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Choosing a Home Builder: How to Compare Quotes


Comparing your Building Quotes

Disagreements over unforeseen costs is a common source of conflict between residential builders and their clients.  These conflicts can ruin the building experience and lead to payment disputes, causing stress for everyone involved.

 

The seeds of this discontent are often planted early in the client-builder relationship.

 

I wrote an article last year titled “Seven things I wish I knew before I started my Grand Design”, which outlines an approach to architectural home building that is designed to avoid this type of conflict.  I recommend that clients select their builder as early as possible in the design and build process, and work with them over time to develop a mutual and deep understanding of building costs and the client’s spending priorities.

 

Regardless of this advice, there are still many clients who believe they will get a better price by waiting until their design is complete and inviting several builders to compete for their job.  And in the current market, most of their invitations will be accepted!

 

Clients who choose this approach should be aware that the residential home building market is far from perfect.  In economic theory a “perfect market” is one that has no issues that may interfere with the best prices being obtained.  Commodities like agricultural products represent the closest approximation of a perfect market.  

 

Bespoke architectural homes are most definitely not a “commodity”, so there are many factors that can interfere with the best prices being obtained by clients.  

 

Competitive tenders can be a great way to find a builder that needs the work the most, and may even be willing to “lowball” their quote to win a job and hope they can claw back a profit during the project.

 

In other words - they’re willing to plant the seeds of discontent very early in the client-builder relationship.



Planning your Build and Managing Cost

Compare me well

Theodore Roosevelt once said that “comparison is the thief of joy”, and no builder enjoys being part of a bidding war.  Personally I’d much rather you choose a Registered Master Builder that has been in business for more than 40 years, won multiple House of the Year Awards, is dedicated to training apprentices, and where the owners’ names rhyme with “Boss” :-)

 

Regardless of my personal preferences, there are some homes that we really want to build - however the client decides to choose their builder.  So I would just add to Teddy Roosevelt’s quote and make this humble request: 

 

If you choose to compare me (on price, with another builder) then please make sure you compare me well.



Slice and Dice your Quotes

This is not just a technique to use in your new kitchen.  “Slice and Dice” is also a technique used in data analysis to systematically reduce a body of data into smaller parts in order to yield more information and improve decision-making.

 

Slicing and Dicing your competing bids will help you to choose a builder with the best and most comprehensive quote, not just the cheapest one.

 

The Coordinated Building Information (CBI) system by CIL Masterspec is the most obvious way to slice your building quotes.  At the highest level, CBI specifies 8 classes of work that represent the fundamental subdivisions of the building industry:

  1. Preliminary & General Costs (work that is necessary for a construction company or contractor to complete a project but that won’t become a part of the finished work)

  2. Site Works (e.g. Demolition, Earthworks, Foundations)

  3. Structure (e.g. Concrete slabs, structural steel, timber frames, masonry walls)

  4. Enclosure (e.g. roofing, cladding, windows)

  5. Interior (e.g. plasterboard walls, ceilings, doors)

  6. Finishes (e.g. paint, carpet, tiling, flooring)

  7. Services (e.g. Plumbing, Electrical, Ventilation)

  8. External (e.g. paths, driveways, fences, landscaping)

 

These CBI subdivisions are used in Tender documentation by both the New Zealand Institute of Architects (NZIA) and the New Zealand Standard NZS 3910 for building and civil engineering construction, so most professional builders should be capable of slicing quotes this way.  

 

To reveal even more information, I also suggest “dicing” your building quotes into the following cost types:

  • Supplier Costs - these are the cost of items that your builder will procure from third party suppliers and subcontractors

  • Direct Labour Costs - as implied by the name, this is the cost of labour employed directly by your builder

  • Overhead Costs - these are costs or charges that your builder may include to cover their business overheads.

 

You should also ask your bidders to supply the following information:

  • The Markup they have applied (note this may vary by subdivision and cost type)

  • The Charge-out Rates for their Direct Labour.

 

And finally, it always pays to clarify whether their figures are inclusive or exclusive of GST.


Before and After

By slicing and dicing your building quotes in this way, you’ll go from a single figure quote that may look like this…

 

$570,120 including GST

(five hundred and seventy thousand one hundred and twenty dollars only)

 

…to a far more revealing schedule of costs that should look like this:

 

Item

Suppliers

Direct Labour

Overheads

Line item Subtotal

% of Subtotal

Preliminary & General

14,085

18,035

32,120

7.1%

Site Works

11,452

16,704

30,971

6.9%

Structure

60,581

44,424

115,506

25.6%

Enclosure 

74,565

25,200

109,742

24.3%

Interior

22,263

4,308

29,228

6.5%

Finishes

64,637

-  

71,101

15.8%

Services

40,220

1,800

46,222

10.3%

External

13,533

38,880

57,655

12.8%

SUBTOTAL

301,336

131,316

18,035

450,688

100.0%

Builders Markup @ 10%

30,134

13,132

1,804

45,069

 

TOTAL (excl. GST)

331,470

144,448

19,839

495,757

 

GST @ 15%

49,720

21,667

2,976

74,364

 

TOTAL (incl. GST)

381,190

166,115

22,815

$570,120

 

% of TOTAL

66.9%

29.1%

4.0%

100.0%



Deeper Analysis

The additional information revealed through this approach will improve your decision-making if you’re prepared to “dig into the details” and ask your builders a few probing questions.  Here are some suggestions to help with your digging:

  • Are there any gaps in the quotes?  E.g. why does the schedule above contain no Direct Labour for External Finishes? Do other bidders have the same gap?  

  • What is the % split between the direct labour, supplier, and overhead costs, and are there any dramatic differences in these splits between quotes? 

  • Are there any glaring differences between the % splits in the CBI subdivisions across builders?

  • Can your builders provide reasonable explanations for these gaps and differences? (e.g. some builders may outsource their labour and not employ any staff directly; other builders may provide more offsite project support that are included as overhead)

  • How will do any Overhead costs add value to the building project?

  • Do all the bidders have the same markup?  Is the same markup applied to all CBI subdivisions and cost types?  

 

Seeds of Content

The most valuable outcome from comparing your bids this way is in the quality of the conversations it will allow you to have with your preferred builder(s).  You may never know whether you got the best possible price - because no market is perfect - but if your follow this process, ask good questions and compare your builders well, then you should feel comfortable that you have made your choice very well indeed.  



 

If you'd like a copy of Ross' Quote Comparison Template please contact him by clicking this link.



Faulkner Construction is one of the most decorated Registered Master Builders.

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