Project Costs
Some might say that contractors are a dime a dozen and that they are generally all the same. Not true! Contractors that are near insolvency are not a good risk. Contractors that can’t get subcontractors and suppliers to work with them are not a good risk. And contractors that have been beat down on their fee are not a good risk.
Contractors are required to carry a boat load of insurance. How difficult is it for a builder to get a standard insurance policy? Who pays the premiums? Suppose you have beat your contractor down so much that he is looking to pinch every penny. Suppose he is not quite honest. And suppose he buys an insurance policy on a three month basis just to get the job, after which he stops paying the premiums. Yes it is true that the issuer is required to notify the certificate holder that the policy is cancelled. But just suppose that before that all transpires, the contractor’s carpenter has an accident and now wants compensation. Qualified contractors are worth their pay.

Project Costs
What do you suppose happens if your contractor digs your foundation and then disappears for several weeks, only for you to find out that he is in jail ? It isn’t pretty. Qualified contractors are worth their pay.

Project Costs
The bids on the project were all within 2% of each other. That meant that my drawings were thorough. But the client still wanted a lower price. Rather than change the scope of the project (the correct action at this point) they decided on a less than ideal tactic. They pulled the low bidder in and offered the project to him but said that it had to be substantially lower. Amazingly, the bidder came back with a price that was substantially less than his original bid. Remember, overhead and profit is usually around 16%. In my opinion, it wasn’t possible to complete this scope for that price. The client jumped on it. After the first pay application, I could tell that the books were cooked. He wasn’t going to have enough money in the project to pay for all of the trades. Repeated warnings went unheeded. Time always tells in these cases. Qualified contractors are worth their pay.

Project Costs
Years ago, I bought some windows for my home. I selected a good product, but behold, they were installed improperly. Before long I was paying to heat my neighbor’s air space. The problem was the installer and the cost to me was operational.
A cheap contractor is usually not worth the savings. His opportunity for error will cost you many fold in operations.
How does this happen? Well, the selector often believes that beating down contractors will result in great savings. But let’s look at where a contractor’s costs go. All of the bidders are buying the same raw material. Yes, one contractor may get a slight discount from a supplier. But you can’t control that and neither can any particular contractor. After all, if he is a half way bright contractor, it is to his advantage to have already found the cheapest prices for material. The same goes for his subcontractors. What’s left? Overhead and profit. That’s usually about 8% for each (actually quite a bit less profit these days). Overhead is hard to shave significantly so when we beat down a contractor we are really comparing his profit to another contractor’s profit. Eight percent may seem like a lot of profit but consider the duration of his involvement and the number of employees committed to a project. A $750,000 project that requires ten staff members (office and field laborers) for one year will probably only yield a profit of $50,000. If a bidder has offered to do the project for $50,000 less than everyone else, something’s up. You know he won’t do it for nothing, so he has either made an error or has a plan to cheat someone. Qualified contractors are worth their pay.

Do the Math. If my building layout is inefficient and it cost me say, just 2% of my labor costs, over time my mistake will easily exceed the cost of my architect, my contractor’s fee and maybe a large chunk of my building. Suppose my building cost $10M, my direct labor costs are $5M annually and I plan to be in the building for 20 years. If my floor plan makes me 2% inefficient, then over 20 years I have wasted $2M. Now consider the cost of the guy who designed the building. Maybe I chose a less qualified firm to save 1 percentage point of the cost of the project, or $100,000. Oh lets be generous and say I found a fella that would undercut everyone else by 2 percent and I saved $200,000. What I saved in fees I wasted in labor costs…ten times in fact! I would have been better off to pay the extra 2 percent and hire the firm that knew what it was doing.

Project Costs

I once worked in an office that placed the copy machine as far away from the employees as possible. The result was a worn path in the carpet and a lot of wasted money in professional time. A simple choice during the planning of a facility can result in thousands of man-hours wasted…or saved. A municipality chose a less expensive site for their DPW facility. The problem was that the downtown was clear on the other side of the community. Over the life of the building, the wasted time in transporting staff will far exceed the savings on the property. Design choices are like compounded interest. If such choices are made wisely, they can be your best friend. Conversely, a cheap choice can cost you enormous expenses over time.

Project Costs

On an $80 million project, the board questioned the cost of a tree survey that was quoted for $1,000 or whether they should pay any kind of mark-up on print paper. Organizational leaders quibble about the cost of silt fence, thinking that they will impact the budget by such scrutiny. This is misplaced energy! When we think of facility costs we should be thinking performance. We should think of life cycle costs. You will spend much more on employee labor, maintenance and operations than you will on any one component of the building construction budget. “What does employee labor have to do with a building project?” you ask. Everything!