This is a topic that comes up quite often with homeowners who are trying to understand what their Houston remodeling contractors have proposed for their Houston home remodeling bids. There is no universal format for remodeling contractors to follow when preparing a home remodeling proposal. The fact of the matter is that every Houston remodeling contractor has their own style and method in preparing a bid proposal. Although there are some professional standards that do apply for the benefit of both owner and contractor. We will review the essential elements of a well prepared proposal in the following article.
What is a Bid Proposal
The legal definition of a remodeling bid proposal is a specified price for detailed home improvement products and services. This usually involves the removal and replacement of home products in defined areas of the home.
The proposal should contain some basic information like identifying the property, referencing any bid documents used and generally describing the larger scope of the project. The vital aspect of a proposal is the details of the scope of work. The scope of work should detail each work task, while describing the quantity and finish of the completed work. The scope of work should paint a picture of the progressive repair and improvements to your home remodeling project.
What is the Difference Between a Bid Proposal and an Estimate
The generally accepted definition of an estimate is a contractors qualified cost approximation that is provided to a homeowner as a best guess budget amount. These cost estimates are seldom legally binding in contrast to bid proposals, which are usually a part of a contract agreement.
Cost estimates are generally used to give the homeowners an idea of the ballpark cost associated with a proposed remodeling project. A homeowner should add a larger dollar amount of contingency to a cost estimate to avoid unwelcome but expected financial surprises.
It is unfortunate that some remodeling contractors will pass an low ball estimate off as a bid. Only for the homeowner to realize well into a project that the actual cost is two to three times the estimated amount. This is the very reason to understand the difference between remodeling contractors estimates and bids.
What Should Be Included in the Bid Proposal
As mentioned before a bid proposal should principally define the project work scope in detail. It should outline the progression of the project tasks in a logical fashion as to draw a picture of the sequential order of each work item.
A bid proposal should identify the quality or/and the quantity of the products or materials used for pricing the bid amount. For products or materials required for a home remodeling project, where the price is across a large spectrum, the bid proposal should provide an allowance schedule or specify a specific brand name for each product to communicate the implied quality. An allowance schedule should also contain a unit measure of a price for the client to understand when shopping for the product.
It is also important for bid proposals to identify any inclusions and exclusions. This is to avoid future misunderstandings and provide special relevant working conditions that might affect the price or increase change orders. For example if the project is time sensitive and the client has agreed to pay overtime for working longer items, this should be clearly spelled out. If a client does not want workmen using their bathroom and wants the remodeling contractor to furnish a portable toilet, it should be clearly included in the bid proposal.
What Should Be Included in the Contract
Generally speaking bid proposals are not contracts, although some remodeling contractors will include a signature line on a bid proposal and attempt to use it as a contract. As described above a bid proposal is principally used to convey the details of the project work task and describe what is included and not included.
A contract is a document that is used to detail misunderstanding remedies and causes of action that result in a breach of the understanding. Typically they include payment terms, mediation clauses, insurance requirements and conditions for liability & responsibilities.
Contracts will often reference the proposal as an addendum to the contract provided there is nothing in the proposal that is contradictive or in conflict with the contract. Payment terms, lien release language and cures & remedies should be left to the language of the contract.
A contracts primary purpose is to outline the details of a owners and remodeling contractors understanding. In most cases contracts are only used when there is a major disagreement between the two parties. In cases where the contract is not clear on an issue of conflict, the contract should have a clause that addresses mediation or arbitration as a first step in conflict resolution.
The contract should detail the payment terms, procedures and description of change orders. Change orders do not always have to be associated with an expense. They should address any substantive change made that deviates from the plans or general agreement. Change orders are an extension of the contract.
Comparing High Bids With Low Bids
Comparing high bids to low bids takes careful review of the bid proposal details and often requires further research by a Q&A session with the Remodeling Contractor. These questions should be focused on topics directed toward bid leveling. Bid leveling is a term used to describe the process of equalizing and measuring multiple bids in an effort to level the playing field. The idea is for the owner to get a better understanding of what the owner is actually receiving for the specified price.
Many of these cost differences can be explained by understanding the details of the proposal for instance;
- What is the quality of the materials proposed,
- Does the contractor intend on using self performed labor or subcontractors,
- Does each contractor have sufficient insurance coverage (general liability & work comp)
- Are the unselected product allowances sufficient to cover the product quality,
- What are the applied mark ups for change orders
It is not uncommon for bid proposal to be as much as 10% – 15% different. Generally bid amounts outside this range suggest there is something substantially missing. That is why it is a must to have a detailed description and quantification of the scope of work. Low and high bid proposals that are significantly outside the bid range should be disregarded if a justifiable explanation is not offered.
Value Proposal vs Cheapest Bid
The ultimate objective of evaluating bid proposals depends on the owners goal. Is the owner seeking the cheapest bid or are they looking for the best value. These two goals are not the same thing. The cheapest bid price does not mean that you will receive the best value for your hard earned cash. What it means is that it is the lowest price. That may be a fine approach for comparing grocery items, but not for comparing home remodeling services.
One of my favorite questions I like to ask clients when this topic comes up is, if you needed open heart surgery would you hire the lowest price surgeon? The answer in most cases is NO… When I ask why not, they usually say I want the best doctor I can afford. This answer is quite understandable. They see the value in receiving the best health care. This is not to say that remodeling your home is like heart surgery, but rather that if you do not see the value in a higher price why would you pay more then you need to.
The entire point of this article is that if you do not put the time and effort into evaluating your home remodeling bids carefully, you will not truly understand the value that your Remodeling Contractor is providing you. You will be best served if you select a Houston remodeling contractor that provides a clear and transparent bid proposal and that you are personally trust as having integrity.