Choosing A Builder
OBTAINING A PRICE FROM A BUILDING CONTRACTOR FOR BUILDING WORK
Some facts to consider:
- People spend more money improving their living environment than on any other single purchase.
- Building contractors are the most important link between design and result
- Nothing can substitute for experience in this very demanding and highly skilled occupation and competent builders are of considerable value when meeting the demands of clients
A good Builder must be able to:
- See the build as a 3 dimensional entity and to understand how to construct each element before setting foot on the site
- Converse with the Architect, Engineer, Surveyor, Council Staff, Electrical Contractor, Plumber, Drainlayer, Joiner, Concrete Placers, Roofing Contractor, Building Inspectors of every stripe, Supply Merchants and a myriad of other people with whom he will move the project from proposition to completion.
- Convey to the client how the project is progressing and where there might be areas of the build where client input is required
- Be constantly aware of the fine construction details, always keeping the requirements of the Building Code and its attendant regulations in focus.
- Be vigilant to any areas of the build where there might be difficulties because of changing circumstances, and convey those concerns in a collaborative fashion to the client.
- Carefully and skilfully manage the project and all the personnel involved.
- Ensure that the final result is a superb resolution of the intentions of the Architect and Client.
THE FOLLOWING OPTIONS FOR PRICING ARE THE MOST COMMON IN A RESIDENTIAL SETTING:
1/ Obtain three or more prices from contractors recommended by the designer or word of mouth:
- This has been the most frequently and widely promoted of the the options, and is the one least favoured by contractors of any repute because of its hidden difficulties and inherent unfairness.
- The process is flawed. The prices that a client receives are always a cost spread. The client will always select the cheapest price. This is an axiom, and the logic is simple. If one is determined to obtain three or more prices, then the purpose is to find the price that best suits the client’s budget, that is, the cheapest price.
- In spite of the claim that all the prices will be given equal weight, the least of the prices is always treated with the greatest favour. And therein lies the problem. The job then becomes predicated on price, not quality and performance. The builder is engaged often without having met the client.
- If there is a constant in this process, it is a very old and timeworn but nonetheless accurate one – a client can expect a cheap job or a quality one, but not both.
- There is a bottom line for pricing. Any contractor with the capacity to handle sizable projects (most new builds and renovations) will be working to costs of a very similar nature. Thus, the differences between the prices submitted to the client will be in the direct costs to the contractor, in labour and project management and margin. These are the places where prices are pared back, and that’s where the problems arise. Cuts made in the overall profit expectation are reflected in the progress of the job, and inevitably, in the quality of the product. There is an inevitability of variations coming from a contractor who is watching every box of finishing pins disappearing into the build, and carefully scrutinising the drawings and specifications looking for items not included in these documents or watching for any marginal creep in the extent or description of any section of the work, and tendering yet another variation for approval. And the bite comes toward the end of the job, where the money is going out, but not coming in at a rate or quantity that will keep up with the bills.
- The reality of this pricing formula is that, although the clients believe that they are getting the best deal because they are initially paying the lowest sum, the resulting job will be of a lower quality and it can eventually cost more than any of the higher prices, and the experience is almost always unsatisfactory.
If a client has any thought that he might like his project to run smoothly, for the relationship with the builder to be a genial and productive one, for there to be a free interchange of ideas and for the backend (invoicing, variations where they are reasonable and within the budget envelope), and for the result to be a top quality build representing all that the client had expected, then obtaining a number of quotes isn’t the way to guarantee this.
We should comment on the “free quote”, a tradition that should now be retired. A tender for a $450K job will take our office around 10 days to prepare. In that time selected sub-contractors will be asked to spend a lot of time pricing their section of the work. This is a cost to all of the businesses and, assuming that the client will be selecting the cheapest price and that, as contractors intent on giving a high quality job to the client, we will seldom be the cheapest, then these people will be doing a lot of work on behalf of the client from whom they will never hear again. That this work should be unpaid is unreasonable. Builders have been asked to do the work of Quantity Surveyors. An increasing number of builders who have small to medium sized businesses are charging for the preparation of a tender. This cost, generally around $1500-$2000, will be absorbed if the tender is successful, but will be payable if the tender is unsuccessful.
2/ A charge-up of some variety, generally based around an initial estimate:
- This option is often promoted as the one most likely to produce a result which represents the fairest price, but it has a number of fish-hooks, and they must be carefully considered by all parties before they enter into such an agreement.
- The first consideration is the one with the greatest impact – that the estimate doesn’t bear any resemblance to the increasing cost of the job. This cost creep can be occasioned by a number of factors acting together or independently.
- The client, understanding the flexible nature of the construction relationship, asks for changes to the job on a constant basis without considering that there might be consequential cost increases (for example, a cupboard shifted from its designed position to a clearly more advantageous one, or a patch in the original flooring under the kitchen cabinetwork, where a moisture resistant compressed sheet is specified but the client wants to patch it with T&G because it is more consistent with the age of the house) and the builder feels that if the job is a charge-up then what the client wants, the client should have.
- The specification of the fittings and layout of these fittings may change, with an increased subcontract and construction cost.
- Walls can be shifted, entire sections of the defined work deleted or improved, with consequential Council and construction and materials costs.
- The initial estimate may be light because the builder hasn’t done a sufficiently thorough job and the client is pushing for some numbers so that the work can get started.
- But, if there is an open and ongoing conversation about the job and where the costing is going, and the contractor is prepared to have the client watching for any (in the opinion of the client) long breaks or early finishes, or quibbling about the costs, it can work. Both parties have the final ability to terminate the relationship with reasonable notice.
- There is flexibility in this model. If a careful eye is placed on the limit of the budget, the work can be revised dynamically so that a useful result can be achieved within the fiscal cap.
- It should be noted that this option doesn’t provide the builder with adequate margins. Working on an hourly basis only pays wages, and the skill levels required to effect a modern contemporary construction deserve better than that. There are some builders who only do charge-up work, and they feel most comfortable this way. A charge-up can work, but it requires a serious amount of communication and trust.
3/ Use of a QS to establish a baseline for the cost of the job, with some negotiation around the suggested figure.
- An independent Quantity Surveyor will produce a cost estimate, based on detailed drawings that will serve as a baseline for negotiation on the price.
- A Building Contractor will have been selected and will have prepared his own price.
- Should there be a wide disparity between the prices, negotiation around those prices on an open-book basis takes place until a figure is arrived at by mutual consent.
- A programme of works is prepared and talked about and agreed to.
- The method and frequency of invoicing and payment frequency is agreed upon.
- The contract is signed and the work commenced at an agreed time.
- This process will have been an exercise in calm and rational discussion in which all parties are given an opportunity to review the project, and the personnel involved, and for the development of a pragmatic relationship.
- The clients understand their part in the overall picture and have had a good look at the builder, enough to feel confident that he will produce a quality product, and the builder has had a look at the project and the client and feels that he can trust the client to honour contractual undertakings. The process is inherently fair.
4/ A variation of the QS option above.
- A lot of the work for the better contractors comes from people who have been referred to them by past clients.
- The builder is brought in at the most appropriate time during the preparation of the documentation. Often, the builder will be engaged by the client at the “this is what we would like to do – can you help?” stage. The relationship builds from there, the project is managed through its hurdles and ultimately a quote is prepared on an open-book basis and after some additions and alterations, the contract is signed and the project commenced.
- This is the option we favour, and the majority of our work is resolved in this way. People who employ us do so because they know that:
- Their project will be treated with the care and attention to process and detail that it deserves
- The work will be of an exemplary standard and there will not be any hanging issues left unattended to
- They will have their concerns addressed in a respectful manner
- They will enjoy the experience and the project will be better for having been carried out by people with enormous experience in the field
- They will be paying a fair price for all the above
Building in the 21st Century in Auckland is a very interesting and stimulating occupation. The regulatory environment is severe, and licensing of builders, with the attendant liabilities, has moved a sizable bulk of inexperienced and dishonest operators out of the profession. The public perception of builders is changing, not fast enough to my mind, but definite change is afoot. Builders are thorough-going professionals working in as challenging an environment as other more widely respected occupations. The work is constantly stimulating. A completed build which could have taken 5 months to achieve represents the best efforts a large group of very competent practitioners, and there is a deep satisfaction associated with the final product. It will stand for a long time as an example of both contemporary architectural thinking and the skills of the builders.