How much does it cost? That is an essential question when you want to buy something. Often the answer is simple. A loaf of bread is $2.40. Gas is $2.50 per gallon at the pump. MSRP for a 2021 Honda Accord sedan is $24,770. However, in the construction industry, determining the real cost of a project can be tricky. And if you don’t know how much something costs, it’s difficult to make the right buying decision.
- Work with an experienced contractor that knows your business. That sounds like a sales pitch, but it’s really just good advice. An experienced contractor that truly understands the nuances of your business will define the project scope more completely, filling in gaps, and providing a complete solution. This leads to more accurate pricing up-front and less change orders down the road.
- Beware of allowances. Allowances are used to cover the cost of a construction item before its fully defined. For example, a $15,000 landscape allowance means your contractor has included $15,000 to cover the cost of landscaping. If you spend more, you pay the difference. If you spend less, you get a refund. A reputable contractor will define the actual cost of an item, using allowances only when absolutely necessary. Other contractors will purposely include low-ball allowances that artificially lower their overall pricing, knowing the client will have to pay the difference later. If your contractor’s proposal includes a lot of allowances, that’s a red flag that their project pricing is not complete, and you will be on the hook for the difference.
- Know the difference between budgetary and hard pricing. In the construction industry, budgetary pricing is an “educated guess” based on experience, expertise, and historical pricing. It’s also called a rough order of magnitude (ROM) or preliminary estimate. Budgetary pricing is used to develop high level project budgets, define cost expectations, or determine if a project is financially viable. It’s like learning a new car costs between $25,000 and 30,000.
Hard pricing is what it really costs to do the project including design, permitting, labor, materials, subcontractor costs, general conditions, overhead costs, mark-up, etc. This is where the rubber hits the road. It’s like getting a quote to buy a new 2017 Honda Accord with automatic transmission, fabric seats, and black exterior paint for exactly $24,873.
Although budget pricing is very helpful in the early stages, you should always make your buying decision based on hard pricing. And if your contractor isn’t willing to provide hard pricing, or is only willing to do so with numerous allowances and exclusions, this is a good indicator that their solution may not reflect all of the project costs.
Whether you need construction advice, budgetary pricing, or a complete design/build solution, ARCO/Murray is here to help. Contact us at: email@example.com