Building construction -- HUH?!?

[Ken Ibold]

I am in the process of getting bids for putting an addition on my house -- an 18x30 boat garage with an 18x30 bonus room (no plumbing) above. What I don't get is where these contractors get their numbers. So far I have four bids. Two are roughly DOUBLE the other two. The bids contain a very few minor differences, but for pratical purposes they are apples to apples.

One of the guys apparently simply took the square foot price of sales in our neighborhood and multiplied it by the new square footage under roof, and then added the cost of door hardware and light fixtures. As if THAT makes sense!

On the face of it it seems like two of the guys applied the "country club price premium" to the quote. But for you folks who do this for a living, where do the bid prices come from, anyway? I'm not necessarily going for the lowest bid, as quality is important, too. But I don't see how a two story frame box with stucco on it and no unusual finish work can cost $180 a square foot.

 

[James_Dean]

Ken,

Many guys will add a "busy" multiplier. If they're busy they'll tack on 50%. If they don't get the work no big deal, they're still busy. If they get it then they're getting paid a bonus to put in 80 hours a week to get the work done.

Goes the other way too, If they need the work they'll bid it to just cover costs.

James Dean

 

[Anthony]

Ken,

Tell them you want to work "Open Book" and see all the material (actual receipts for goods on site) and labor costs. That way you are only negotiating their profit margin. Get proof of insurance and a waiver against mechanics liens also.

 

[Dave Siciliano]

Ken:
We just bid a fairly large project; one advantage we have had is we have some contractor relationships and know what kind of work that contractor does.
As was said above, bids are often times adjusted by how badly the contractor wants/needs the work. Even good guys can have a hole in the schedule; so, don't take that wrong. As a one time, retail customer, you must look at reputation, quality and their approach to finish work and repairing defects. If you get to a finalilst, please check referrals or get a list of work done nearby.

They should have an estimator develop a scope; the scope should then have unit prices attached which will include profit. Their contract should address time they will start and how long the project will take, clean up, inspections during and at the completion of construction. It may be worth having an independent construction guy or engineer review their plans and to supervise construction. You just won't believe how much we've found wrong; even the reputable guys miss simple stuff. Make sure there is something that addresses what is done if there is a disagreement on construction issues. For $1,000 ro 1,500, I would use someone that really knows this stuff to opine on the plans, monitor the construction and opine on completion.

Best,

Dave

 

[SCCutler]

Ken, to add to what has been wisely-written above, I suggest the following:

1. Reputation, above all else, especially in residential and remodeling construction. Secure recommendations from local folks whose homes can be viewed, and whose level of finish is similar to yours;

2. Pay some money to a CONSTRUCTION KNOWLEDGEABLE LAWYER to review any contract proposed by the contractor you intend to use; having litigated the ins and aouts of homebuilder-homeowner disputes, I can tell you that the contract can make all the difference. Your wife likely knows some, but if not, drop me an IM and I can probably make a recommendation inyour area, as construction law is my area.

3. As an addition to No. 2, above, ensure that you know the mechanics' lien law well, so you can ensure that you are taking all measures necessary to avoid potential added exposure. Florida lien law specifically does expose the owner of a construction project to paying for the same work twice if the proper procedures are not followed.


4. Finally, be sure that you do not let the contractor get ahead of the project in draws- first hint: reputable contractors should never get the first red cent up front; they should be drawing "in arrears," and you should be paying with 10% retainage withheld from each draw, until after final completion.

Capeche?

 

[James_Dean]

3. As an addition to No. 2, above, ensure that you know the mechanics' lien law well, so you can ensure that you are taking all measures necessary to avoid potential added exposure. Florida lien law specifically does expose the owner of a construction project to paying for the same work twice if the proper procedures are not followed.


4. Finally, be sure that you do not let the contractor get ahead of the project in draws- first hint: reputable contractors should never get the first red cent up front; they should be drawing "in arrears," and you should be paying with 10% retainage withheld from each draw, until after final completion.

Capeche?

This is spot-on advice. I've got to spend two days of mediation and three days of deposition next week for a lawsuit over mechanics liens. We had a contractor fail to pay subs who then filed liens. We short paid the contractor in the amount of the liens, they walked off the job for lack of payment. They are now in bankruptcy and their creditors are now knocking on our door. Just for fun we're countersuing for damages - it's a huge mess.


James Dean

 

[Richard]

Ken,

Many guys will add a "busy" multiplier. If they're busy they'll tack on 50%. If they don't get the work no big deal, they're still busy. If they get it then they're getting paid a bonus to put in 80 hours a week to get the work done.

Goes the other way too, If they need the work they'll bid it to just cover costs.

James Dean

That is what I wanted to address. The bid Ken described does not make sense; it strongly implies the guy has no real experience in bidding successfully. Otherwise, I would caution Ken against using low ball bids as a standard against higher, more qualified bids. You get what you pay for. Guys not successful in bidding will often low ball to get work. This usually means they are spending a high percentage of their time working on underbid, low margin jobs. He has little capital, cash flow problems, and who knows what else. Do you really want that guy at your home?

Ken, no one I know uses $/SF anymore, too many varibles. You could send me complete details of the bids for me for me to analyze.

At the least, any of those bidders should be agreeable to your demands that they open their bids to you. Reject anyone who is not ready to do that and who cannot defend their bid.

 

[Richard]

Ken,

Tell them you want to work "Open Book" and see all the material (actual receipts for goods on site) and labor costs. That way you are only negotiating their profit margin. Get proof of insurance and a waiver against mechanics liens also.

I would NEVER waive my right to lien. It goes both ways, ya know. Construction on a primary residence is always a stressful time and often the homeowner just doesn't fully understand the actual ramifications of what is entailed, no matter how informed they are. It's an emotional time.

What I WILL do is set a payment schedule to show good faith (#4 in Spike's post) and be glad to sign any unconditonal waiver upon completion of each phase.

 

[Richard]

Ken has a couple options to exercise more control on costs: he can go Time & Material; or Cost Plus, which is costs plus builder's margin, typically 15-20% (this is sometimes higher than marging in Lump Sum bid). In either case, Ken still has another option to which Dave addressed: hire a 'deputy inspector', a knowledgeable 3rd party who represents Ken.

In either of the type contracts, the homeowner does incur more liability than in a lump sum bid. I like Cost Plus because it is project management method fair to all parties.

And as always, make sure the contractor has current licenses, bonds, vehicle insurance, liability and WC insurance on file. The homeowner can even be named additionally insured on the contractor's ins although check your state laws.

 

[Ken Ibold]

Thanks, guys. Got most of that stuff covered, but there are a few nuggets here to mine. For what it's worth, all four contractors are experienced and have been vetted through their references, recent work, and reputation among local architects and realtors. The $$/sq ft guy was actually the most expensive. But he is involved in a number of projects in our neighborhood and he quoted me a ridiculous completion time as well, so I think he just wants me to go away and didn't put much work into the bid. Seems to me I know a real estate lawyer, although she is not a construction law specialist one of her good friends is.

Not looking forward to the process, but the result will be good. Fortunately, the entire thing can be nearly completed before tying it into the existing house, which helps.

 

[mgkdrgn]

In my experience, the general rule with bids is:

1) Throw out the low ... he's either an idiot or is lowballing the price and will hold you (and the project) for hostage later to get more $.

2) Throw out the high ... he doesn't really want the job, but if you are stupid enough to pay the outragious bid price he'll gladly take your money.

3) Work with the guys in the middle. Get references. Check them out. If you can get one, ask for a "bad" reference. Learn how they handled a disgruntled customer.

I am in the process of getting bids for putting an addition on my house -- an 18x30 boat garage with an 18x30 bonus room (no plumbing) above. What I don't get is where these contractors get their numbers. So far I have four bids. Two are roughly DOUBLE the other two. The bids contain a very few minor differences, but for pratical purposes they are apples to apples.

One of the guys apparently simply took the square foot price of sales in our neighborhood and multiplied it by the new square footage under roof, and then added the cost of door hardware and light fixtures. As if THAT makes sense!

On the face of it it seems like two of the guys applied the "country club price premium" to the quote. But for you folks who do this for a living, where do the bid prices come from, anyway? I'm not necessarily going for the lowest bid, as quality is important, too. But I don't see how a two story frame box with stucco on it and no unusual finish work can cost $180 a square foot.

 

[Anthony]

I would NEVER waive my right to lien. It goes both ways, ya know. Construction on a primary residence is always a stressful time and often the homeowner just doesn't fully understand the actual ramifications of what is entailed, no matter how informed they are. It's an emotional time.

What I WILL do is set a payment schedule to show good faith (#4 in Spike's post) and be glad to sign any unconditonal waiver upon completion of each phase.

That's not what it means. Getting a waiver against mechanic's lines protects the owner (Ken) from liens being put on his house for non-payment of subcontractors. Ken is not waiving anything, but getting protection from liens on his property from the contractors.

 

[Richard]

That's not what it means. Getting a waiver against mechanic's lines protects the owner (Ken) from liens being put on his house for non-payment of subcontractors. Ken is not waiving anything, but getting protection from liens on his property from the contractors.

AS A CONTRACTOR, I would NEVER waive my right to lien.

 

[corjulo]

Ken,

Tell them you want to work "Open Book" and see all the material (actual receipts for goods on site) and labor costs. That way you are only negotiating their profit margin. Get proof of insurance and a waiver against mechanics liens also.

Good lucking getting anyone to agree to that.

 

[mikea]

AS A CONTRACTOR, I would NEVER waive my right to lien.

As a contractor it's SOP to waive the right of you and SUB-CONTRACTORS to lien the property, BECAUSE YOU'RE BEING PAID. You're saying as consideration of being paid you won't go after the property for not being paid and you'll pay any subs you owe. Why would a contractor have a problem with that?

A homeowner doesn't need to have to be on the hook to pay everybody who crossed his front door over and over until they stop saying they weren't paid.

 

[Richard]

As a contractor it's SOP to waive the right of you and SUB-CONTRACTORS to lien the property, BECAUSE YOU'RE BEING PAID. You're saying as consideration of being paid you won't go after the property for not being paid and you'll pay any subs you owe. Why would a contractor have a problem with that?

A homeowner doesn't need to have to be on the hook to pay everybody who crossed his front door over and over until they stop saying they weren't paid.

With every application for payment that I submit I include a 20 day pre-lim notice. This preserves my right of lien as well as provides a reminder notice to the owner that payment is due upon demand. Once payment is made, but not before, I will provide the owner with an unconditional release for that phase, if it makes him feel better (some people need the added comfort) I will provide a conditional release prior to progress payments. The owner is on the hook until such time that payment is made and cleared. THAT is the normal method of lien release and I have no problem with that. In fact, I'll take the lead in initiating the process by including such clause in my contracts.

The way I read the original mention of waiving right to lien was that such waiver was to be provided before any work began. That I have a problem with and to that I responded.

Keep in mind the above addresses residential remodeling. New home construction, Public Works, Tenent Improvement, etc carry their own modifications of what has been written above.

 

[Dave Siciliano]

Many construction lenders require lien waives to be executed at the time of payment. We have the contractor's representitive sign the lien waiver hand have it delivered where we exchange the check for the waiver. Perhaps laws differ between the states.

It's pretty anal if you are dealing with repurtable contractors you have used before. Now, the lender doesn't require the waiver to be delivered until the next draw--this is an $8MM project where there will be monthly draws for about 12 months.

We had a previoius lender that wanted the lien waiver signed before they would make payment--that was real fun and probably contrary to law or at least good business practices.

Here in Texas, if one withhold retainage of 10% of the contract sum for a specified period of time, it insulates you from the claims of subs. Moot point if you have good contractors with long term relationship. We've had a few sub claims, but always convinced the contractor to get it taken care of before retainage was released of final payment was made on the job.

Can be complex, but we don't need to turn a garage project into the GREAT (UNDERGROUND) WALL!!!

Best,

Dave

 

[Gary]

Here in Texas, if one withhold retainage of 10% of the contract sum for a specified period of time, it insulates you from the claims of subs. Moot point if you have good contractors with long term relationship. We've had a few sub claims, but always convinced the contractor to get it taken care of before retainage was released of final payment was made on the job.

Dave

A 10% retainage is always a good idea. Depending on the size of the project and the number of subs involved, that can be adjusted up or down. However, it is a condition of the contract that the retainage will NOT be paid until a release of liens is recieved.

How does merely holding the retainage insulate you from possible liens by subs? Is this a Texas law? I do a lot of work in Texas and haven't run across that yet - maybe I'll learn something new!

Gary

 

[SCCutler]

Gary:

It's learning day.

Under the Texas lien law (Property Code Chpt. 53), the owner's property is only subject to a lien to the extent the Owner fails to withhold payment to the "Original Contractor" (ususally, a general contractor or a homebuilder) after receiving proper notice of unpaid account from a claiming "Derivative Claimant" (usually, a subcontractor) pursuant to sec. 53.056, Property Code.

In addition, if an owner (1) does not pay an original contractor after notice, and (2) withholds 10% retainage until 30 days after completion of the project, then the Owner is completely protected from liability to subs. Bottom line.

Lots more details, but them's the essentials.

Guess who teaches Texas Lien Law seminars every month or two?

A 10% retainage is always a good idea. Depending on the size of the project and the number of subs involved, that can be adjusted up or down. However, it is a condition of the contract that the retainage will NOT be paid until a release of liens is recieved.

How does merely holding the retainage insulate you from possible liens by subs? Is this a Texas law? I do a lot of work in Texas and haven't run across that yet - maybe I'll learn something new!

Gary

 

[cherokeeflyboy]

Ken,
I have been a building contractor and framing subcontractor for 20+ yrs.
You have received some good advice, I have just a couple of suggestions.
DO NOT PAY ANY $ UP FRONT!!! DO NOT PAY ANY $ UP FRONT!!. I personally would not do business with anyone that is not financially strong enough to do the job with out expectation of payment until completed.(with this size job) Upon completion of the building, with hold at least 10% until you get all building inspections and have your final IN HAND. I can be extremely frustrating to get subs to return after they have been paid 100%.As far as negotiating the price, I charge for this kind of project Cost + 10-15%. A reasonable time frame to complete it should be addressed in writing as well.

Insist on seeing the insurance info ( the insurance Co. will fax workers comp and liability info,) do not take their word for it, it could have expired
Check with your homeowners Company where you stand if a workmen is injured on you property!!! Don't ask how I found out to do this the hard way.

 

[Gary]

Under the Texas lien law (Property Code Chpt. 53), the owner's property is only subject to a lien to the extent the Owner fails to withhold payment to the "Original Contractor" (ususally, a general contractor or a homebuilder) after receiving proper notice of unpaid account from a claiming "Derivative Claimant" (usually, a subcontractor) pursuant to sec. 53.056, Property Code.

In addition, if an owner (1) does not pay an original contractor after notice, and (2) withholds 10% retainage until 30 days after completion of the project, then the Owner is completely protected from liability to subs. Bottom line.


Guess who teaches Texas Lien Law seminars every month or two?

Spike:

Thanks for the "lesson"! Seems there is always someone smarter than yourself.

I would guess that you have some familiarity with the subject!

Gary

 

[tdager]

Jeez....this is why america is going to crude....lawyers have made EVERYTHING ridiculously complicated.

 

[EHITCH]

Ken,
Did a lawyer write your will?
Does a doctor perform your medical exam?
Hire a registered architect for your project and let them be the job-site advocate on your behalf.

Be advised the construction market is wonky (professional term) right now. Last year's hurricanes have had widespread impact on materials prices (among other things). We are seeing 30% fluctuations in copper prices, nearly that in steel, etc. Interior renovation costs for plain vanilla offices (no high end finishes like mahogany or granite) are running $65-$85/sf for construction, with soft costs, permitting, FF&E etc adding another 75-95% of that to the total project costs. If you don't like the prices you have received, just wait a month of two and you'll get a bunch of different ones. What others have said about availability of work is also very true. We've had the same contractor bid the same type of work 12 months apart that came in $22/sf higher than the previous year because they were just too busy, wanted to bid to stay on our pre-qual list, but didn't have the laborers to do the work. You can pretty well tell who doesn't want the work or doesn't have the time to do it by looking at the high end of your range.
E Hitchcock, Registered Architect

 

[Dave Siciliano]

Ah, let me think of the quote: words to the effect of one doesn't get valid criticism unless one makes the other party angry! I'll have to look it up in the morning.

Don't see you respond quite this way often Beth!

Best,

Dave

 

[Ken Ibold]

Ken,
Did a lawyer write your will?
Does a doctor perform your medical exam?
Hire a registered architect for your project and let them be the job-site advocate on your behalf.

Beth,

Indeed I have an architect, one of the best in the area. However, deferring to professionals does not absolve one of the need to be as informed as possible.

Oh, and will? Does the phrase, "the cobbler's children have no shoes" ring a bell?