Budget Confirmation: Nailing Down the Price Early in the Process
Congratulations. You are one of the lucky people who can pay cash. Or you have such a large amount of equity in your property, that banks will actually think about giving you a construction loan.
Your project is viable…. now what?
Homeowners don’t want to end up with their final design being $100,000 over budget. They also don’t want a project that will not appraise in the end. We have experienced mistakes like this in our firm’s youth, and have since developed a process to avoid that kind of painful outcome.
Our 7th principle: Budget confirmation at the half way point of the design process, allows our clients to:
- Make final decisions on the scope of work for construction without having to pay the Architect’s final design work fee.
- Have the contractor included in the project team early on. This also provides a check and balance of design and cost as design details are refined throughout the process and into construction documents.
- Go to the bank with drawings alongside contractor pricing that can be used for appraising a homes value, verifying the amount of a construction loan if needed.
Other considerations for the 50% pricing set:
1. Determine if you are bid or negotiate type of person.
Bidding the drawings out means getting a certain number of contractors involved to price the drawings. This will take more coordination time to fairly work with multiple bidders, and gives the owner the benefit of competition. This does not require negotiating, which involves selecting one contractor from the start, and negotiating with him a fee to build the design. From our experience people are either set on bidding, or they would rather deal with one contractor and negotiate the price. Crossing over typically does not work out well and will go against your personal nature.
2. Think about the project size and complexity when considering bidding or negotiating.
Bidding a smaller project will skew the Architect’s fee percentage compared to the cost of construction due to the time involved in managing the bidding process. Unless the client can self manage the bidding between multiple contractors, projects under $200K are typically negotiated with a single contractor. If your project is more complex, it makes sense to spend more time making sure multiple bidders are providing the same scope of work, leading to potential savings.
3. Identify what is your experience level buying construction.
If this is your first experience with construction we recommend the bidding process to keep costs competitive, and to have an owner’s rep involved. If you have built a project before or your vocation is related to construction, negotiation may a potential fee saving option.
4. Have the contractor provide alternate pricing as they initially take off the work.
If you are considering phasing, or if you think some of the project features will be a stretch to the budget, consider providing instructions in the pricing documents for the contractor to provide “add alternates” on certain items. This can break up their cost as they perform “take offs” and gives you options on how or what to build. It is exponentially more painful for a contractor to break up pricing after the initial takeoff is complete and if you decide to take something out. When you make your final decision on the scope of the project we want the information presented like an “al carte menu” in logical chunks of work so you have control over your investment and what you build.
5. Identify components of the building shell that are not shown on the exterior elevations
Use pricing notes to identify and describe important building components not shown in the early stages of design drawings including the structure, insulation, window types, rain screens, etc.
6. Consider the building system features that a contractor can price with their vendors and subcontractors
Use pricing notes to specify system requirements like the efficiency of the HVAC system, electrical panel sizes, and any other atypical sustainable construction characteristics.
7. Provide allowances for finish items, lighting, cabinets and equipment.
Use allowances in a schedule to identify interior finishes and equipment desired including: professional appliances, plumbing fixtures, wall finishes, cabinet types and finishes. This gets a number in the price based on the quality an owner wants without the need for interior detailed drawings early on. You want to make sure the project is in budget before spending money to detail the design. Once it’s clear the project is in budget, the detailing can begin.
The hardest part of the pricing set is conveying to our clients that hard construction pricing is possible halfway through our design process. At this point in the project there is a conversion of the construction budget from the unknown to the known.
Bryan Jones, Principal Jones Pierce Inc. An Atlanta based Architectural firm specializing in custom home transformations and custom retirement homes in fun places. www.jonespierce.com
Contact Jones Pierce: [email protected]