my job site a day or so
later and as builders will do, we started discussing the job that he had been
awarded. In passing I ask him if he had signed papers on the contract yet. He said,
“No, I haven’t.” I usually keep my nose in my own business but…………this was not
one of those times. I said, “Let me give you some very good advice as your
friend, if you can get out of that contract, get out.” He asks me, “Why?” I
told him, “You cannot build that house for what you bid.”
He said he had done some research and houses of that type
were being built for $76-$79 per SF. He had bid $81 per SF. and was very
confident he could complete the project and make a profit. Using the per SF. bidding
approach, I was at about $94 per SF.
I showed my young friend the last page of my spreadsheet
estimate, my cost to build the house was $119,110, his total bid
was $121,500. To make a long story short, he started the house but he did not
finish the house.
If you are new to residential house estimating/building,
here are a few tips
that may expedite your learning curve.
that may expedite your learning curve.
1. Materials prices can change, and fast. Put a clause in your bid that your bid is good for x
amount of days. If you get the job, go immediately to your suppliers and put an order in for
your materials, even if they have to hold the materials for you. In 2007 I had 5 houses in the framing stage when 7/16 OSB went from $10 per sheet to $21 per sheet……..OUCH.
2.
Have all sub-contractors sign a contract with at
least 6 things made very clear:
A. Total cost of job,
B. Is the contract for labor, or labor and
materials?
C. If materials are supplied by a sub,
itemize what is being put into the house
D. A time frame to complete work
E. Pay schedule, usually referred to as
draws
F. Warranty, most new home warranties are
for one year
In all my building days I have been to
court 1 time, it was with a plumbing sub-contractor. He sent me an invoice for
$2100 above what we had agreed on, I refused to pay it. Court was every short,
he made his speech and I showed the judge our contract with 3 checks, paid in
full.
3.
Have a change order clause in your contract. NOTHING
is changed without a signed change order that reflect the cost of
the change. NOTHING is verbal; every change must be in black and
white and signed by BOTH parties.
4.
Any sub-contractor that will supply labor and
materials for your projects usually saves you time and money; it also makes
your estimating easier. You will find that this list varies from city to city
and state to state. Here in NW Arkansas, these sub-contractors usually supply
labor and materials.
A. Drywall
B. Painting
C. Roofing
D. Cabinets
E. Counter Tops
F. Plumbing
G. Heat/Air
H. Electrical [light fixtures,
smoke detectors, door bell not included]
I. Security system
J. Garage doors
K. Siding and soffit
L. Insulation
M. Flooring
I built 3 houses in the Little Rock area several years back,
since Little Rock is only 200 miles from NW Arkansas; I was surprised to find
that in Little Rock I had to estimate several things differently from my usual
estimating.
In Little Rock I
could not find a drywall contractor that would supply labor and materials. I
had to buy the drywall, find someone to hang it, someone else to mud it and someone
else for the texture. The roofing was the same, where I was accustomed to the
roofers supplying labor, shingles, felt, nails, drip edge and flashing, in
Little Rock I had to supply all materials. You will probably find some
sub-situations unique to your area. I also found labor for most sub-contractors
in the Little Rock area to be slightly higher than NWA.
What is written in stone in one part of the country may be
totally different 200 miles away. This is why you estimate every job with local
suppliers and local sub-contractors then plug their bids into your spreadsheet.
My spreadsheet estimating principle works on any house, anywhere, because it
makes you put real numbers, up to date cost on every line item.
5. Get more than one bid.
The low bid is not always the best bid.
I like to get 3 bids on anything I
estimate. What I am looking for are 3 bids to come in very close to each other.
Let’s say I need a bid for insulation, I am estimating for 6 in walls,
cellulose, and R-38 blown fiberglass is the attic. I contact 3 companies; they
pick up the prints and work an estimate for me.
Company 1… $4700
Company 2… $4900
Company 3… $3600
Which bid do I put into my
spreadsheet? You think #3? Probably not, $1100 is too far from the other 2
bids. I will use the $4700 for my spreadsheet, I am safe there. I f company 3
can do the work for $3600, good; I will make money off them. But if job time
comes and they decide they missed something and want more money, I just lost
money.
