Five Steps to Comparing Contractor Costs

Embarking on extensive home-building or remodeling projects comes with a set of significant challenges for homeowners. This series aims to guide you through navigating these common obstacles efficiently by employing a particular methodology and system to overcome one of the biggest challenges: obtaining and comparing costs between contractor candidates. 

Five Steps to Comparing Contractor Costs

In this post, I’ll assume that you’ve or plan to engage with a design professional to craft a design and prepare a complete set of plans for your project.

Achieving a set of plans ready for submission to your local city or county for permits marks a significant milestone in the process of building or remodeling a home. Yet, lurking in the background is an aspect that, if overlooked during the design phase and not accurately documented in the plans or specifications, could potentially derail your project experience.

Challenge: Obtaining and Comparing Contractor Costs

A pervasive challenge homeowners face is collecting project costs in a manner that allows for a fair comparison. You probably heard of the old’ adage “Apple to Apple” comparison.  This means that when you ask three contractors to provide a proposal to build your project, all three have included the same items within their estimates.  Despite its importance, achieving this comparison is challenging for various reasons, until you are equipped with a system that enables you to control the process effectively. The following are the primary obstacles encountered when trying to cost a project and select a contractor:

Here are the main challenges when attempting to cost a project and select a contractor.

  1. Incomplete Project Information Without Detailed Specifications: A lack of detailed specifications accompanying the plans often results in incomplete project information. Omissions in your project plans, such as specific material and equipment details, as well as a clear narrative directing the contractor on what should be included, leave room for potential issues. A common misstep is the assumption that the plans are comprehensive, which leads to the premature handoff to a contractor.
    1. Problem: Insufficient information results in assumptions and omissions by potential contractors. Homeowners frequently focus on the bottom line without fully understanding what is and isn’t included, a realization that often comes too late during the construction phase.
  1. Diverse Contractor Estimation Methods: Contractors employ a range of methods to estimate project costs, from the rudimentary “Napkin” method, lacking any real systematic approach, to more sophisticated estimates and proposals using industry-specific software.
    1. Problem:  Each contractor submits their proposal in different formats. Perhaps Fred, the contractor, hands you one piece of paper with one big number, and Ace, the builder, emails you a forty-page report that is difficult to understand.  This dichotomy rules out the possibility to compare one to another. 

Solution:

When evaluating contractors, turning the tables and using a system that captures the above challenges can place you in the driver’s seat.  A term in construction called Work Breakdown Structure or WBS categorizes each construction stage into divisions.  There are industry-wide WBS systems such as the well-known CSI’s or Construction Specifications Institute.  If you took a peek at the CSI categories, you would probably throw the device you are reading this post on out the window.  It is very complex and overkill for single-family residential remodeling projects.  Instead, I have diluted a WBS down for homeowners to manage many aspects of a project realistically.  In fact, I have used this Division system for three decades in my design and construction business.  

At first glance, it may look a bit much at first glance, but once you understand the organization and how to apply the info, you may feel relieved. 

Here is our goal with the TAH Breakdown Format. 

Use the categories to organize and break down:

  • Material and equipment specifications that you want included in the cost.
  •  A narrative to be sure your contractor is interpreting the plans correctly, and a vehicle to elaborate on the plans in case details are unclear.  We call this the Scope of Work or SOW.
  • The ability to compare costs equitably between contractors.

Take a look

The Awakened Homeowner Work Breakdown Structure (WBS)

DivisionDivision Description
Master Project
22Site Preparation and Excavation
23Demolition and Disposal
24Concrete Foundation
25Rough Carpentry
26Sheet metal and Waterproofing
27Roofing
28Siding and Exterior Trim
30Skylights
31Windows
32Exterior Doors
33Stucco and Masonry
34Plumbing
36Electrical
37Low Voltage
38Mechanical
40Fireplaces
42Insulation
43Sheetrock
44Interior Doors and Trim
45Stairs
47Cabinetry
48Hardware
49Tile
50Slab – Stonework
51Solid Surface
52Flooring
57Appliances
60Glass
65Painting
68Landscaping
90Specialty

What you are seeing are Divisions of construction organized in a chronological manner as a project would be built.  Some items may overlap or don’t apply to your project, but for our purpose, this post clarifies what goes into a home-building project. A WBS framework allows you to organize the following now:

  • Scope of Work and Material Specifications
  • How would you like to see the costs of each line item, empowering you to;
  • Compare costs between constructors.

As I mentioned earlier, each contractor has their own methods of estimating a project, and that’s fine.  

But what you care about is!

  • Did they include the costs for everything on the plans?
  • Did they include the materials and specifications you listed in the Scope of Work by Division? 
  • Can I see the costs of each category?
  • Can I compare costs between contractors?

When the time comes to obtain estimates from contractors, it takes a few steps.

  • Create a Scope of Work document by Division to supplement your plans.
  • Provide the worksheet to your contractors and request that they enter the costs for each Division.
  • Compile your contractor candidates into one master worksheet to compare costs.

Your individual Contractor sheet looks something like this, 

Project Name:
SectCost by DivisionContractor 
1DivisionDivision DescriptionDateDate
Baseline ProjectProposalContractDifference (+-)
22Site Preparation$0$0$0
23Demolition and Disposal$0$0$0
24Concrete$0$0$0
25Rough Carpentry$0$0$0
26Sheet Metal and Waterproofing$0$0$0
27Roofing$0$0$0
28Siding and Exterior Trim$0$0$0
30Skylights$0$0$0
31Windows/Patio Doors$0$0$0
32Exterior Doors$0$0$0
33Stucco and Masonry$0$0$0
34Plumbing$0$0$0
36Electrical$0$0$0
37Low Voltage$0$0$0
38Mechanical$0$0$0
40Fireplaces$0$0$0
42Insulation$0$0$0
43Sheetrock$0$0$0
44Interior Doors and Trim$0$0$0
45Stairs$0$0$0
47Cabinetry$0$0$0
48Hardware$0$0$0
49Tile$0$0$0
50Slab – Stonework$0$0$0
51Solid Surface$0$0$0
52Flooring$0$0$0
57Appliance Install$0$0$0
60Glass$0$0$0
65Painting$0$0$0
68Landscaping$0$0$0
90Specialty$0$0$0
Total Baseline Project$0$0$0
2AreaAlternates-OptionsProposalContractDifference (+-)
Option 1Primary Bath$0$0$0
Option 2Hardwood Floor throughout$0$0$0
Option 3$0$0$0
Option 4$0$0$0
Phase 1$0$0$0
Phase 2$0$0$0
Phase 3$0$0$0
$0$0$0
Total Estimate with Opt/Alt$0$0$0
3CPSQFTCost Per SQFTCost Per SQFTCost Per SQFT
Living SQFT#DIV/0!#DIV/0!#DIV/0!
Bldg SQFT#DIV/0!#DIV/0!#DIV/0!
Identify excluded items not included in proposals or contracts.
4AreaDescriptionProposalContractDifference (+-)
Permits$0$0$0
Appliances$0$0$0
Plumbing Fixtures & Accessories$0$0$0
Decorative Lighting Fixtures$0$0$0
Other $0$0$0
Total owner provided and/or NIC$0$0$0
Total Project Cost$0$0$0
**Costs listed within each category include all LABOR, MATERIALS, EQUIPMENT, SUBCONTRACTORS to completed related SCOPE OF WORK as per Plans and Specifications and to install owner provided materials.**

Your individual contractor worksheet looks very similar to the WBS division list because it is.  You will use this same framework for many aspects of your project.  

What we have added is:

  • Section 1: Columns to compare estimates from the same contractor.  This facilitates comparing early estimates to final ones if details need clarification.
  • Section 2: An Alternate or Options field to enter costs you requested to be broken out.  These costs are not included in the main divisions above but are a way to understand the total cost for an option or project phase.
  • Section 3: A section to analyze costs by square foot.  I placed this here to help you understand the cost per square foot and compare it to our early budget tool, which will be explained in the TAH book and Planning Guide in the works.
  • Section 4: The last section is an area to include costs in the totals that your contractor was asked not to include or that you would like to remain outside the project’s overall cost.  You can move these costs where you like if you have basic spreadsheet skills.

Your last task will be to import the costs from each of your candidates into one worksheet to compare costs quickly.  

It looks something like this, and I’m sure you will recognize it by now.

Cost by Category
DivisionDivision Description
Baseline ProjectCandidate #1Candidate #2Candidate #3
22Site Preparation$0$0$0
23Demolition and Disposal$0$0$0
24Concrete$0$0$0
25Rough Carpentry$0$0$0
26Sheet Metal and Waterproofing$0$0$0
27Roofing$0$0$0
28Siding and Exterior Trim$0$0$0
30Skylights$0$0$0
31Windows/Patio Doors$0$0$0
32Exterior Doors$0$0$0
33Stucco and Masonry$0$0$0
34Plumbing$0$0$0
36Electrical$0$0$0
37Low Voltage$0$0$0
38Mechanical$0$0$0
40Fireplaces$0$0$0
42Insulation$0$0$0
43Sheetrock$0$0$0
44Interior Doors and Trim$0$0$0
45Stairs$0$0$0
47Cabinetry$0$0$0
48Hardware$0$0$0
49Tile$0$0$0
50Slab – Stonework$0$0$0
51Solid Surface$0$0$0
52Flooring$0$0$0
57Appliance Install$0$0$0
60Glass$0$0$0
65Painting$0$0$0
68Landscaping$0$0$0
90Specialty$0$0$0
Total Baseline Project$0$0$0

Above is the same format but with three columns, one for each of your candidates.  You simply transfer the costs each of them has provided, and now you have what you need. I intentionally left out the bottom three sections for the sake of space, but would be included for you to get the whole picture.

Some Realities

There are a few assumptions and realities you may experience when engaging with contractors.

  • This methodology assumes you are obtaining what is called a “Fixed Price Contract” for your project.  This safer structure is compared to a “Cost Plus” or “Time and Material” structure, which can be dangerous.  More on this in the upcoming book, but if you are considering entering into a contract with one of these methods, ping me, and I can elaborate.
  • A Fixed-Price contract works well but requires thorough plans, specifications, and a documented Scope of Work.  This superior method requires more time upfront but likely, your project will go much smoother and remain on budget.
  • Your contractor candidates may be surprised by your more sophisticated organization methods and requests.  This is a great way to level the playing field and qualify your candidates.  Don’t be surprised if you sense hesitation; maybe they won’t call you back.  That’s ok because you may have averted disaster.

A Work Breakdown Structure (WBS) unveils how construction estimating works and streams to other ways to organize a project.  Developing a Scope of Work document, including material selection and equipment you desire within the same WBS, helps align line item costs within the same format.  Lastly, a WBS empowers you to compare costs between contractor candidates. 

If it still all feels overwhelming, you can take other avenues to achieve the same result.  Consult with your Architect or Designer, and if you are tackling a very large project, consider bringing in a Construction Management Agent who acts as your advocate through the design and construction of your project.

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