I am a project manager that has worked for Architecture and Engineering (typically little A big E) firms for many years. I scope, estimate, negotiate, schedule and deliver projects with multi-disciplinary teams. While the projects are different than a residential home project, there are some crossover lessons on how to develop your project and work with (manage) your contractor. My goal is to help provide you with some tools in your toolbox for making the project process smoother.
Developing Your Ballpark Price
This step can be done prior to researching your project and refined as you go. The goal is to develop a price from which to understand what your contractor(s) are offering. It’s a way to help make sure you don’t get overcharged or into a situation with a contractor that has seriously underbid the project and has trouble following through.
Developing Your Back-Pocket Maximum Price
Let’s start with the maximum price that you’re willing to pay as it is most likely an element of your project that could increase once you get going. There are a lot of project decisions that influence price. The first price you should consider is the “top” or maximum price – how much you’re willing to spend – and how firm you are on that price. Setting that top price can help you position yourself during negotiation and potentially help you with decisions once underway that add cost. You may potentially revise this price after the next set of steps.
Developing Your Target Price – Setting Your Price Contingency
The Target Price is used to help you not break the bank and control total project costs. The Target Price is the amount you’re going to budget towards with your project that offers room (contingency) to allow for price increase. The complexity of your project will help set this contingency. For example, a simple project like painting a room or planting a few hedges may have little risk of finding unknown elements that will add costs. For remodel projects, typically, a 10-30 percent contingency is adequate.
TIP: If your concerned about short-changing your project (not getting the full value you wanted to spend), you can move project elements that you could spend more on later in the schedule, if possible. Also, you could move tasks that you could complete yourself to potential add-ons that your contractor prices (more on that later).
Your Starting Price
This is your back pocket cost – the cost you’ll use to navigate the estimate provided by contractor(s). Even if you have a fantastic contractor, it’s still prudent to get another opinion. There are a number of methods to get to that price. Estimates (bids) are comprised of material costs, labor, and other potential cost items like taxes and fees for permits. Let’s focus on materials and labor.
Unit Price Cost (cost of materials). This is the price I use most often. I develop a materials sheet and price it out. This is a list of all the materials that are going to go into your project, such as wood, appliances, fixtures, plumbing, electrical. I develop cost allotments for each category. Some are much easier than others and more on that later.
Labor Cost. This is the number of person hours your project will take. If you’ve never done this type of project before, you’ll need to research. A few quick searches and you’ll get some ballparks. For example, after taking bathrooms to the studs and redoing it’s about 40 hours. This doesn’t include the time to pickup products, etc.
TIP: Some contractors use lower “allotments” or “budgets” for fixtures or appliances. This can be an area that drives down their initial price. It’s also where you can experience scope creep. Make sure those budgets account for what you’re looking for especially appliances and fixtures.
Comparisons Costs (comps). A simple method is to research what a typical cost for your project would be. This is potentially a wildly inadequate method as there are so many variables to everyone’s project. They may help you set a range of understanding of price.
What You Can Afford. Regardless of price, make sure you’re comfortable with the investment you’re about to make. Revise your back pocket maximum price if needed.
