Construction Cost 2021 B

California Market - Construction Estimates

Blog Series
CONSTRUCTION COSTS
​Article 02

UNDER-PRICED
​PAY FOR IT TWICE

UNDER-PRICED / PAY FOR IT TWICE
What happens when a project is under priced?

It might seem like you’re getting an awesome deal, but if a construction quote seems too low compared to others you should ask why. The contractor may never have told a lie is his life. What happens, however,  when your contractor, striving to be both honest and competitive amidst rising prices, unknowingly quotes your project too low? Do you think you’re getting away with a deal?
 
You might think you are getting a great deal, but a construction price that is too low should raise your concerns. Here’s my experience;
 
During the 2008-2009 market collapse I was asked to come to evaluate a two story addition where the contractor had walked off the job. The roof was still open to the sky and I thought what a dirty contractor he must have been. When I saw the scale of the project and after asking a few key questions I began to realize what had happened.
 
ORIGINAL QUOTE?
One of the questions I asked was, “How much was the original contract?”. The homeowner said the whole job was contracted for $75,000. This was an immediate red flag. I knew by experience that ball parking the project should have been around $150,000. They said the contractor kept asking for payments earlier than expected until they had paid everything and the project was only half done. It did not take long to figure out what happened here. I told the homeowner that the contract amount should have been more like $150,000. This is why the project was only half done. The contractor went out of business on this job because he had failed to properly quote the project.
 
COST TO COMPLETE (Double the Original Contract Plus)
Walking in on a failed project is not so simple. Completing the remainder of this project would undoubtedly cost more than $75,000. The original price tag should have been around $150,000. To add to the problem as a contractor starts running out of money they start taking short cuts. Yes, shortcuts had been taken that needed to be fixed in order to pass inspection. Damaged insulation that was sitting in the open attic had to be thrown away. The new contractor is also in a bad spot. They like pleasing their clients and don’t like walking into a nightmare situation. No matter how hard they try they can’t make up for the unexpected additional funds the homeowner needs to raise to complete the job. There is just no easy solution for a failed project. Everyone loses.
 
BEST PRACTICE TO AVOID NIGHTMARES LIKE THIS

• Get multiple quotes. And then Get more quotes!
• Question everything. Especially when the quote seems a little too low.
• Throw away quotes that seem too good to be true.
• Don’t make your decision solely based on contract price.
• Understand that some contractors will give a “too low price” unknowingly.
• Remember that other contractors might give low prices intentionally. Then they raise the price through change orders because “this and that” were not included.
• Be ready to scale back your project if no one can meet your budget.

Upcoming Blog Series Articles:

• Solutions: Scaling Back To Essential Space
• Force Majeure Clauses
• Contingency Amounts
• Hitting The Moving Target (How to estimate with erratic price changes and inflation)