Why the bids you're receiving from general contractors are higher than expected

So you've hired an architect to help you with your major home renovation project.

They’ve completed your drawings and battled everything and everyone at the DOB and your building's management to ensure you get the renovation project you want. Your dream home is slowly but surely coming to life.

But there's a problem - the bids that are coming back from general contractors vary enormously in price and are much higher than anticipated.

You're feeling confused, like things are out of control, and are now being told to "value engineer" your project (read cut back your expectations) to arrive at a scope of work that fits your original budget.

And you're wondering - how the heck did I get here?

 

Why you're experiencing renovation sticker shock

Surprisingly, the problem of architects designing above and beyond an owner's budget in New York City is very common and stems from a mix of the following, not so obvious, conditions:

  • Your budget was not properly stress-tested against your intended scope of work
  • Your architect designed alone without consulting a general contractor early enough in the process 
  • Your scope of work kept increasing as your design was being developed
  • The information sent out to contractors for pricing was not suitably structured to obtain like-for-like pricing
  • The pricing information that's coming back from contractors doesn't carry any penalty for being false or inaccurate (i.e. some contractors will deliberately mislead while others will tell the truth which causes a wide range of prices).

Our data reveals that bids from contractors, priced off an architect's design, come back on average 90% over an owner's original budget


 

How to get your home renovation back on budget

At this stage, you have two viable options to help get your project back on budget:

 

1. Start again the smart way. 

While not advised unless you're really at a loss, this may be the only way to rescue your project. This requires using your existing drawings as a starting point and having your existing architect (or a new one) working alongside a general contractor to value engineer your project - basically working iteratively as a team to intelligently whittle your scope of work, specification and construction methods down to design a project that meets your requirements and fits your budget.

If you hire a new architect for this, you'll have to get permission from your old architect to use their "instruments of design" and may have to pay them and / or sign something to release them from any liability. 

See here Bolster's advice on starting over the smart way.

 

2. Hire the contractor you trust to help you value engineer.

By exclusively hiring the general contractor you trust (best defined as the one who provided the most detail and transparency on their bid) and, having them work alongside your architect, they will invest the necessary time and energy in helping you value engineer your project under the proviso that you agree to award them the project once happy with the mix of scope, quality and price.

This will likely involve you lowering your scope, reducing the quality of certain materials and finishes and looking at new and creative ways of constructing your project that your architect has not considered.

 


Want to regain control of your budget?

If you have a set of drawings from an architect and are confused about the bids you are receiving, get in touch and we'll get it back on budget for you.

 

How to get your renovation right from the start

If you are in the planning phase of a major home renovation project, follow these steps to help ensure you receive reliable bids from general contractors that are close to your original budget:

 

1. Hire professionals by the hour and get rough numbers. 

Engage the services of an architect AND general contractor on an hourly basis (capped at some amount) to help you estimate what your scope of work is likely to cost. Approximate min / max figures for each item of work is good enough at this stage.

 

2. Prioritize what you really want.

With a full list of rough numbers for all that you want done, you and your architect are going to be able to prioritize your scope of work while being informed by a sense of its total cost. After all, it's better to forget the idea of breakfast with the family in your newly renovated garden now, rather than after 6 months of designing and dreaming about it!

 

3. Develop your design with your architect AND contractor.

As you move beyond the conceptual design phase and into developing the design, keep the general contractor engaged to help advise you and your architect on the construction costs associated with your design ideas and challenges, choice of materials and proposed construction methods.

 

4. Produce a smart bid template. 

Your architect should also prepare a bid template that requests prices broken out into the following categories (resist the urge to ignore or combine any of these categories and insist they all remain separate):

Work Schedule $ ---

What is this? This should be broken down into sections (e.g. Kitchen, Bathroom, Carpentry etc.) and then broken down further into line items with a clear description of the work, the number of units involved and the specification of what's being installed (e.g. Supply and install 6 x custom mahogany interior doors). ALl numbers should be raw with no padding (i.e. include no profit or overhead or markup of any kind)

Why is this important? It is very common for contractors to inflate their direct costs to make their overhead and profit appear lower. The problem with this is two-fold: 1) you can't compare the price of line items like-for-like accross all contractors and 2) you dont know how much profit and overhead your contractor is actually charging. Is it too much (bad for you), is it too little (bad for your contractor AND you as the project is at risk of being under-resourced).

General Liability Insurance $ ---

What is this? This is a mandatory insurance coverage that your general Contractor must carry to protect their business and your project from a variety of claims including bodily injury, property damage, personal injury and others that can arise from their business operations while renovating your home.

Why is this important? If your home gets damaged, or a family member hurt, by an accident during your project, you want the company you hired to be able to meet the cost, otherwise they can be shut down or go into bankruptcy. Full coverage is a mandatory requirement when renovating any co-op in New York City.

Workers' Compensation Insurance $ ---

What is this? This is a mandatory insurance coverage that your general contractor must carry that provides wage replacement and medical benefits to employees injured in the course of employment while renovating your home.

Why is this important? If a worker has an accident on your project, the monetary exposure to a lawsuit can be devastating, not to mention stop-work orders and fines. Having a general contractor with workers compensation coverage protects you from this potential nightmare.

Project Management $ ---

What is this? A carefully considered mix of part-time project manager and full-time site manager to ensure your project is delivered successfully.

Why is this important? Without adequate and focused site supervision and oproject management, your project runs the risk of being mismanaged, disorganized, delayed or failing.

Site Protections $ ---

What is this? The handling of all curb-side deliveries, bringing in / up and safe protection of all materials, protection of the property itself including the installation of dust barriers and laying of floor protections and the coordination of all waste and garbage removal.

Why is this important? If you live in a co-op, your building’s alteration agreement will hold you legally responsible for any damage done to the property and you may lose your security deposit or incur a property damage lawsuit from a neighbor. Site protections and maintenance also protect your newly finished surfaces and equipment during construction and prevent expensive repairs being needed prior to completion.

Profit $ ---

What is this? The financial gain the general contractor earns on your project to help sustain and grow a competitive yet healthy business.

Why is this important? A sensible amount of profit helps justify your contractor's attention to your project and keeps them financially motivated to deliver results. Also, unlike a product company (e.g. Apple or The Home Depot), whose manufacturing risk you have been fully absolved of upon the purchase of their products, if your general contractor is under-capitalized and goes bankrupt during your project, you will almost certainly end up feeling the full force of the event in the form of delays, stress and mechanics liens being placed against your property and being forced to pay twice for the same work.

Overhead $ ---

What is this? This the cost incurred to a professional general contractor's business in the service of your home renovation project. Justifiable overhead costs include the procurement of all materials, coordination of all deliveries, preparation of board package including the insurance certificates of all sub contractors, travel, transport and vehicle costs; the salaries and benefits of employees and personnel -- such as bookkeepers and administrative employees; the business's physical office and its expenses for rent, utilities, supplies, phone and Internet lines. Also can include miscellaneous ongoing expenses, such as marketing, advertising, legal fees, tools and equipment.

Why is this important? General Contractors are either on site or on the road, and their back-office and business infrastructure plays an essential role in ensuring your project is administered correctly and moves along at the correct pace.


Want a reliable bid?

Struggling to understand what you're paying for? Let Bolster help you get a reliable bid from a Bolster General Contractor.

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5. Analyze bids and make the right hiring decision. 

By the time you have final construction drawings prepared and are ready to start receiving bids from general contractors, your scope of work should be stable and an accurate idea of construction costs established. Bids from general contractors should now come in closer to one another and in an intelligent format that allows you to compare prices like-for-like, understand exactly what you're paying for and make the right decision about who best to hire for your renovation.