Like most things in life, when it comes to your commercial construction project, you generally get what you pay for. While you may be tempted to jump at the lowest bid for your project, doing so can result in hidden costs, such as delays and mistakes that can drastically affect the final pricing. However, you also want to ensure that the price you’re being quoted is a fair one and not arbitrarily high due to unreasonable markups on material and labor.
So, when comparing general contractor bids, how do you make a decision on construction services that keep your job costs to a minimum while delivering the results you want? It’s critical to understand that the cheapest bid price isn’t necessarily the best bid.
How is a Competitive Bid Different from an Estimate or a Fixed Price Proposal?
If you’re new to the construction bidding process, these terms are easy to confuse. The prices you get from these three types of cost evaluations can vary quite a bit due to the different levels of specificity.
Estimate
An estimate is an educated guess on the project’s cost. It’s based on what a similar construction project would cost. (For example, if you need an office building, the estimate is based on the cost of building similar-sized offices in your area.)
Competitive Bidding
A bid is an in-depth estimate built around a defined construction plan. It is tailored specifically to your project, including your location, ground preparation, permits, materials, fixtures and other factors.
Fixed Price Proposal
A fixed price proposal is a set price for the entire construction project. This takes into account everything involved in the project, including scheduling and materials. Depending on the scope of your commercial construction project, the contractor may not be able to offer a fixed price proposal.
While bids obtained through the bidding process should be close to actual construction costs, they simply can’t account for all unknown variables. (Fluctuating material costs, weather and mid-project change orders can increase or decrease the final construction price.)
Keeping that in mind, doing a thorough comparison of bids can keep you from entering a construction contract that could end up way over budget or leave you with less than desirable results.
Are the Bids Really the Same?
The construction industry doesn’t have a universal standard for the bid process, which can make comparisons confusing. One company’s project plan may be set up room by room, while another company groups the work by task type. This makes it tougher to identify differences between bids, but when you’re choosing between companies, you need to look at more than just the cost.
Is the Lowest Bidder Presenting an Incomplete Bid?
Did you receive a construction bid that is suspiciously low? While some companies may be able to perform certain work more economically, it’s also possible that the low bid may not be comprehensive.
If the construction company doesn’t accurately account for the scope of work involved in your construction project, their price will only reflect part of the required work. And, once the company signs on for your project, price estimates can balloon as they take into account the full extent of the job. Always make sure competitive bids include any required pre-construction services, especially for large projects.
Is the Lowest Bid Putting You at Greater Risk?
Do you have two companies offering similar materials and labor for different prices? If so, compare their insurance coverage.
One company may cover repairs for accidents on the job site, while the other will leave you with the bill. Likewise, check the safety records of all companies. The low bidder may be using questionable employment tactics, using poor quality equipment, and cutting corners—all of which lead to an increased risk of accidents and poor workmanship.
Why Are Subcontractor Costs Different Between General Contractors?
Subcontractor costs differ among general contractors due to various factors:
- Market Conditions: Economic fluctuations impact labor and material costs.
- Geographic Location: Local variations in labor markets and regulations affect pricing.
- Project Complexity: More intricate projects require specialized skills, impacting costs.
- Contractor Relationships: Established partnerships can influence pricing negotiations.
- Quality and Reputation: Reputable subcontractors may command higher costs.
- Project Schedule: Tight timelines may increase subcontractor pricing.
- Negotiation Strategies: Differing approaches impact the final cost.
- Project Volume: Handling more or larger projects can lead to better rates.
- Regulatory Compliance: Adhering to regulations may incur additional expenses.
- Scope of Services: Varied service offerings contribute to cost variations.
Understanding these factors helps contractors assess and negotiate subcontractor costs for successful project outcomes.
A Low Bid Can Mean Inefficient and Ineffective Planning
When comparing bids, you may notice some of the bids cover the overall scope of the project, but they don’t necessarily include a lot of details. The result is a bid that is more like an estimate than an all-inclusive building plan. Incomplete planning doesn’t just lead to surprise project costs, it can lead to mistakes in project delivery that increase prices and cause delays.
This is especially true for architects. Errors in blueprints and construction drawings or change orders can lead to costly mistakes and delays, no matter how good your construction team is. While a design-build approach can significantly lessen these types of issues, it’s still a good idea to keep your finger on the pulse of construction management.
Does the Bid Include the Right Materials?
There are two ways to price out materials. One company may choose to give material allowances a range, so most choices will fall into the budgeting parameters. That means your actual costs should be relatively close to the bid, and you should have a reasonably accurate idea of the maximum price.
Another company may generate their bid around the lowest grade materials, so that their bid remains low. Once construction begins, though, you’ll likely face either increasing construction costs to get quality materials and fixtures or settling for subpar components to stay within your budget.
Ultimately, you may find that taking the route of the lowest price can be more costly in the long run. Poor quality construction can potentially mean added costs for maintenance or premature replacement…and those things are never cheap.
Are Permits Included in the Bid?
Failing to account for permits and other regulatory compliance is a major red flag. If this isn’t included, there are probably other items left out of the bid, as well.
Are They Here to Stay or Here for a Paycheck?
Established contractors want to build and maintain their reputation so they can keep getting business. Fly-by-night operations just want to get paid, keeping their expenditures to a minimum and shutting down when their shoddy work catches up to them. While new companies may be cheaper, small savings can mean big sacrifices in quality.
Be extra cautious if a relatively unknown contractor asks for a large lump sum payment upfront, as this can be a sign of questionable motive.
Does the General Contractor Mesh with Your Corporate Culture?
There’s a long list of reasons that you need to be confident you’re moving forward with the right general contractor.
Can you get answers to your questions during construction? Can the company handle minor changes without your input, but contact you if major problems arise? When your business depends on this project, and you’re making a substantial investment to get it done, you need someone you can work with. If you don’t feel comfortable with the contractor or construction manager, you shouldn’t work with them, no matter what they offer!
Improve Your Bottom Line By Hiring the Right People
The Builders Association represents over 150 reputable construction firms in eastern Ohio and western Pennsylvania, representing 15 skilled trades. By starting your search for a commercial contractor through The Builders Association, you can get bids from reputable, experienced businesses and avoid having to worry about comparing the outcomes of the lowest bid versus the best bid when it comes to your commercial construction project.
