frankthetank888

Understanding the Bid Process

5 years ago

We are now at the bid stage of the build process. We noticed something in an email that drove us to ask the builder how their bid process works.

Strangely, at least to me, it doesn’t seem to be much of a bid process at all. Their reply said they have subs they work with all the time so sometimes they will get two bids but normally just send to their preferred provider. They said they also check them to see they are in line with expectations.

This troubles me a bit because in talking with the one electrician who would be bidding he wasn’t familiar with the product I want and told me he was an “old school electrician and not familiar with fancy new stuff.”

So check me here, is this normal or should I require 2 or 3 bids per sub?

Thanks.

Comments (47)

  • 5 years ago

    I agree with above but also see your side. If you are doing something unique and his subs cannot do it then you should be able to bring in an expert. But you can’t expect to micromanage all of them. We had a friend who was a flooring contractor and said to our builder if their estimate was lower could we go with it. It was and it worked out great. But other than that the subs were entirely up to builder.

  • 5 years ago

    I have to wonder why the pros in these forums come off so gruff. Heaven help them if they are driven to this demeanor by their profession. Never did I even intimate that I was dictating what subs to use, or that I even had that inclination. However, it does seem peculiar to me that you wouldn’t get an estimate from a couple tried and trusted subs as a builder. Again, not telling him who, but maybe one lumber yard is cheaper, maybe one hvac guy is slammed more than another so he’s pricing higher. All understandable situations. Apparently I’m wrong. Happens from time to time.

    All that said, thanks westcoast hopeful. I appreciate your response!

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  • 5 years ago

    I think that building is too competitive now. People build relationships and stick with who they know and trust and can’t branch out because it’s too risky. Many times this is good.

  • 5 years ago

    It is not always about the bottom end price. It is the fact that they know what to expect, the sub will be on site when he says he will be. His material will be up to snuff. His work will be done timely and properly. That many, many times is worth more than a couple of bucks.

    Frank the Tank thanked millworkman
  • 5 years ago
    last modified: 5 years ago

    A good GC builds his company and thereby his reputation on good relationships. I'm assuming you did your due diligence and did your homework on his reputation before signing the contract and, since you went with him, got back good reports...."Oh yes, the work was of high quality completed on time" and such. There's a trust and a bond there with his subs that has probably been developed over years that can not be duplicated by just picking up the phone and asking another for a bid.

    A large part of the reason for good reviews like that are the quality of his subcontractors. And typically if a builder likes a company (electrician, plumber, etc.) he sticks with them..."Hey Frank, I have another job for you to give me a price on".

    So now after you've done your due diligence you want him to "shop around" for better prices from possibly subs of unknown quality while presumably holding him to the standard that you hired him under, likely getting someone in there with the lowest bid but also bringing with it problems regarding quality and timing that wouldn't be there with a sub whose worked with the GC for years.

    This all reminds me of a thought by John Ruskin, an economist and a bunch of other stuff a hundred years ago. He called it the "Common Law of Business Balance":

    "There is hardly anything in the world that someone cannot make a little worse and sell a little cheaper, and the people who consider price alone are that persons lawful prey. It's unwise to pay too much, but it's worse to pay too little. When you pay too much, you lose a little money, that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was bought to do. The common law of business balance prohibits paying a little and getting a lot, it can't be done. If you deal with the lowest bidder, it is well to add something for the risk you run, and if you do that you will have enough to pay for something better."

  • PRO
    5 years ago

    No but it depends. You will reduce your participants with detailed bid presentation requirements. Some contractors will provide a bidding service similar to what you want for a fee.


    Typically clients have seen our work and have asked us for a bid based on the level of quality seen or a pervious client's experience. We want to use the team we've developed & refined over years. There is a cost to bringing on new vendors, a cost to bid including many hours. We're looking for the best trades and suppliers at a reasonable cost. Vendors brought in by clients tend to leverage that relationship into more independence.


    The lowest bid is not always the lowest cost. Electrical bids for example can be whittled down a few thousand by loading circuits more, but not typically what we want. Service, skill, experience, working relationships are more important than a low bid.


    Frank the Tank thanked Jeffrey R. Grenz, General Contractor
  • 5 years ago

    we're GC'ing our build. However, we have a licensed GC as our site superintendent specifically for his invaluable subcontractor contacts. He's brought with him a great plumber, septic installer, grading person, concrete team and others. There are SO MANY choices and the best way to screen subcontractors is through my GC guy who's been building in this area since the 90's. (in fact built our existing house in 1997!)


    We brought the wall panel supplier, the steel supplier and the roofing company. That was based on skill set for walls, but steel folks recommended / worked closely with our architect and roofing is a long time personal friend of one of our car buddies.


    You absolutely ONLY want subs where you have a good personal recommendation. And in this case - that's through your GC. If you need to bring in someone else in order to handle the oddball stuff (like we did) I would highly recommend making sure that you get them through some trusted word of mouth and make sure your builder agrees / participates in the process.

  • PRO
    5 years ago

    IMO a red flag when an electrician tells you they are old school but that said most GC have a team they work with so I am really not understanding this whole bid topic. Why are you getting bids from the subs at all?

  • 5 years ago

    Patricia I didn’t read it as the homeowner getting bids. He thought the builder would do that and was surprised that they rely on one sub vs get an estimate from more than one.

  • PRO
    5 years ago

    It sounds like you want multiple estimates not for a lower price but because you are not sure the sub is qualified to install the products you have specified? In this case, I think it is a fair request for this sub (electrician) in particular. I would make sure your builder knows that you do not intend to change your products to accommodate the skill level of his subs.

    I also think you should give the "old school" electrician an opportunity to review the specs of the product you want to assess if he can install it. I had a builder's plumber complain about a digital valve I specified that he had never used. But he pushed through and learned how to install it and in the end was impressed with it and did a stellar job.

    It is not typical nor efficient to get multiple bids for cost comparison for a new build.

  • 5 years ago

    Also keep in mind it will take time to get bids from multiple subs - it already does and you’ve just increased that time - and it takes a lot of work for a builder to compile all those bids into one. Agree wholeheartedly with the comments above - a good builder has built relationships with subs that he/she knows and trusts - and likely doesn’t have a trove of subs (in a single trade) to even get bids from - why would he/she, when they work well with the ones they know?

  • PRO
    5 years ago

    Frank, the pros on this forum are not necessarily gruff. They simply respond by cutting to the chase, often in as few words as possible. A short, concise answer, of course, may sound gruff to a reader, particularly an inexperienced reader. But...my suggestion is to simply take every response for the value and insights it may offer, regardless of the number of adjectives and adverbs, or lack thereof. Good luck with your project!

  • 5 years ago

    Frank, the pros on this forum are not necessarily gruff. They simply respond by cutting to the chase,


    And how come it's always the person who can't be bothered with commenting on anybody else's post (Frank the Tank has made 8 posts asking for help on his project but has no comments on any others) but finds it necessary to take to task those that HAVE bothered to address their question FOR FREE because they don't like the way the answer was given......lol....

  • 5 years ago

    There has been a lot of helpful feedback here. I appreciate that very much -- as well as the time it takes to do so.


    Architectrunnerguy - Your post inadvertently validated my thesis. To your point, I am not an expert in building or gardening, therefore I do not opine in these threads. I am however well-versed in communications -- feel free to hit me up.


    All the best.

  • 5 years ago

    Is this a Cost Plus contract? Then there may be leeway, if the verbage allows it, with requiring the G.C. to obtain multiple sub bids per trade.


    If there are specialty or non-typical items, those can be broken out for line item bids.


    Otherwise, like in 99% of residential projects that are Stipulated Sum contracts, it doesn't matter what the G.C.'s subs bid to them and you don't even get to see them. They will indicate a Schedule of Values for the draws but the G.C. can play with those numbers. What matters in your cost evaluation is the final number. The G.C. is responsible for the entire job - so if an electrician isn't familiar with something and later bumps his cost to the G.C., the G.C. eats it. If it is done wrong the G.C. is still responsible to make it right regardless of how competent his sub was.

  • 5 years ago

    You should be concerned with a sub that says he has done things the same way for 30 years and doesn't seem willing to learn and/or adapt to new methods or technologies. If you have specific requirements for you electrical, then make sure your GC knows what they are up front.

  • 5 years ago

    Chispa - It did worry me a bit, tbh. That said, i have the tech (its just Lutron Caseta) in my current house and my dad is an eletrician of 40 years (industrial, not residential) so it gives me a little more comfort. Really it installs like any other switch (need neutral) but also uses the Pico for three-ways. So he’d just need to cap off where we use the picos for future state.

  • 5 years ago

    @architectrunnerguy, I have been on these forums since 2004, (gardenweb), but as OP mentioned, when not an expert on a subject, I dont comment. Does that mean people should not help out when I ask for help?

  • 5 years ago

    Rekha....."Expert" is Frank the Tanks term not mine.


    To answer your question, helping others with what one has learned through normal life experiences is a vibrant part of these forums with a legion of participants. Just janni (who wrote above) and cpartist being two. I'm sure Frank the Tanks life lessons when it comes to building a house is growing everyday, same as those two who have in their own experiences that they relate often for others, Frank included.


    But that wasn't my point. I could care less whether Frank makes the time to relate his own life experiences in building his home to help others or not. I've been here almost as long as you have so my point was it's uncanny how the folks that complain about the responses they get never make any themselves. It's almost universal. Just an observation. Nothing to do with being an "expert" (read my original post) as the daily postings by everyday folks relating their life experiences in answering questions can attest.

  • 5 years ago

    There is definitely a pro-bias on these forums and it is often a race to find what the client did wrong.


    Here is a way too long response to your question that will hopefully provide insight whether or not it is useful...


    FIXED PRICE CONTRACTS

    In the beginning God created the heaven and the earth and fixed price contracts. In fixed price contracts, the contractor agrees to deliver your project to your specifications for a specific price. In a fixed price contract you don't have any authority or transparency into subs, so long as your contractor delivers the house as specified you pay the price specified and you are done, if his subs were idiots who had to redo things several times, that is his lesson to be learned. However, the glaring problem in fixed price contracts is that they incentivize sacrificing quality for profit. If a builder uses cheaper subs then he can make more profit and so that incentive is always there. They also incentivize staying in your comfort zone as those things are more predictable.


    COST PLUS CONTRACTS

    In response to the issues in fixed price contracts, we developed cost-plus contracts. Cost plus contracts are supposed to fix the contractor's profit by removing the contractor's control of the bid process. If the contractor doesn't make more profit by using cheaper subs or staying in his comfort zone you should get better quality. The entire idea of cost plus contracts is fully disclosed bids that the client controls. While that often means competitive bidding for a variety of reasons, the benefit is really the fully disclosed bid.


    COST PLUS TO FIXED PRICE

    Cost plus contracts should be fully convertible to fixed price contracts. Bids for cost plus contracts represent firm commitments and are therefore convertible into fixed price contracts. There is a misunderstanding with cost plus contracts that you really don't know the price of the house until you are finished with the home. In reality, that is called a time and materials contract. If you take all the bids (firm commitments) add them together, add your contractor's fees, you get a set price for the house specified. The advantage of cost plus contracts is the client's ability to move that price up or down depending on their desires and needs.


    THE PROBLEM AND THE REALITY

    Too many (probably most) contractors take advantage of cost plus contracts and skip the entire bid process and award the contract to subs they trust just because they trust them. Then they use "trusted sub" as an excuse for skipping the entire bid process. The problem isn't that they only got one bid, it is that they usually get no bids. Cost plus contracts are signed every day without a single firm commitment or real bid, which again, is really a time and materials contract worded differently. For a contract to fix the quality problem it needs to be convertible. In anticipation of a likely objection, you can still have a clause for price increases of raw materials in a bid.


    MY 2 CENTS

    If it is a fixed price contract, you really don't have any right to ask for other bids. If it is a cost plus contract, you control quality and have every right to ask for more bids if you have doubts about quality. This doesn't mean you should discount your contractor's recommendation, but asking for more bids is certainly within your rights.

  • PRO
    5 years ago
    last modified: 5 years ago

    In a fixed price contract you don't have any authority or transparency into subs, so long as your contractor delivers the house as specified you pay the price specified and you are done

    While this may be true for some builders, it is not true for others. I work with a number of builders on new construction homes and they are completely transparent with their clients, providing all estimates that were prepared during the bidding process and all final invoices at the end of the project.

    Edited to add... Actually, most of your assumptions do not align with the reality of the builders I work with, some who are cost plus and others who are fixed bid. Maybe your experiences working with multiple builders daily is different than mine.

  • 5 years ago

    Frank the Tank-

    If you want a "smart house" as they are now called, how can you use an old school electrician who knows nothing about these things?

  • 5 years ago
    last modified: 5 years ago

    While this may be true for some builders, it is not true for others.

    It is inherently true in the contract and therefore must be true for all builders. Just because a builder believes in providing transparency that doesn't create a legal responsibility to do so. A fixed price contract is by its very definition an arm's length transaction, a client has no more right to authority or transparency into subcontractors for a fixed price contract than you have when shopping at Walmart or ordering a sub sandwich.

    Actually, most of your assumptions do not align with the reality of the builders I work with, some who are cost plus and others who are fixed bid. Maybe your experiences working with multiple builders daily is different than mine.

    What assumptions? The only assumption I see was about fully articulated bids and even that was a well qualified assumption as I noted, "many (probably most)". If you are contending that most contractors do not use estimates instead of firm commitments in cost plus contracts, then I submit that your experiences are probably the outlier. There were no other assumptions, everything else was about the contractual of the relationship and the well known history and purpose of the development of cost plus contracts.

  • PRO
    5 years ago
    last modified: 5 years ago

    You may believe your theories to be sound, but they do not apply, at least in my experience, to reality. Based on my experiences, these assumptions do not apply to the professional builders/contractors I work with (at this point in time, they total nine):

    1. In a fixed price contract you don't have any authority or transparency into subs

    Again, this is not true of all builders nor all fixed-price contracts. I work with a builder who provides a fixed-price contract based on actual cost estimates for everything, including labor and materials. It is literally all IN HIS FIXED PRICE CONTRACT that he provides. You can argue all you want about some theoretical definition of a fixed-price contract, but it does not make your definition a universal truth in actual practice.

    2. However, the glaring problem in fixed price contracts is that they incentivize sacrificing quality for profit. It is quite the stretch to connect a contract type to quality. A good builder is naturally incentivized to provide good quality, as with each good quality product they produce, they have another qualified referral. The type of contract they offer is not an indicator of the type of quality they will produce. It's frankly silly to suggest this.

    3. If a builder uses cheaper subs then he can make more profit and so that incentive is always there. If a builder uses cheaper subs, the risk is that the quality will suffer and there will be costly issues to correct moving forward. A quality builder's incentive is to produce an excellent product to grow their business and increase their pool of qualified referrals. Maybe your experience is working with cheap builders who have to change their company names every few years to run from their bad reputations. That is not my experience, although I have unfortunately had to work with poor contractors from time to time.

    4. If the contractor doesn't make more profit by using cheaper subs or staying in his comfort zone you should get better quality. With cost plus, a builder actually makes MORE money the higher the bid. So where exactly is the incentive for them to get low bids?

    5. While that often means competitive bidding for a variety of reasons, the benefit is really the fully disclosed bid Again, a fully disclosed bid is not exclusive to either a fixed cost or cost plus contract. It is completely dependent on the builder that provides it.

    6. The problem isn't that they only got one bid, it is that they usually get no bids Who is signing a contract with no idea of the cost, regardless of fixed cost v. cost plus? Every single contractor/builder I work with provides a cost estimate, regardless their contract type.

    7. If it is a cost plus contract, you control quality and have every right to ask for more bids if you have doubts about quality. None of the contractors/builders I work with will allow the client to bid out the labor, regardless of the contract type. Their reputations are based on the quality of their build...the quality they achieve from using their own subs. If you do not like the subs a builder is using, find another builder, do not try to force the builder into using a cheaper sub.

    But again, I'm just a girl working in this industry for 20 years, designing for 5-7 new builds and 10-15 remodels at a time, working with 8-12 different builders/contractors at a time and who has reviewed hundreds of contracts over those years. Theories are interesting. Practice is everything.

  • PRO
    5 years ago

    Frank:

    How are the one or two losers of the two or three bids you got per trade going to be compensated for their time please?

  • 5 years ago
    last modified: 5 years ago

    I work with a builder who provides a fixed-price contract based on actual cost estimates for everything, including labor and materials. It is literally all IN HIS FIXED PRICE CONTRACT that he provides. You can argue all you want about some theoretical definition of a fixed-price contract, but it does not make your definition a universal truth in actual practice.

    There is no recourse if the builder you work with fabricates that number. Your builder could get a bid for $30,000 of materials and $20,000 of labor and then provide a detailed breakdown that totaled $36,000 of materials and $24,000 of labor to the client. There is nothing the client could do in a fixed price contract and that would be illegal in all 50 states for a cost plus contract.

    So how can you claim that transparency exists if there is no obligation for it and no recourse for its abuse? While I have often advocated that fixed priced contractors should be transparent, the choice for a contractor to be transparent doesn't legally obligate transparency. Unless their contract creates a duty for disclosure then there is no duty for transparency.

    It is quite the stretch to connect a contract type to quality. A good builder is naturally incentivized to provide good quality, as with each good quality product they produce, they have another qualified referral. The type of contract they offer is not an indicator of the type of quality they will produce. It's frankly silly to suggest this.

    LOL... This is quite literally why cost plus contracts were developed. You are claiming my assertion as silly when it has been made by EVERY SINGLE SCIENTIFIC AGENCY ON THE PLANET! NASA anyone? A good builder is incentivized to maximize utility. While there are financial benefits for service and reputation there are quite a few studies that look at quality issues in inflationary periods and they all conclude the same thing when a contractor begins to lose money on a project, quality will suffer. To assert that a builder isn't incentivized to find profit on a project is what is silly.

    A quality builder's incentive is to produce an excellent product to grow their business and increase their pool of qualified referrals. Maybe your experience is working with cheap builders who have to change their company names every few years to run from their bad reputations.

    This has nothing to do with my experience, you keep trying to inject that as some backhanded insult and it is ridiculous. This is a simple observation on utility maximization... Just because a builder wants referrals doesn't create a fiduciary duty or remove profit incentives.

    With cost plus, a builder actually makes MORE money the higher the bid. So where exactly is the incentive for them to get low bids?

    There is quite literally no incentive for them to get low bids, which is the entire point of the arrangement in the first place. It is also why client control of the bids is important. Thanks for the assist on MY argument.

    Again, a fully disclosed bid is not exclusive to either a fixed cost or cost plus contract. It is completely dependent on the builder that provides it.

    See the first part of this response.

    Who is signing a contract with no idea of the cost, regardless of fixed cost v. cost plus? Every single contractor/builder I work with provides a cost estimate, regardless their contract type.

    In my experience, most people. A cost estimate is not a bid. A bid is a firm commitment to provide the specified materials and/or installations at a specific price. A bid creates the offer portion of a legally binding contract (a legally binding contract being offer and acceptance for an exchange of consideration between individuals with capacity), and once accepted creates an obligation.

    None of the contractors/builders I work with will allow the client to bid out the labor, regardless of the contract type.

    Then none of the contractors you work with should be using cost plus contracts. They are... because why not shift all risk to the homeowner and provide no real control? However, just because you work with people who want to shovel all risk on the homeowner while removing all the benefits of bid control doesn't mean that is OK.

    ----

    This is basic utility maximization and goal alignment. I know you want to argue that the builders you know are the exception but the problem being that research shows that it is almost impossible to be altruistic when incentivized otherwise. Builders will find completely rational reasons to choose A over B when A is more profit.

    At this point this is tested to exhaustion. I am not saying builders are bad people, I am saying that the problem is goals that are not properly aligned are very difficult to overcome. If builders are transparent BECAUSE of the benefit, why then are they not opaque BECAUSE of the benefit?

  • PRO
    5 years ago

    Wow... I like a good mansplain just as much as the next gal, but you are obviously very frustrated about how things actually function in the real world of home building. When you start pulling out vague references to research and studies, I know where this is going. Lol.

  • 5 years ago

    Kristin it’s not worth your trouble. Bry cannot let it go, wants the last word, and thinks they know literally all

  • 5 years ago
    last modified: 5 years ago

    I suspect if you survey people here, you will find that builders providing detailed bids for fixed price contracts is not the norm. In fact, I have been absolutely raked over the coals for suggesting transparency is always a best practice regardless of the contract terms. More to the point, @Joseph Corlett, LLC has noted many times in many threads that it is none of your business what the contractor's profit is in a fixed price contract.

    As a giant fan of transparency, when I am on your side and arguing the benefits of transparency in fixed price contracts, something I have done dozens of times, I get absolutely killed. So I don't see how these two worlds exist in the same "real world." If you want to know where the assumption that it was the norm came from, it was the pro's here.

  • 5 years ago

    @WestCoast Hopeful - It still stings doesn't it?

  • 5 years ago
    last modified: 5 years ago

    By law, in every U.S. state, the OP has certain rights under a cost plus contract that s/he doesn't have under fixed price contract. I don't care whether you know a contractor who does it differently or not, there is a difference between a legal right or duty and anecdotal stories. I tried to give some background as to why the difference exists, but really I don't care why/how the rights came into existence, the legal differences are there.

    In a cost plus contract if there is some concern that your sub is not going to perform then questioning the selection is not only reasonable it is advisable. Creating a trust relationship with someone who you don't believe can do the job is simply silly.

  • PRO
    5 years ago

    Most people are more interested in working with honest contractors to build quality homes instead of eventually arguing the legalities of their contract in front of a judge. Your studies, research and contract definitions are not going to help people as much as some real life "anecdotal stories" about how to form a mutually-respectful relationship with your builder, regardless of the type of contract they offer.

  • 5 years ago
    last modified: 5 years ago

    "Most people are more interested in working with honest contractors to build quality homes instead of eventually arguing the legalities of their contract in front of a judge."

    Then why do tract builders account for more than 80% of all new home builds? Are you suggesting that tract builders are the most honest?

    I submit there is some evidence of a selection bias here.... Only a small percentage of people even hire a designer, so your experiences with builders may not be typical.

    I know that you will not see it and I am truly sorry this has offended you, but your position isn't logically consistent. If most people prefer to work with, and trust, honest contractors, then there is no harm in additional bids, as they will always let their contractor guide them to the preferred sub. Chasing the lowest bid can't exist simultaneously with trust in your contractor.

    In my experience most consumers have odd notions of value. They too often jump at savings today even at the cost of overall value and comfort. This is why too few people see value in good design.

  • PRO
    5 years ago

    @Kristin Petro Interiors, Inc.,


    If you feed the troll, you'll get what you got.

  • 5 years ago

    @Charles Ross Homes - Are your fixed cost bids fully transparent?

  • PRO
    5 years ago

    Then why do tract builders account for more than 80% of all new home builds? Are you suggesting that tract builders are the most hinest?

    Are YOU suggesting that tract home builders are going to change the terms of their (mainly) fixed cost contracts to accommodate every home buyer? It seems that we are both referring to custom home builders, so what's your point?

    And I am not arguing for or against transparency. Just pointing out that your opinions about contracts are just that...opinions. And in my professional experience, not as important to the actual home bidding and building process as you think they are.

  • PRO
    5 years ago

    Most major construction to perm lenders require fixed price contracts. They don't care who you hire as long as they clear waivers and their loan is secure. Several qualify builders. Transparency would be the exception and a distraction for most clients. Clients should focus on track record, reputation and quality of work.


    Cost plus work is different.



  • 5 years ago

    "Are YOU suggesting that tract home builders are going to change the terms of their (mainly) fixed cost contracts to accommodate every home buyer?"


    I am saying, that your anecdotal experience works great for people in the relatively small self selecting subset of your typical client, but your client isn't typical of most people building a home.


    I suspect price is the most important thing to most people building homes. If people value honest contractors over price, why are there so many bad tile jobs? Why are there so many bad kitchen designs? So on... These are mutually exclusive, if builders are trustworthy and most people value trustworthy then bad tile jobs, kitchen design, floor installs, paint, drywall wouldn't be so prominent because there wouldn't be the massive reward for being the low bid.

  • PRO
    5 years ago

    I suspect price is the most important thing to most people building homes.

    VALUE is what most people want. And value can come from either a fixed price or cost plus contract, from a low-cost remodel to a multi-million dollar new build. Nobody wants a low price if the result is poor quality.

    I am saying, that your anecdotal experience works great for people in the relatively small self selecting subset of your typical client, but your client isn't typical of most people building a home.

    Hmmm...you really seem to like to opine about things you know nothing about. I've had hundreds of clients over the years. I employed five other designers who had hundreds of clients over the years. I have worked on low-budget to luxury projects and everything in between. You might want to stay in your lane...wherever that is. Ha.

  • PRO
    5 years ago

    Value has to be sold.

  • PRO
    5 years ago
    last modified: 5 years ago

    This is an all too common thread, but it has some very important and significant points that should be helpful for consumers, particularly those involved in the first "build".

    1. Significantly different categories of owner-general contractor agreements: Consumers often post in this forum with comments and questions reflecting that they may not know or understand that there are three significantly different categories of owner-general contractor agreements, each of which has its own unique Owner rights and obligations. These are: 1) Fixed Price or Lump Sum: A general contractor agrees to a defined scope of work for a fixed price or lump sum. Allowances, if a part of the agreement, as they often are, are simply stipulated sums for a scope of work, which may be exceeded based on Owner decisions. Too often, Allowances may be deliberately be low-balled to keep a Fixed Price or Lump Sum agreement unrealistically low in initial cost. 2) Cost Plus: A general contractor is paid for all her/his defined costs (direct plus indirect), plus a defined sum for profit. Often, a maximun cost with profit sharing may be used. 3) Time and Materials: A general contractor agrees to provide labor and material at cost, plus a calculation for profit, with no upset or limit to expense.

    An Owner's rights and obligations are significantly different depending upon the category of the owner-general contractor agreement which is used. For example, in a Fixed Price or Lump Sum agreement, an Owner typically does not have the right to select subcontractors or to have access to subcontrator contracts and sums, unless it may be stipulated and agreed to by all parties. This is uncommon, both in custom home construction and especially in tract developments.

    From many postings, it appears that many consumers may not understand that there are three major categories of owner-general contractor agreements, much less the significant differences in Owner rights and obligations.

    2. Differences in scope and scale: There are major differences in the scope and scale of work when new residential construction (especially custom construction) is compared to interior design services for owner/clients to select interior finishes from a pre-defined menu of choices. Residential construction has a much larger scope and scale of work, and the risk to both Owner and General Contractor is also much greater. It really serves no realistic purpose to try to compare the two different types of work, and what may be typical in each type of work.

    3. Differences in "estimates" and "bids": Put simply, an "estimate" typically has no legal obligations because it's simply an "estimate". A "bid", on the other hand, has a clear legal obligation to furnish a specified scope of work for a specific type of compensation for materials, overhead and profit, unless otherwise defined.

    We now return to our original program in progress...

    Frank the Tank thanked Virgil Carter Fine Art
  • 5 years ago
    last modified: 5 years ago

    I've had hundreds of clients over the years. I employed five other designers who had hundreds of clients over the years. I have worked on low-budget to luxury projects and everything in between. You might want to stay in your lane...wherever that is.

    I am on a farm in Central Kentucky right now and I bet you dimes to dollars that less than 5% of the people here who are building homes on their land would pay you or one of your five people, so maybe your experiences are not applicable to them. Maybe people who see value in hiring a designer have a different value perspective than those who don't, regardless of budget.

    VALUE is what most people want.

    People want perceived value and the difference is subtle but significant. Which is why many people will replace an architect with a few bumpouts.

    Also, I have never said that fixed price contracts are bad, I said they incentivize cutting costs. That doesn't mean it is the only incentive in a build, or that you are suddenly going to get a bad house with a fixed price contract. It does mean that if a contractor is upside down on a house he really needs to be right side up on, they often find a way to right side up. You can assert that a contractor facing bankruptcy is not going to cut corners to make profit if you like, but I am not buying it.

    ETA: I fully expect you to have a go at a few others now. I am waiting.

  • 5 years ago

    Nothing stings. I know when someone just wants to hear their own voice over and over again and sound like a know it all.

  • 5 years ago
    last modified: 5 years ago

    This thread is amusing. Thanks to those with helpful replies - I now better understand the process. The rest of y’all…wow.

  • 5 years ago

    @WestCoast Hopeful - I am typing...

  • 5 years ago

    Thanks for proving my point. 😂

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