Video: How to Compare Construction Estimates & Bids

Video Transcript:

Have you ever heard of somebody who got estimates for their remodel and the estimates were vastly different? Well, it’s not that uncommon. But in this video, I’m going to teach you how to compare construction bids and then what you can do if you don’t have all the information you need to compare.

Hey, there. I am Joseph, one of the owners of Lamont Brothers Design and Construction. I have viewed hundreds of estimates and bids throughout my career in the construction industry. And today we’re going to dive into the essential skills to properly compare the documents received. So whether you’re renovating your home or managing a large construction project, understanding this can save you time and money. Let’s get started.

Do You Have Complete, Good Plans & Specifications?

So the first thing you need to do is you have to ask yourself, do I have complete good plans and specifications? You’re going to have to pay the architect or the designer or the design-build firm to do the drawings. You have to pay the engineer, do the engineering, and you’ll have to be the architect or the designer to do the specifications. Those all will be costs upfront. You’ll need to pay.

And then most of the time it would be wise and you’ll have to pay a contractor a retainer in order to get the costing work done. Because if this is done correctly, it’s going to take hours and hours to really make sure they do the work to give you an accurate number.

The Value of Paying for Quality Estimates

If this is going to be a significant project for you, it totally might be worth it to pay at least one, if not two or three contractors, to make sure that you’re getting the best cost information before you commit to moving forward with the project with that contractor.

Understanding Good vs. Bad Plans

Here’s an example of some plans that were accepted by the City of Portland as permit documents that met kind of the minimum standard, but they are not good plans. These plans came from a client that actually reached out to us and was actually taken advantage of by a contractor. And it was a really bad situation.

And the main reason was because the plans didn’t really show what was going on in the project. It’s a rough idea of what’s going on in the project, but the details that the client was expecting, the quality that the client was expecting, the project that the client was expecting wasn’t detailed out well enough in the plans to actually have an accurate cost.

The Importance of Detailed Specifications

Now, the same is true with the specs. Here’s an example of terrible specs. Notice as you go through these specifications, there’s just zero detail here. You know, you might have a Kohler faucet, but Kohler makes hundreds of faucets and one faucet could be $200. Another faucet could be $7,000. Right. And that is true for every spec that goes into the project.

Here’s an example of some great specs that we got from an architect on a project that we built. Everything else is detailed out to the exact model number. That’s the level of detail that you want in the specifications.

Get Bids & Estimates

Now that you have plans and specs completed, the first thing you want to do is make sure you get bids or you go through the work to put everything into standardized construction cost codes.

Standardizing Cost Codes

And this is super standard when you get to commercial construction. Residential remodeling, it can be squishy. Sometimes companies will take standardized cost codes and mod them a little bit. Sometimes companies won’t even use standardized cost codes. What you need to do is you need to get the cost broken out in that level of detail.

Constructing a Bid Comparison Sheet

If they’re using different cost codes, you need to choose a good estimate. Start with that one and then create a spreadsheet that lists the cost code and then the cost for contractor A, the cost for contractor B, and the cost for contractor C. If they have slightly different cost codes, you’ll have to do some work to figure out where they need to go. But that’s the only way you’re going to actually be able to compare them.

The Process of Bid Comparison

Now that you have plans and specs completed, the first thing you want to do is make sure you get bids or you go through the work to put everything into standardized construction cost codes. And this is super standard when you get to commercial construction. Residential remodeling, it can be squishy. Sometimes companies will take a standardized cost codes and mod them a little bit. Sometimes companies won’t even use standardized cost codes. What you need to do is you need to get the cost broken out in that level of detail.

Creating a Comparison Spreadsheet

Evaluating Estimates for Consistency

Here’s an example of a great estimate that shows standardized cost codes. So if I was doing this and I had multiple estimates for this project, I would probably take this one as maybe my first one and I’d use these cost codes and try to mod the other estimates and put them in this format.

Navigating Challenges in Bid Comparison

Non-Standard Cost Codes: So here’s an example of somebody that doesn’t even use cost codes. So this is going to be more difficult. And there’s a few things in here that he has a couple cost codes kind of smooshed together in one line item. So you’re going to have to make a guess and even kind of break it out.

Cost Plus Contractor Budgets: Here’s another example of a budget. This one actually is from a cost plus contractor, but it’s an example of kind of what you’ll often see for certain contractors where it’s kind of a cost code. It’s not standardized cost good. And you’ll have to morph it into the actual standardized cost code so you can compare them.

Are There Any Allowances, or Is Everything a Fixed Cost?

All right.

So here’s the bid comparison sheet that you’re going to build in Excel. And that way you can go through it and look at some different things.

Here are the questions that you want to ask, once you’ve built this sheet.

are there any allowances or is everything a fixed cost?

Now, you’ll notice one of these contractors, all of the numbers end up being finished with a zero. As I’ve reviewed lots of these, that’s just a tiny bit suspect. If everybody’s giving me exact dollars and this guy is giving me just zeros.

So one of the things I would totally do with this comparison is I would ask that contractor, Hey, I just want to make sure everything in here is a fixed cost, right?

There’s no allowances in here that have potential to change because some contractors, especially if they’re not paid a retainer, actually do the work to create this. They will create these bids as just based on their past experience. And they’ll there’ll be guesses. And some guys are great at guessing, some guys are not. Most guys, it’s a mix.

But if you’re going to actually compare things based on cost, you want cost that’s not going to change, you don’t want guesses.

What’s the Difference

Then, you want to look at the specific differences and you want to ask why is there a difference? And you’ll likely have a conversation with the contractor to get an answer. And normally, it’s one of these few things that happened.

The Contractor Missed Something

One, the contractor maybe missed something. Like, if you’ll notice in here, one of the contractors doesn’t have anything in the cost code of siding and excavation. That might be because he missed that on the plan set and he doesn’t have any cost in there. It might come back to you.

Or you know what we don’t want to do is create a scenario where the contractor has totally forgot something. So he’s trying desperately to pinch pennies and save costs everywhere else in your project where maybe you don’t notice in order to pay for siding and excavation when it was something he missed in the beginning. We want complete accurate bids, not ones with things that are missing.

The Contractor Is Assuming That Something Is Excluded from Their Scope

So another thing that can happen is the contractors assuming that something is excluded from their scope that you want included in the whole project and the other contractors are making the assumption that that’s part of the project and so that impacts that bottom line.

So you’ll see in the spreadsheet the abatement testing is missing from one of the contractors. That abatement testing. You’ll want to ask the contractor about. Now, it might be that he’s including that in his G and A line item which G&A stands for General and Administrative. It basically is a line item that covers overhead. There’s different things that can go into that category.

You should ask that question of what goes into that category. But this guy might include the abatement testing in that. Maybe he’s assuming you do it. Occasionally contractors will ask the the homeowner to do the abatement testing and provide them with the paperwork. I’ve seen that happen. Maybe that’s what this guy’s plan is.

The Contractor Is Coding It Differently

So the contractor could be coding it differently. You’ll notice that Contractor D has nothing in the line item for project management, but he’s got a significant amount more than a couple of the other contractors in G&A.

The assumption you could make is maybe he’s coding everything that’s project management into that G&A code. Probably that’s the case. It would totally make sense. Worth asking him the question though, because you want to be able to have these open conversations with your contractor about cost.

The Contractor Structures His Costs Differently

Another thing that could be happening is the contractor structures is costing differently. These things are not red flags. You just want to understand them. The big thing that you want to avoid is somebody missing something because that probably will come back to bite you in the end.

But you’ll notice Contractor D, a lot of his line items are less than some of the others. But then he’s got two line items at the bottom that include a contractor’s markup and a corporate activity tax. And so if they break that out, then you know that you’re paying for that. If it’s not broken out, it’s got to be basically split between all the other line items.

What Do You Do If You Don’t Have Plans and Specs?

Now, some people really get into what should a contractors markup be in my experience is contractors has a lot of other ways to charge for things. If you want to know what you should expect in a contractor’s markup, check out the article that I’ve linked to in the video notes. That’ll go into more depth there, but it’s not super important when you’re comparing these bids.

So what do you do if you don’t have plans and specs? I’m going to give you the basic steps here, the 30-second version, and then I’m going to give you a resource that you should go download that’ll give you the full version.

Inspect the Deliverables

So for the basic steps, you can compare cost ranges, and that’s going to answer the question, does this guy have a clue what he’s doing? Has he done a project roughly like this before? Those cost ranges should be reasonably close or we don’t have clarity on what the project is or these guys don’t know what they’re doing.

Then do we have clarity in process? We can compare the process. Does the guy really know how to help you and get you where you want to go? Or is he kind of winging it along? Does he does he have a process that is a process that makes sense to help you meet your budget.

Then you’ve got some clarity in options. Does this guy have the flexibility within this process to give you what you really want? Some companies are very narrow, especially when it gets to the smaller kitchen and bathroom remodels where they may not have the options that you need to really do everything that you want to do.

So compare those things and then you should really inspect the deliverables. So they’re not done yet. Plans and specs aren’t done yet, but especially when you’re working with the design build firm, you want to look at the drawings. What kind of drawings do they look like? The schedule. Do you provide written schedules that make sense that you actually meet and then the contract? Is this contract something I want to sign?

Get the Full Contractor Interview Guide

To get the full contractor interview guide that includes 20 questions that are key questions you should ask your potential contractors, as well as red flags and other examples of what you should be looking for. Go to the link below and download our contractor interview guide. Make sure to subscribe to the channel like this video so you can continue to get educational content that we put out that helps you have a successful remodel.

Download the Contractor Interview Guide