For home and business owners, the process of selecting a general contractor can feel a bit like choosing a mechanic when your car breaks down. It can be difficult to know whether or not you’re getting the best value for your money, how long the project will take to complete or if the contractor is even capable of doing the job well.
Understanding how to properly read a bid can go a long way towards eliminating this uncertainty. Knowing what to look for and how to analyze the information in each section of a bid can help you maximize the return on your investment. It can also provide a fairly accurate picture as to how the project will turn out so you don’t wind up hiring the wrong contractor.
We spoke to several construction industry experts to determine the most important areas of a bid to focus on and what information to look for in each. Here, we identify five key questions to keep in mind when reviewing a bid to ensure the contractor accurately estimated the project and will stay within budget and timeframe.
Was Estimating Software Used to Create the Bid?
Research has shown that contractors who use estimating software are more likely to create accurate bids. A 2012 Software Advice report on the adoption and effectiveness of construction estimating software found that participants who estimate using “pen and paper” reported that they underestimate nearly 30 percent of their bids, meaning these projects wound up costing more than planned. Participants who used estimating software to create their bids reported underestimating just five percent of bids.
In other words, choosing a contractor who uses estimating software to create their bids increases the likelihood that the bid is accurate. Why? Thomas Sidrane, owner of Northfield, NJ-based architect firm The Sidrane Group, says that using software to estimate project costs generates a more complete picture of labor and material expenses because of the accuracy and level of detail the software features provide.
Such features include an integrated cost database, which stores pricing for materials and labor, and a proposal generator, which compiles accurate, polished bids from cost estimates. Pre-created templates contain a list of generally required materials and labor for common projects (such as a kitchen remodel), while a historical database stores past bids and projects from which to pull data. Together, features like these enable contractors to produce more detailed, professional proposals.
As such, Sidrane recommends that homeowners look for bids that have been created by contractors who use estimating software. “Software forces contractors to be more accurate,” he says. “It forces a contractor to go through and ask the homeowner what exactly they want to do.”
Marcus Weddle, Director of Marketing for estimating software provider ConEst, says today’s competitive landscape demands electricians, and all contractors, deliver accurate, reliable bids that are easy for homeowners or individuals to read, understand and evaluate.
“The person hiring a contractor sees an advantage in one who uses software,” Weddle says. “If your bid is accurate on one job but not on another, that doesn’t help you at all. Software brings consistency. It also brings speed. It helps contractors get bids out quickly, and ensures they are up to code. You can be a fast bidder but if you’re not accurate you could easily lose business.”
With OnCenter’s Quick Bid software, for example, contractors can pull from insulation, flooring and concrete cost databases (among many others) that are preloaded into the system. Using these generic prices, which can be updated or customized if needed, contractors can list detailed information on bids, including the cost code, waste percentage and date the price was last updated.
The detailed pricing breakdown featured in On Center’s Quick Bid software
How Detailed Is the Estimate?
The level of detail in a contractor’s bid is an excellent indicator of how accurate the estimate is. A contractor should not submit a bid that simply breaks costs down to materials and labor, but rather one that shows detailed categories, associated costs and completion times for every phase of the project. You also want to look for a thorough analysis of individual items, such as the exact quantity of construction materials (e.g. wood, rebar and cement), the amount of time that will be spent on site per laborer and any subcontractor fees.
Here again, selecting a contractor who uses software can provide a significant advantage. “Contractors who use estimating software are generally reminded by the software to be increasingly more detailed in their descriptions of the proposed work,” says David Baxter, president of the reconstruction firm Baxter Restoration. “They’re able to provide pricing in the most appropriate manner for the project and homeowner. The older ways of estimating leave a lot of opportunity for mistakes and under or overestimating.”
Tony Rotter, a custom cabinet maker and remodeler in San Diego, says that while contractors using new applications to determine estimates may produce more accurate bids, the key is looking for those that have the greatest amount of detail. “A homeowner looking for new cabinets can easily find herself looking at bids ranging from $9,000 to $29,000 or more for a small kitchen, without any idea of why the price varies so much,” he explains.
“The key is to ask each contractor to describe exactly what's included in the bid. For example, ask for a detailed description of materials and processes used. In cabinetry, you’d want to ask how thick is the plywood used for the cabinet carcasses? Are the drawers dovetailed or stapled? What warranty is offered? No matter how the bid is prepared, or what the construction job is, the essential factor is the information contained in it.”
Asking these type of detailed questions will tell you how carefully the contractor has anticipated and planned out each step of the project, and thus how well prepared they are. This will help you determine how accurate the estimate is likely to be overall and the likelihood that the project will be completed on time and to your satisfaction.
How Was Individual Pricing Determined?
It’s important to make sure the contractor pulled their pricing information from a reputable outside source. Software Advice’s research found that the most common estimating errors come from material price increases—31 percent of those surveyed reported this to be one of most difficult costs to estimate.
Unfortunately, too many contractors provide ballpark estimates or simply agree to a subcontractor’s fee without verifying actual costs by comparing similar bids in the market or using a reliable database. Instead, a contractor should pull their pricing information either from a cost database provided by the estimating software they use, or, if no software was used, independent cost databases like RS Means and BNI Construction Cost Data can be used to verify local market prices for labor and materials.
Both integrated and third-party databases are regularly updated to reflect fluctuations in pricing that results from inflation or other factors. Relying on this pricing information can help drastically reduce the chance of error. On the other hand, if a contractor is simply estimating material prices or relying upon an outdated database that isn’t maintained, the chances of inaccuracy will be far greater.
What Contingencies Are Included?
The contingency allowance in a bid is a pre-determined percentage or set dollar amount that accounts for unanticipated costs or changes. The size of the contingency indicates the contractor’s confidence in the accuracy of their estimate. Generally, industry observers say contractors aim to create a bid that’s as close to the actual costs as possible, but many build in contingencies of anywhere from 3 to 10 percent. A higher contingency percentage suggests the contractor is less confident than ideal in their ability to present an accurate bid and should raise a red flag.
It’s important to note, however, that the contingency percentage for earlier stage estimates will likely be higher than successive estimates that are created as designs proceed into latter stages of development.
“It’s hard to put in an accurate contingency,” says Shawn Anderson, owner of Florida-based Skyeblu Construction. “I might afford my clients a $25,000-or-so allowance if they are out of town while I’m putting together the bid. Really, what it all comes down to is knowing how to bid, handing a customer an accurate bid that they can understand the first time they read it, and then sticking to that bid.”
Is There a Time Schedule?
It’s nearly impossible for a contractor to put together an exact time schedule for every phase of the project. This can be a bit of a tenuous situation for a homeowner who wants to make sure the bid they receive has been well-planned and thought out, says Adam Newman, lead technical consultant at Ekotrope, a provider of software for analyzing, managing and designing energy-efficient and cost-effective homes. The most important thing, he says, is that contractors create a bid that breaks things in a way that’s as easy as possible for homeowners to understand.
“What we’re talking about here is transparency,” he explains. “Homeowners want to be part of the construction process. A well put together bid allows the client to see what they’re spending and exactly what they’re spending money on before their first payment, including accurate estimates of how long each project phase will take to complete.”
Ideally, a bid should have a schedule that lists completion dates for each stage of the project as well as an end date for the entire project. While construction delays are notoriously commonplace and sometimes difficult—if not impossible—to avoid, a contractor who has taken the time to plan out their schedule in advance is more likely to complete the project within the allotted timeframe than one who leaves things open-ended.
For individuals and homeowners looking to hire a contractor, a bid serves as an effective way to vet potential candidates. Bids that are easy to understand, provide detailed category breakdowns and completion times for project phases and have low contingency estimates suggest a much better end result than those that don’t provide these details. By knowing what information to look for and how it should be presented, you can assess the accuracy of the estimate and the probability of the project being completed correctly, on time and on budget.