The Estimating & Bidding Procedure During Construction
Once your architect is done with the construction drawings, the next step is to file for the building permit while also simultaneously giving the drawings to builders for estimates. While you could simply give each builder a set of construction drawings & ask for an estimate, there are flaws to that approach. The problem with only providing construction drawings to bid from is that each builder will provide a written estimate in their own format, and each format will be different (along with their own inclusions & exclusions), as is customary to how they typically work. Each builder will also be making assumptions on the values of all the materials not yet selected by you (known as “allowances”), which will also create discrepancies within the bids. In this scenario, it will be difficult to compare the bids on a level playing field.
The best approach is to provide a standardized “Bid Form” which levels the playing field among the builders, helping you to evaluate the bids & then pick the builder who will give you the most value. This can save you a significant amount of money by ensuring that you’re getting the best price relative to other comparable bids.
Invitation to Bid Forms:
The “Invitation to Bid” forms are used to supplement the construction drawings once they are ready to be released to builders for estimating.
The Bid Form is essentially a standardized form give to each builder & they are asked to enter values into each line item, including their profit & overhead. The Bid Form also takes all the guess work away from the builders for all of the “allowances”, which are those items not yet selected by you (such as cabinets, plumbing fixtures, tile, carpet, flooring, etc.) Between us, we will establish those values so each builder is not guessing at what those materials may cost.
By evaluating all of the itemized line items asked for in the Bid Form, you can create a spread sheet & easily compare the values for each, which will alert you to any discrepancies. You can then ask the builders to clarify their intent, in which case one builder might have overlooked something or included something that should have not been in the scope of work. Two builders might have been providing very different HVAC systems in terms of quality and price point, and you could ask each to bid on the same exact system.
As an example, out of four bids you may narrow it down to two builders, and then go back to those two builders and ask them to clarify certain issues and values of their bid. They may then revise and resubmit their bid, at which point you’re assured that both builders are bidding on the exact same scope of work.
Once a builder is chosen, he would be asked to submit a contract. Each builder has a standard contract, but they all vary. Some are very simple and are one sided, not being fair to you and do not include many of the things that should be addressed in a construction contract. The preferred contract is one of the many versions of the AIA (American Institute of Architects) contracts, with a rider attached which cover additional issues. The contracts and riders are typically done by a lawyer, but your architect should also review the contract as well on your behalf to make sure it is fair to you.
Note that while you are asking the builders for a lump sum price, there are other ways to hire a builder such as on a “time & material basis” also known as “cost-plus”. There are pros and cons to each, but there is another way which is know as “cost-plus a fixed fee”, which is explained in the attached article. This is a fair contract structure which has a fair balance of risk & reward for both parties involved.
Keep in mind that builders should be evaluated on price, quality, service & your comfort level with them, but all too often price is the determining factor. While the lowest bid is often attractive, you must evaluate if you’re compromising or sacrificing on quality & service, and how important those are to you. And remember that you will be working with your builder for up to and sometimes over one year so you must take into consideration the mix of personalities involved in this process.