In our last blog, we covered how we come up with our pricing for a construction project. In hindsight, I realized I failed to mention why prices can still vary so greatly from one competitor to another. There are many reasons for this, and, in part, it depends on at what stage pricing is being presented.
When first discussing pricing with a client, before plans have been drafted and selections made, every contractor is essentially giving their best guess. We prefer to give what we believe are realistic expectations, based on our understanding of the project and past experiences. Some contractors may be able to throw out a number off the top of their head. There is nothing inherently wrong with this and I wish I was better at/more comfortable with doing so. The reality is that I’m not comfortable doing this, so 95% of the time before presenting any numbers I will run a preliminary estimate. An estimate is just that though and there is still a lot of guesswork at this stage. Do we need additional footings? Is that wall load bearing? How expensive are the appliances going to be? And the list goes on. With the dozens of assumptions being made at this stage, it is easy to see how one company’s initial estimate may vary greatly from another, for the “same project”.
Assuming that we are making the same assumptions, pricing can still vary greatly. Material prices should be relatively close, assuming the same materials are being accounted for. Where the bigger difference in pricing may lay, is in the labor costs. Not all labor is equal, in cost or quality. Every subcontractor we use is licensed (if applicable) and insured (always). Working in people’s homes, we also must be choosy about the subcontractors we use. If I wouldn’t be comfortable with a subcontractor working in my home, they certainly aren’t going into my client’s home. We also seek accountable trade partners who have an eye and attention to detail and quality that meshes with our finished product expectations. Along the same lines, we prefer using specialized trades. I know some great people who can frame, finish sheetrock, install trim, tile, paint, etc., and do a good job at all of it. However, they don’t do all those things as well as someone who does a specific task day in and day out. It takes years to truly master a trade and there just aren’t enough years to master everything. It does no good to have great plans if the execution is sub-par. Not all subcontractors are created equal, and neither is their pricing.
Beyond materials and labor, another consideration is how is the project being managed? Is the contractor a ‘one man show’ who manages the business and the daily activities his or herself? Or does the contractor do enough volume to necessitate a project manager to manage the day-to-day activities on the job site? Having a project manager on site daily is of great value to the client, general contractor, and subcontractors, but it is an additional cost to the project.
With so many parts and pieces to consider, competitor’s pricing will never be the same, but should be in the same general ballpark. If a client is seeing a great variance in pricing, then questions need to be asked, such as what assumptions are being made? Are the sub-contractors insured? Are the subcontractors specialized, professional and high quality, or just the cheapest option? Is there someone assigned to manage the day-to-day activities on the job site? There is a lot to consider and sometimes it takes a little detective work to truly understand variances in pricing.