Understanding The Bidding Process & Construction Costs

The design and construction process is complicated and can feel overwhelming, particularly if you’ve never experienced it before. We understand this better than most. Throughout the life of your project, you will be faced with hundreds, if not thousands of decisions to make that will drive the bottom line costs.

Determining construction costs for any given project is a process, and in fact, an entire profession all on its own. Construction Estimators go to school to learn all of the components of construction and the material and labor implications of those components. When you ask a contractor for a quote, it’s no small task. Developing an estimate of construction takes weeks, sometimes months, in order to collect the necessary information from the individuals who will be performing the work.

At MAC Design, it is our intention to keep our clients informed every step of the way so they can understand the cost implications of the design.

What are the key factors that drive bottom line construction costs?

  • Market refers to an area or region of the country and/or state that you live in and is the driver behind critical cost-impact conditions such as: material availability & prices, contractor/labor availability & rates, and even things like interest rates for loans or other financing.

  • To a certain degree, the design and scope of the project is what it is. With that comes a baseline level of work that is required to complete the job. As Architects, it is our responsibility to help steer this ship in the right direction to ensure that the baseline requirements are within budgetary expectations.

  • This refers to the specific cost of finish materials, products such as plumbing fixtures or lighting fixtures, and other specific equipment required or requested as part of the scope of work. The cost of the items can have a major impact on total costs.

    As an example, a full-gut standard bathroom renovation can cost you between $10,000 - $20,000 or $80,000 +, depending on the specific materials or products you select.

  • Hard costs refer to the tangible, quantifiable components of a project like: material and labor costs associated with the scope of work

    Soft costs refer to things like: costs of land, permitting fees, design fees, contractor overhead and profit, and contingency fees.

    Contractor overhead, profit, and contingencies will vary. It’s important to understand what specifically is included in these costs before you get started with the work.

Bidding & Negotiations

Every contractor has a different way of approaching a project: different methods of communication, different in-house vs. subcontract work capabilities, different solutions for overcoming challenges. Many times when you are receiving quotes through a “competitive bid” process, you are not comparing apples-to-apples. This is why making a selection purely based on their bottom line estimate is not always the best solution.

While there is nothing inherently wrong with approaching a project in this way, we recommend a different approach. At the very least, asking the right questions and having a detailed understanding of what the contractor has included, and what is not included is critical before starting the work.

Our recommendation:

  • Contact as many contractors as you’d like and go through an interview-style process with them.

  • Have 1-2 detailed conversations with them, preferably meet with them on-site at least once.

  • Decide who you would like to work with as early as possible and get a contract with them signed - ideally bring them on board for Pre-Construction services.

  • Hire a contractor based on your feeling of how comfortable you would be working with them and their ability to perform the work - not based on their price.

  • Lean on the contractor’s expertise to provide input on the design, offer value-engineering propositions (changes to help save cost), and provide preliminary (but detailed) cost estimates to gauge where the project is at as early as possible to avoid sticker shock once we’ve designed your dream project.

This process allows your design and construction team to truly work hand-in-hand to tailor the project to your needs and align with your budget in order to deliver the best outcome that doesn’t leave you feeling depleted once the project is complete.

Particularly on larger scale projects, like multi-family or commercial types, owners and contractors often skip the competitive bid process in order to deliver more wholistic and integrated project services. This approach is more commonly being seen at the smaller project level, like in single-family homes.

At MAC Design, we believe this approach to be the best way to ensure that no time is wasted by overlapping design and construction management services in order to avoid the potential disappointment of reaching a design solution that you fall in love with, only to find out that it is over your desired budget.

Impacting the Trades

MAC Design is deeply rooted in the trades. We come from families of tradesmen and women and have deep love and respect for the people who are ultimately responsible for turning your dream project into a reality.

When talking about the competitive bidding process, it’s important that we don’t overlook the downstream impact that cost competitiveness can have on the men and women with their boots on the ground actually doing the work. We have seen the impact that competitive bidding can have on a contractor and their team of sub-contractors (the trades). When contractors are put in a situation where they feel like they need to be the lowest bid in order to win a project, it often comes with a cost that has the most detrimental impact to the folks at the bottom of the chain.

  • Instead of asking the question: “How can we alter the design in order to meet the client’s budget?”

  • We’re asking: “How can the contractor reduce their costs to deliver our design as-is?”

Often times, the latter question leads to contractors and sub-contractors alike feeling squeezed, reducing their profit margins, increasing their risk, and ultimately asking the trades to adjust their numbers and take the hit in order to win the work. This can also have a misleading impacting on the initial construction estimate, as items may get overlooked or left out, leading to more costly change orders down the line.

Where do we start if we want to get an understanding of how much our project is going to cost?

While it is certainly not the most accurate way to determine what your bottom line costs are going to be, the only real way to get a basic understanding of construction costs is to perform a cost-per-square-foot analysis.

Running these numbers should never be considered the end-all-be-all, but will help give you a conceptual understanding of the overall cost impact of the scope of work.

Low

$300 - $450

Mid

$250 - $350

Multi-Family

Commercial

$250 - $400

High

Single-Family

$350 - $550

$400 - $650

$600 - $900+

$200 - $300

$450 - $600+

$700 - $1,000+

Things to consider:

  1. It’s important to note that these figures typically do not include soft costs (see top of page for hard costs vs. soft costs). Soft costs typically add 15 - 20% to the project.

  2. When performing a conceptual cost-per-square foot analysis, we always recommend using at the very least the low end of the Mid-Tier costs.

  3. If you are dealing with a project that involves an addition to an existing structure, you should carefully include any areas of the existing structure that are to be renovated or impacted by the proposed scope of work. If the proposed work is anticipated to not impact the existing structure, you should still add a minimum of 10% - 15% on top of the number calculated for the proposed work.

  4. For renovations or additions to older structures (80-100 yrs +), you should include an additional 15% - 20% contingency for unforeseen conditions.

  5. For new construction projects, you should include at least an additional 5% - 10 % contingency.

Typical Construction Cost Breakdown By Trade

Component / Trade

Site Work & Foundation

Framing & Structure

Exterior Finishes (Shell)

15 - 20%

Mechanicals (MEP)

10 - 15%

Interior Finishes

20 - 25%

General Conditions

% of Hard Costs

10 - 15%

15 - 20%

10 - 15%