How To Evaluate a New Home Construction Bid

Summary:

Choosing a general contractor can be difficult because bid methods and bid outputs are often dissimilar. In addition, many of the aspects that make a contractor desirable to work with are not measurable nor included in the bid. We recommend a process for evaluating and comparing different contractors for your home build and defending against hidden costs. The process involves:

  1. Break down the bids into comparable scope sections
  2. Compare Pricing
  3. Examine outlying scope section bids for red flags
  4. Look for errors/omissions
  5. Evaluate overall bid quality & accuracy to the construction documents and specifications
  6. Evaluate their credentials
  7. Evaluate their references
  8. Determine your ability to have a productive working relationship

The Problem:

For an owner, choosing the right contractor to build your new home is among the most important decisions you have to make. But before engaging anyone, you need to do your due diligence to ensure that your contractor will deliver what you want with the least hassle possible. For that, you’ll need to collect several bids from various general contractors and evaluate them in an unbiased manner.

Even if you give all the bidding contractors the exact job specification for your project, including the house plans, list of materials, and product names, their bids won’t all be the same because they'll use different estimating methods and outputs. Sometimes, the differences between bids can vary significantly, especially in the price quote, completion timelines, and scope of work.

That’s why you need a method for comparing dissimilar bids. Your task will be comparing contractor bids and choosing the most suitable one for your needs. But how do you do that to ensure that you cover all the loopholes and identify the most suitable contractor to build your home?

When evaluating bids, here’s what to look for to choose the best contractor for your project:

1.) Break down the bids into comparable scope sections:
Keep in mind that evaluating contractor bids after shortlisting a few candidates is more like comparing an apple to another.
Th scope section of the bid outlines what the contractor agrees to perform, and each contractor’s mode of delivery is different. Ensure the contractor’s bid thoroughly outlines and addresses the scope of work. Generally, the work here should include obtaining the necessary building permits, material, equipment, labor, and everything else that’s necessary to complete a building project.
Many contractors sneakily aim to underbid the base contract and then overcharge for change orders once your contract is underway. For this reason, evaluating the scope is essential to ensure the terms are clear and well defined. First, you need to look at what the contractor promises to deliver. Ask yourself the following questions as you evaluate each contractor’s scope of work:
  • Is the bid well detailed and shows the contractor understands what you need?

  • Does the scope of work match the construction drawings or are their omissions?

  • How are material/equipment specifications handled? Are the costs quoted accurately or are they listed as allowances?

Don't assume anything. When you're not sure of something, ask. You don't want any unpleasant surprises when your home construction starts. So, it's crucial to ensure that the bid elaborates the extent of items or works included or not included.
 
2.) Comparing Pricing:
One of the first, and easiest things to evaluate in a construction bid is the contractor’s pricing and whether it’ll fall within your home construction budget.
The contractor’s pricing needs to be detailed and descriptive. When quoting prices, some contractors offer more comprehensive information, quoting, and describing all the materials you need. Others only quote for the major items, while others only quote their labor and a material cost allowance.
It's crucial to ensure that a contractor's pricing covers your entire project to avoid the need to add more resources, which might be inconvenient after you’ve already accepted the bid. Here are some questions you could use to help you evaluate pricing:
  • Is the price reflective of the entire build?

  • What does the pricing say about change orders and are they part of the pricing or charged separately?

3.) Examine outlying scope section bids for red flags
Setup a spreadsheet with the different contracts' bids to evaluate each section of the scope of work side-by-side. Look for excessive cost outliers. For instance, maybe one contractor is charging 50% more for the sitework.
  • A low bid might either be a red flag about the quality or an error / omission in scope.

  • A high bid might indicate the contractors' inexperience or unwillingness to do that part of the scope.

4.) Look for errors/omissions
Always look at the finer details. Sometimes, even well-drafted bids may contain conflicting information or terms. These details may seem minor, such as differences in what has been provided in the house plans and the specifications in the bid. The difference can lead to confusion or dispute down the line, which you don't want to deal with. Most of home plans come with bid quantity lists so you can compare the contractor's accuracy on quantities.
Seeking clarification for areas that seem conflicting or have confusing bid terms. When you accept these terms, they translate to a binding contract and might be troublesome to rectify later. Another thing to look for when evaluating the bid is what the contractor hasn't included. If the contractor hasn't specified something, it's likely that they haven't included it in their scope of work.
 
5.) Evaluate overall bid quality & accuracy to the construction documents and specifications
The care and attention to detail put into a bid may be a signal of the care and attention to detail the contractor will have with your home build. This is where the bid's evaluation on general quality and presentation comes into play. Take a closer look at the bids and how well each contractor has presented them.
  • Are there obvious or seemingly careless errors and omissions?
  • How have they interpreted your specific requirements?
  • Has the contractor put together the bid in a professional manner?
  • Does the bid show that the contractor took time to put together a custom bid or did they copy items from other projects?
Here are three main things you need to evaluate here:
  • Relevance: Check how the bid fairs against your requirements, specifications, and house plans. The contractor should have done an excellent job capturing your project and presenting it clearly and concisely.

  • Accuracy: This is a crucial consideration as it can be a source for many conflicts. Ensure that every ‘t’ is crossed and that every comma and decimal point in figures is in the right place. Also, look at the material selection the contractor has picked to ensure they match what you wanted. Note that the most comprehensively written bid is the closest depiction of what to expect when building commences.

  • Authority: How does it feel when going through the bid? A reasonable bid should exude authority in the contractor’s capacity and capability to deliver. This includes experience and expertise in the building and construction field, as well as their experience in dealing with similar projects to yours.

6.) Evaluate Credentials & Certifications:
Because much of what makes a contractor great is not going to be written in the bid, you can glean a great deal of information about their quality through their credentials, skills, certifications, and references. Go through the supplied documentation and confirm the following:
  • Is the bidder a holder of all the required state/local certifications, licenses and bonds?

  • If your project requires special certifications, such as LEED, does the contractor have them?

  • Is the contractor a member of any professional body, trade organization, or union?

Reviewing a contractor bid and getting answers to the questions above will give you an idea of a contractor’s qualification and suitability to work on your project. You’ll also get a feel of the kind of work they do. If there’s any missing information or you need clarifications.
 
7.) Evaluate References
Ask for references and contact at least one previous client. A trustworthy general contractor should have no problem sharing this with you, but remember this will be a cherry-picked data point.
Ask the client reference one simple question: "Did the contractor meet your expectations?" This is often a great springboard for starting an informative conversation.
Try cold calling a few local subcontractors (mechanical, electrical, plumbing, roofing, siding, painting etc). and asking if they have done work with any of the general contractors you are considering. They'll be able to tell you a lot about the general contractor's ability to work productively, fairly and stick to their deal terms.
 
8.) Can you work together?
You should hold an in-person evaluation with each of the contractors on your shortlist. Because no home construction contract will ever be able to capture all eventualities, it's important that you have a contractor whom you can productively work with to resolve conflicts. Check out our comprehensive list of questions to ask your builder, as well as our guide on maintaining a productive owner/builder relationship.

Putting it all Together:

Evaluating general contractor bids for your building project is a complex process that requires careful attention to detail. You also need to conduct an in-depth examination of what each contractor includes in their final bid price. Consider the facts and information each contractor has to offer and ensure you’ve cleared up any lingering doubts before making a final decision

The last thing you want is to have your project retouched after completion, delayed because the contractor couldn't complete the work, or couldn't keep up with the set timeline. So, make sure you have all the facts and can easily compare the advantages and disadvantages of one contractor over another. Selecting the right bid that’ll keep your project running safely and smoothly may require some extra effort upfront, but this will save you time and stress in the long run.

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