“How much?” is a common question in our world. It is asked countless times a day in our office or on a jobsite. Whether we are screening a subcontractor, evaluating a change on a jobsite, or discussing an upcoming project with a client, it inevitably has to be asked. With subcontractors and vendors, it is a straightforward discussion to address a current situation. When asked by a client or a prospect how much a project is going to cost, it has a lot more nuance.
We have always been proud of the fact that we could offer conceptual budget estimates to our clients and prospects because of the volume of work we do across a variety of segments and geographies. There is a good chance we have done a similar project somewhere that we can use as a reference for discussion. However, that is becoming more difficult to provide. “How Much?” is now a much harder question to answer.
It is no secret that prices for materials and labor are volatile. They have been for the past two years, with no relief on the horizon. We are fighting unpredictable lead times and constrained subcontractor capacity. We have seen increases of 10% a month on drywall, metal stud, copper, and steel to name a few. The fluctuating rates of lumber are national news and meme fodder on social media.
Subcontractor availability – and desire to do the job – is increasingly dictating the cost. With the volume of work occurring, subcontractors can be more selective on the jobs they pursue. Remodels, nights, and open-store construction are less appealing when they can pursue an “easier” new build. Like everyone, they are struggling to find qualified workers and are doing their best to retain people by pursuing jobs that keep their staff engaged. Subcontractors do not have time to budget a job with this volatility and try to pursue jobs to bid where they feel they have better odds.
Determining a budget under these conditions, let alone a competitive bid, is more challenging than it has ever been. Nowadays, even with a bid, the cost is only viable that day. Steel, for example, will be priced based on today’s cost but will be re-evaluated based on the cost at time of shipment. Trade availability is often difficult to hold beyond ten days. Cost escalations have to be worked into contracts.
One solution we have suggested has been to award a contract as soon as possible after bidding so GC’s can start locking-in subcontractors and pricing. While that is still a viable strategy, another one that is becoming more popular is to pick a GC partner. Qualifying GC’s upfront and choosing one to trust and partner with is replacing budgetary exercises. Presenting your project to the market with one GC delivers a better, more cost-effective project.
With the inability to rely on historical data for budgeting or unit costs, the only way to get a handle on costs is to choose a GC and truly partner with them on value engineering and with open book contracts. Presenting a job as a partnership to the subcontractor base increases response since their odds are better at being awarded. Plus, if it is open book, it allows a GC to select a subcontractor based on ability as opposed to relying on the lowest cost provider to win a bid which could still result in unexpected delivery.
When you ask “How Much?” utilizing these methods hopefully your response won’t be an exacerbated “How Much?!?”