Revealed ... 3 mistakes most homeowners make that cost money and time (and how to avoid them).
Home Makeovers are often unpredictable ... predictably unpredictable in fact. They often come unstuck, get derailed, turn into a train smash.
That’s what happened to one of my Clients.
The trouble started in the early stages of their home makeover. The planned works involved some alterations and an addition to their family home. Like many homeowners, they needed more living space as their children were growing up but they really didn't want to move home.
They approached an architect who produced a simple set of design plans. The design wasn't contentious and so getting Planning Consent was straightforward. So far so good.
Then they invited bids or tenders - quotes - from a selection of general or main contractors. They were going to select and appoint the most suitable contractor who would carry out the construction works for them.
And then something happened. It was unexpected, it was confusing and it stopped them in their tracks.
In a previous Blog Post, I explained that bidding or tendering is one of the best ways to get competitive costs from Contractors on Home Makeover projects. I also shared some insider secrets about how bidding and tendering is only one part of the best strategy to achieve the best possible cost for any project. As you'd expect, there are some rules to follow to make sure any bid or tender process ends successfully and today I'll share three.
Just to make sure you are clear on what I'm talking about - bidding or tendering is a process where you invite a number of contractors to provide quotations to carry out a piece of work - in this case, your home makeover.
When this process is executed effectively, you should be able to select the lowest cost and appoint that contractor with confidence that you are paying no more than the best, market-tested price for your project scope of work. But ... I have to warn you that this very, very often doesn't work out the way homeowners hope.
I’m going to share what went wrong for my Client and more importantly, explain how they could have avoided the problem.
They had sent the drawings to four contractors. They'd invited them all to visit their property and during those visits they had explained what was involved - we call that giving a briefing. They had set a return date when the contractors would send in their bids. And then they waited with high expectations for the big day to arrive.
On the deadline day, three bids arrived. The fourth was missing. And it never arrived. Unfortunately, this is quite common when contractors withdraw from the process. And then you lose one of your possible contenders. That's why we always recommend inviting at least three contractors to bid. Four is better because even if you lose one, you still have three options in the game. And that's usually enough to keep things competitive.
So, anyway, they opened the three bids that had arrived and that's when the alarm bells started ringing. Putting the bid returns in context, the Clients had estimated that the likely cost for the project should be around $ 75,000 to $ 80,000. And they knew they could afford $ 75,000 to $ 80,000. Bid 1 was about 15 pages and very detailed but Bid 2 was just 1 page on email - literally a one-liner- and Bid 3 was about 7 or 8 pages.
Bid 1 came in at $ 145,000 - wait, what ? That's nearly double the budget. Early panic started to set in. Had they completely underestimated the cost of the project ? Did this mean their hopes and dreams would be shattered ? Would they have to start again ? But then, Bid 2 was for just $ 40,000 And then Bid 3 was around $ 82,000, quite close to the budget.
Well, you might be wondering what's wrong with those numbers. How was that a problem ? Maybe you're thinking : "Bid 1 was clearly just plain wrong, way too high. Probably just an expensive contractor or they didn't want the work anyway. We can just ignore that one. But Bid 2 was the perfect outcome because it was the cheapest, obviously, and way under budget. Brilliant news. And bid 3 was somewhere in between, but no matter, we can ignore that one too because it's way higher than clear winner, Bid 2."
Well, not so fast. You need to look a little more closely. If a bid seems too good to be true, then it probably isn't accurate.
A reliable outcome is when the bids or tenders are all quite close together - the sweet spot would be plus or minus 5 to 10% from your budget. That would tell you that (1) - your budget was about right, (2) - you have three competitive bids and (3), you can probably safely focus on the lowest to verify it is a complete and accurate bid.
But, when you get a wide spread of totals from any tender or bid exercise, then something is wrong. It's just not possible that three contractors, all accurately pricing the same basic information for the same project scope could be so far apart.
Yes, it is true some contractors are more expensive than others - so there will always be a higher price. And often, the way contractors tell you they're too busy or don't want your job is to submit a price that's way too high. That way, if they win anyway, it will be really profitable for them.
You also hope there will be a contractor who, on the day is a bit hungrier, is looking for more work, is keen to work with you and your design team - or for whatever reason, wants to win the bid - and therefore submits a highly competitive cost. And any others will probably be somewhere in between the low and the high bids.
So - three bids and two don't make much sense. Now what should we do ? How do we solve the problem ? Well, we did what you always need to do whenever you receive bids back from contractors, we analysed them - we carried out a comparative analysis, which means we compared them to check several key factors which included : (1) checking the math - to verify everyone had added all the cost components up accurately. You might be surprised how often errors of basic adding up can happen. A math check is always the first step. (2)
Next, we checked that all three had included exactly the same scope - had anyone missed anything. Again, you might be surprised to know that contractors often miss scope items - they forget to add in whole chunks of the project works. Or leave out the total for a page or two by mistake. In a future Blog Post I'll be explaining some more about bid analysis because it’s an important skill to master.
But the key takeaway here is that the last thing you want to do is to rush to appoint the lowest contractor and then, once they've already started work on site, discover that their bid has errors and missing items. After a careful bid analysis, we often discover that the lowest contractor isn't actually the lowest and it's the contractor who was initially second in the running who ends up winning the job.
Now you know what went wrong - three confusing and obviously unreliable bids - and I'm going to explain why.
The first mistake was in the bid details. In construction projects, you do need to sweat the details - at least the important details. It is fundamental to a successful bid process that all bidders are bidding against exactly the same scope of work and specification - the same, identical, parts.
So, mistake number one was that there was too little information in the bid documentation to be sure they would get bids based on exactly the same specification.
The second mistake was in the format of the bid documents. All my Clients had done was to send copies of their plans to the bidding contractors and provided a verbal briefing. That left the contractors to decide how they wanted to format their bids. As I've mentioned, Bid 1 was about 15 pages – quite a lot of detail, but Bid 2 was just 1 page - a one-liner on email and Bid 3 was about 7 pages. Because they had all included different levels of detail, comparing the costs submitted was almost impossible. No surprise here ... to be able to carry out a detailed comparative analysis you need, well, details.
At the very least, the works should broken down into work elements - like plumbing, electrical, lighting, kitchen millwork or joinery and so on. This way, you can at least compare the prices submitted at an elemental level. But, when you detect a big difference between elemental costs, you still won't be able to work out why and where the differences are coming from. The best strategy is to go further and include as much detail as possible within work elements - your professional team, the architect or interior designer, should be able to do this for you. We call this a Tender Sum Analysis or a Bid Analysis. I'll be going deep on how to produce a reliable Tender Sum Analysis or Bid Analysis in a future Blog Post. Again, because it can make a huge difference both when selecting and appointing your contractor and during the on-site phase.
And the third mistake my Clients had made was in the choice and briefing of the contractors. They might have got away with the lack of detailed information and the format of the bid documentation but because they didn't realise this can happen, they didn't make it explicit to the contractors what was expected from them. And that goes back to their initial briefing of those bidding contractors.
It could have been as simple as saying something like "Hey, when you submit your bid, please make sure you break it down into work elements with as much detail as possible." And it can help to explain it will be much easier for you to make your decision and choose them if they do so. In fact, you should also say that any bids not submitted fully itemised will not be considered.
At that point, a lazy contractor or an unskilled contractor, who doesn't like providing any details, might just walk away. And that's Okay too. If they can't be bothered to provide adequate documentation at bid time, imagine how lazy they are likely to be when the works get going.
There's a real science to contractor selection, briefing them and then inviting bids or tenders. And in future Blog Posts.
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