You can think of a bid as a precursor to an agreement between you and your contractor — it lays out all of the items, labor, and prices that your contractor is committing to deliver. So getting bids — and reviewing them well — is a crucial part of hiring a contractor. Unfortunately, the process is messy and challenging and often yields different results where each bid is organized differently, accounts for different elements of the project, and end in drastically different prices. Here are some answers to common questions and helpful things to consider when getting a bid.
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Fixed Bid Vs Cost Plus
There are broadly two types of contracts: fixed and cost plus. Fixed price contracts are where the contractor outlines what the project will cost and commits to building the project (as outlined) for that price. Cost plus contracts are where the price of the project is the cost accrued by the contractor during the process plus an agreed-upon markup for the contractor’s services. During a cost plus contract, the contractor will track all the costs in a detailed manner and have an “open book” where they share their costs.
There are advantages and disadvantages to both, but neither is necessarily better nor worse.
In general, the best approach depends on the level of detail on the plans and finishes. If the plans are detailed enough and include interior elevations (kitchen cabinetry, bathroom elevations, and any other details) and the finish selections have been specified (plumbing fixtures, flooring, lighting fixtures, tile, etc.) then a contractor can give an accurate fixed bid. If you don’t have that level of detail in the plans or the finishes, then cost plus is a better approach since the contractor doesn’t have enough information to provide an accurate fixed bid. When a contractor does provide a fixed bid without detailed information, the project will invariably require change orders as the details are worked out and modifications are made to the original plans.
| Pros | Cons | |
|---|---|---|
| Fixed Bid | The contractor is incentivized to complete the project in a timely and cost-effective manner (in theory). The owner knows what they will pay from day one. (Fewer change orders and unexpected costs) | Less transparency in pricing, subcontractors, materials, etc. If there are many changes or additions, change orders can become a serious cost issue. Materials need to be carefully tracked throughout the project to ensure the contractor is not cutting corners to increase profit. Less access to contractor fees and mark-ups. They are often baked into each line item. |
| Cost Plus | The owner has visibility into pricing at the line-item level. The owner and contractor are able to track material specifications. The owner can stipulate a guaranteed max price. Allowances can enable a project to mobilize prior to final selection The owner can benefit from allowances if they don’t spend the total amount The owner can benefit from phases of the project that take less time | Potential higher administrative costs due to more labor and material invoicing. Little incentive to keep costs down or accelerate the timeline. Similar to above, contractors might pick the most expensive subs and not the best subs to maximize profit. |
Cost plus can work with builders who have experience in the industry or with similar projects and can provide accurate up to date pricing for materials, labor, and subs. In addition, the materials portion of cost-plus contracts are clear line-item costs, and the owner will be able to see the markup (if any). In a fixed fee, the change order clause should be clearly represented in the contract, and materials need to be tracked and reconciled throughout the project to ensure a contractor is building to the specifications in the agreement.
Hard Numbers vs Conceptual Pricing
Meeting with a contractor early in the process is great (we strongly recommend it) but when you meet with a contractor early you won’t be able to get a real bid for your project. If this is the case, start with conceptual pricing (or a ballpark estimate) to get a rough understanding of costs and update these numbers into a hard bid as you go. While there is no firm line that divides these bid types, we can offer some guidance on when to ask for one over the other, and what they should look like.
Conceptual Pricing
Conceptual pricing (also known as order of magnitude pricing) is designed to give a general picture of pricing and timeline. It should have some rough breakdowns but is based on estimates, square footage calculations, and initial designs. Conceptual estimates will also force the contractor to really engage with your project and get an understanding of its details. Note: contractors are often reluctant to give conceptual estimates because they don’t want to be held accountable for bad guesses based on limited information. It is important to recognize that these numbers will change and that the estimate can be off by a wide margin at this point, so don’t hold the contractor accountable to these numbers yet.
When you are ready for conceptual pricing
- Initial designs a complete (Schematic Designs)
- The contractor has visited the site and you have met them
Template: What to ask for and how to ask
(They won’t always give you everything but it doesn’t hurt to ask!)
Hey Steve,
Thanks for meeting with me the other day. As we discussed, it would be great to get some rough order of magnitude pricing together. I know these are rough numbers and I won’t hold you to them at all, it is just helpful for me to plan and prepare. What I am looking for is the following:
1. A short description of the scope of work as you see it
2. A rough break down and range of cost (ideally with some break down of where that cost is generated)
3. A little about your business. Please provide your license number and proof of insurance and bonds.
4. References. Please provide 2-3 references with contact information and a sentence about the project.
Timeline: 2 weeks
I’ve like to keep the process moving forward quickly but also want to give you adequate time to prepare something you can stand by. I think two weeks is fair but if you think you need more time please let me know now so I can plan accordingly.
Thank you so much for taking the time to put this together. I’m really excited by the prospect of working together and getting this project started.
Best,
Jack
Hard Numbers
Hard numbers should be broken down in a detailed manner (ideally MasterFormat or broken down by geography/rooms). The bid should have different line items for each component of the project and break down across labor and materials. It should also call out allowances. In addition to bid numbers, you should request certain information about their business.
When to ask for hard numbers
- Designs and plans are flushed out and complete (Construction Documents, CDs)
- Fixtures are picked or roughly specified
- MEP drawings are complete
- Structural drawings are complete
- The contractor has visited the site and you have met them
Template: What to ask for and how to ask
(They won’t always give you everything but it doesn’t hurt to ask!)
Hey Steve,
Thanks for meeting with me the other day. As we discussed, the next steps will be to put together a bid and more formal pricing. So there are no misunderstandings, I’d like to outline my request:
Please adhere to the following specifications:
1. Please break down your bid line item by line item
2. Call out allowances
3. Break down materials and labor
About your business:
1. Provide your license number
2. Proof of insurance and bonds
References: Provide 2-3 references with contact information and a sentence about the project.
Timeline: 2 weeks
I’ve like to keep the process moving forward quickly but also want to give you adequate time to prepare something you can stand by. I think two weeks is fair but if you think you need more time please let me know now so I can plan accordingly.
Thank you so much for taking the time to put this together. I’m really excited by the prospect of working together and getting this project started.
Best,
Jack
Bid Follow Up
To help the bidding process run smoothly, we recommend reaching out to the contractor halfway through the bidding process (generally a week before the bids are due) to ensure things are still on track. This not only serves as a light reminder of the upcoming deadline but gives them time to adjust and ask questions from you. Below is a template of an email you can send to check-in to see how things are going.
Template: Bid follow up
Hi Steve,
I hope things are going well. I am sure you are incredibly busy but I wanted to check in on how our bid is coming and make sure everything is still on track. Specifically, do you need anything from me? Please let me know if you are missing anything or if I can help in any way.
I look forward to reviewing the bid in a week.
Best,
Jack
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