The Owner's Architect

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.