Bringing a job in on budget is a challenge for every contractor and owner/builder. Few projects cost less than expected and lack of attention to detail will inevitably lead to problems. On the flipside, planning done well is the first step to bringing a project in on budget. The key to managing avoidable costs during a project is not just putting plans in writing, but also executing the plan effectively.
Most designs start with a ballpark estimate. As plans progress, the elements of the project need to be broken down and entered in a construction budget spreadsheet. Compiled from a careful reading of the detailed plans and specs and organized roughly by the order of construction and also by trade, the spreadsheet includes every step in the building process with a corresponding projected cost. As the project progresses and actual costs are entered, the spreadsheet calculates the variance between the initial projection and what’s actually paid for every item, providing a real-time look at the total budget number at every point during construction.
The most common budgeting error is accidentally leaving items out of the estimate. It’s important to check and double check the spreadsheet throughout the budgeting process to ensure that every item spec’d in the design is entered and that each item is either covered by a bid from a subcontractor or supplier, or is otherwise accounted for.
Always budget 5% to 20% for changes, overages and unexpected costs.
The two main categories of costs are materials and labor. Material costs are relatively easy to come by. To begin the process, it’s necessary to draw up a complete list of the main building materials called a “takeoff.” Ideally the takeoff should be compiled by someone experienced who understands local building practices. You use this document to get apple-to-apples comparisons from competing lumberyards.
Get bids from several suppliers. You can get a bid for an entire building project from a single supplier but if a unit or specialty item can be had for a reduced cost somewhere else, it may pay to use more than one.
Materials prices are always volatile and may rise between the estimate and the project. One way to avoid or mitigate a big budget hit in this regard is to find a supplier that will guarantee its prices the longest. Another option is to plan in stated increases after a certain date that can be part of the contract with the vendor.
Another option to consider is getting estimates for materials such as plumbing and electrical supplies directly from the supply houses rather than from a sub who may add a materials fee.
Get two to three bids from contractors or subcontractors for each job. It’s best to get fixed bids. Avoid open-ended “labor-and-materials” and “cost-plus” estimates.” If a sub refuses to give a fixed bid, find another who will. In a case where a fixed bid is difficult to provide, hire a reputable and knowledgeable contractor.
The best way to get apples-to-apples bids is to provide the same clear plans, specifications, and scope of work descriptions to all bidders. Describe the scope of work in detail and carefully examine the subcontractors’ budget estimates. The low bidder may cost less because he is providing less work or lower quality material than the other guy.
Pay particular attention to novel materials and techniques. They may provide cost savings, but it’s important to ensure you have a subcontractor that has worked with the product or technique and that it is the right fit for the job. Unknowingly paying for a contractor or a sub to learn on the job can run into unexpected overages.
Whatever the arrangement, it’s important to be very clear and specific with the contractor or subcontractor before the job starts, and to confirm in writing that they are covering all the items including materials and equipment listed under their responsibility. When in doubt ask, don’t assume. Unclear communication of expectations is a major reason for overages. Keep the paperwork on all bids in case you need to switch vendors or subcontractors. Get the bid cost and a detailed “scope of work” in writing so there is no question of what is included in the bid and what is not. As with materials suppliers, it’s important to ask all vendors and subcontractors to lock in their quotes for as long as possible.
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