Why Do Construction Proposals Vary So Much?
It's a common scenario that the estimates from different contractors are not the same, yet it is the same project. Well, construction projects vary in price and scope for many reasons. So if your bids are all over the board, it's time to ask yourself why?
Because of the many factors considered in estimation, we can conclude that no estimate is wrong or right. But to get the best estimate, you need an experienced construction estimator who knows how to evaluate project costs. An estimate from a qualified estimator will consider location, size of the home, and materials used during construction. They'll also consider what phases of work they're bidding on (design vs. build).
The Difference Between Proposals, Estimates, and Contracts
Before we discuss why the estimates vary so much, let us understand the commonly used terms; proposals, estimates, and contracts mean. While most people believe that these terms are the same, they are very distinct. As such, you should not confuse these words or use them interchangeably.
Proposals
The construction proposal is the company's response to a construction project and includes technical and construction information.
While proposals are slightly different from bids and quotes, they usually serve the same function: making an offer to carry out a particular project for a particular cost, usually for a definite time. For the most part, construction quotes and proposals are established by specialists such as construction managers or construction estimators.
Estimates
The construction estimate is an 'educated' guess of how much it will cost to complete the project based on the construction company's construction proposal.
The estimate is usually a figure to help a client decide whether a project is within their financial muscles for them to undertake. But unlike a proposal that gives a hard number and is mostly in writing, an estimate is not binding and is given verbally.
Essentially, estimates have no specified time and quantities for the project. There's also no expiration date for estimates, meaning the number provided is not tied to prevailing market conditions.
Contracts
A contract is a legally binding pact where the parties involved agree to the terms and conditions of a proposal.
Basically, it is an accepted offer where the construction company accepts to carry out a project, and the clients commit to paying the agreed amount.
Contracts have fixed terms that can only be altered by mutual consent. This, therefore, means that you must ensure your proposal is thorough before signing a contract to avoid any problems while carrying out the project.
Why Does the Same Construction Project's Proposal Vary So Much?
Not all construction proposals are the same- they usually vary so much due to several factors. Some of the reasons why the same construction project proposals vary so much include;
The Size, Complexity, and Difficulty of the Project
Construction proposals vary because no two construction projects are the same. For example, building a garage will require completely different construction methods and materials than constructing a baseball stadium.
The size of the project will also affect the cost. Larger construction projects tend to be more expensive than smaller construction projects.
The Location of the Project
Construction costs can vary by as much as 100%, depending on where you are in the country. Because of the geographic location, construction costs associated with local construction labor and other regional factors impact construction costs.
For example, construction costs can be higher if you build your home on a hill instead of building on a flat surface. That's because construction equipment needs to work harder when it has to move construction materials uphill.
Architect vs. Construction Company: Experience Level of a Contractor
Construction proposals can vary because different construction companies have different levels of experience. Experienced companies know how to maximize the value of their projects by planning carefully and maintaining good relationships with suppliers, construction professionals, and other people on the project.
Less experienced and smaller companies also lack the right equipment and skills to make the work a success. As a result, it may lead to over-budgeting and delays in construction projects, which is costly.
The Design Phase
The amount of time spent on your construction project's design phase will affect a construction company's bid price. The construction proposal varies based on how much time they invested in your construction project during the design process. Contractors that put more time into the design phase of a construction project will provide you with a more accurate construction cost estimate.
They do this by carefully analyzing all of your construction documents and making sure they understand your construction needs and requirements. They will also develop a construction budget based on construction costs in your geographical area, including the cost of construction equipment, construction materials, and other construction expenses that you should plan for.
Therefore, it's essential to know what you want in your home before looking at construction proposals for your construction project.
What Are the Different Construction Proposals That Contractors Offer?
There are several construction management proposals that construction companies use to manage construction projects. Those construction types include:
Lump-sum Construction Proposal
This is the simplest construction proposal type. A contractor bills you for their full construction services or construction project at a single price.
The lump-sum price covers all the contractor's construction expenses, not just labor. It also includes construction equipment and construction materials such as construction lumber, construction hardware, construction tools, construction fasteners, construction equipment rentals, and construction site cleanup.
Many construction companies prefer to use it for smaller construction projects because they can be completed quickly and easily. Besides, it allows a contractor to offer you a fair price for their construction services based on the current construction market.
Construction Cost Proposal
Cost-plus construction proposals are the standard construction type agreement for construction projects. Construction expenses include labor, construction equipment rental, and construction materials such as construction lumber and cement. The contractor's fee is linked to their costs of completing your construction project, so they share risks and responsibilities with you.
Construction Time Proposal
Time construction proposal sets construction deadlines for different construction phases and ensures that they meet the construction schedule. A construction manager will keep track of your construction project's progress throughout the construction.
They ensure your construction deadlines are met and the construction project is completed on time and within budget.
Unit Price Construction Project
A unit price construction proposal is a construction type in which your construction company provides you with the construction budget per construction item, such as construction lumber or construction equipment.
This construction proposal is beneficial for large construction projects because It allows you to determine how much each construction item costs and compare prices with several companies. When using this proposal, construction managers should provide construction schedules and construction cost reports for your construction project.
Guaranteed Maximum Price (GMP) Proposal Contracts
A GMP clause is a contract that sets the maximum price for the building. If you use it, they cannot charge you more than what they agreed to. You should also make sure that if something costs more money, like materials or labor, it's paid for by the contractor.
Construction owners prefer this type of construction contract over lump-sum construction contracts because of their freedom in meeting your construction project's needs.
What Should You Expect From Your Contractor's Proposal?
Quite a bit. While construction project bids are unique to each client and contractor, there is typically some information that you should expect from your contractor's proposal.
For example, the proposal should include construction cost estimates for construction of a building or facility, including any related items not included in construction costs (e.g., construction equipment, construction management fees).
The contract proposal should also include construction schedule estimates like expected construction start date and estimated duration—potential risks related to construction time, cost, scope, or safety. A construction contingency plan keeps the contractor on an "if/when" basis rather than a fixed price construction cost.
Construction equipment requirements, construction management costs, construction warranties, construction schedule milestones, construction schedule delays, and construction plan modifications are all examples of related items.
What Are Some Tips To Help You Choose a Contractor With Confidence?
Before you start looking at construction proposals from different companies, consider the following:
Construction project's construction size and construction site
Construction schedule
Construction budget
Construction materials you want to use for your construction project or construction project
Construction deliveries schedule for construction equipment and construction materials
The Benefits of Having a Detailed Contract Before Your Construction Project
If you have a detailed contract before your construction project, then there will be fewer problems. It will prevent work delays and avoid conflicts with the contractor. In turn, this will make the process smooth and provide a better customer experience.
Construction contracts generally have sections detailing all major facets of a construction project. They include time frames, materials needed, cost estimates, quality guarantees, and safety issues. Also, there may be other sections depending on local laws or specific needs of homeowners or contractors.
Real estate attorneys generally write up these contracts. They have professional experience, so they know what to include in such agreements under varying circumstances. Also, they will often have different levels of complexity for these construction proposal contracts, depending on the project.
Final verdict
Even if you are not a construction project expert, learning what different proposals include and how they affect your budget is vital. Choosing an estimate over a quote will help you make better decisions regarding hiring contractors. Remember that you should base this decision on more than the price alone!
Hiring an architect or engineer for your home renovation project might also affect cost and timeline. If you want professional advice from experienced professionals when picking out which type of proposal to use, reach out to your local construction company.
