By Lance McCarthy
Most people have been raised to believe that it is impolite to talk about money. Unfortunately, not talking enough about money with your contractor can lead to unmet expectations. When you are given a bid for a project, consider the following costs, and talk to your contractor about each one to make sure you understand what he/she has included in the bid.
A common assumption is that a higher bid just means the company has a higher profit in there for his beach house and Maserati collection. More often, it is a combination of the following categories. Every contractor has some combination of the following costs. The more you know about it, the better you can evaluate whether that contractor is a good fit for you.
Product/Fixtures 20-40%
This one is obvious, but it is all the pretty stuff in a project. Faucets, lights, tile, cabinets, etc. Make sure you understand clearly what products have been planned for your project. This is where many disagreements can occur if it isn’t planned ahead of time.
Materials 10-20%
This is the rest of the stuff that will be needed for the project. Stuff like nails, studs, painter’s tape, pencils, shop-vac filters, pipes, drywall, etc.
Installation Labor 30-40%
Labor is probably a combination of subcontractors and employees of the company, but the result is the same. You should discuss this category in detail with your contractor. This is one of the biggest areas of swing to consider. For example, two painters on the same project could have very different skill levels, speeds, and–consequently–costs. It is not uncommon for an “A” level painter to cost 2-3x what a “B” level painter costs! And that applies to many of the other trades as well. In general, the more skilled the worker, the more expensive they are.
Design 5-10%
This includes architectural design and plans, structural and mechanical engineering and interior design. All to make sure the space looks good and doesn’t fall down.
Project Management 3-5%
The phone calls, creating work orders and change orders, scheduling the project, checking quality, meetings with trades and clients, etc.
Overhead 10-20%
This will depend on how big the company is. Do they have an office? A warehouse? A showroom? A marketing budget? How big is their office staff? The more of these they have leads to a higher overhead cost, but it can also mean the contractor is able to serve a client’s needs more fully and be more responsive.
Insurance 6-16%
General liability 1-2% this is to protect against accidents that could damage property. Never use someone who can’t give you his insurance certificate.
Worker’s Compensation 3-10% this is to protect against worker injury costs, and varies greatly depending on a company’s safety record and the type of work they are doing. Again, this should be an absolute necessity.
Bonding/Other Insurance 2-4% this is not very common in residential work, but does occur from time to time.
City permit 1-2%
Basically any project that alters structure, or mechanical/electrical/plumbing system probably needs a permit.
Profit 5-10%
Companies that are planning on being around for longer than a couple of years need to be making a decent profit after all expenses are paid. A smart client wants their contractor to be profitable because it will insure that the company is around if a warranty issue arises.
I hope that is informative. Keep in mind, every company is different, and some quite frankly won’t know what percentage of the bid each of these are. But at least this should be a good start to a conversation.