Tender costs for a new build

[Vel810]

Hi all, 

 

I am in the process of receiving tender quotes back for my new build residential family home. This is my first project.

 

I am going down the route of a 'main contractor' who will buy the materials as well, apart from Kitchen and bathrooms.

 

The question I have is , are these quotations normally negotiable? and if so by how much on average?

 

Any help would be appreciated. Thanks.

 

Vel810

[Jeremy Harris]

I think there will always be room for negotiation, but will  just add a note of caution.  An acquaintance recently had a new house built, on land they already owned, going down the main contractor route.  Although he and his wife have run their own businesses successfully for years, I don't think he knew much about building work.

 

He trod the fairly common path of getting an architect to design the house and get planning permission, then went to tender for a main contractor to build the whole house.  He had quotes in from a few builders and selected one.  As there always are when building a house, a few minor things changed as they went along, but nothing that should have had a major impact on price, in my view (I've seen his plans).  When they got to the end of the build, the bill from the contractor was £20k more than the quote, on an original build cost of around £120k, IIRC.  The reason given was changes in spec from the client plus increased material costs, both of which are in dispute.

 

Needless to say the client was not at all happy, and so is still battling with the contractor over this increase, but I don't think he'll win, as he did not have a firm price contract with the main contractor, he just accepted a quotation.  Firm price contracts are fixed in price, fixed price contracts are not fixed in price - variation is allowed for some things, like exchange rates pushing material costs up.  Quotes are very often treated as an estimated price, neither a firm or fixed price and a quotation should be a firm price but very rarely is in practice.  This last point is where I think a lot of people come unstuck, they believe a quotation is the actual price they will pay at the end, and often it isn't.

 

One thing we found was that very few builders have a properly drawn up and negotiated contract procedure.  They give a quote, perhaps with their standard terms of business, and expect to be given the job on that basis, with them having the freedom to adjust the final price as they go along.  This is fine as long as the client is kept informed every time something affects the final price, and a good main contractor should do this regularly, so the client knows each week or so what the changed final price will be.  Some don't do this, as in the case of my acquaintance, and then the client gets a nasty surprise at the end.

 

We didn't go down the main contractor route, but we did have two main contracts, one firm price contract with the ground works company (roughly £50k in our case) and another firm price contract with the house build company (who built the foundations and weather tight and insulated house frame and a detached garage) that was a bit over £60k.  I drew up both contracts, and agreed them with the contractors, with agreed stage payment plans.  From the discussions I had with several companies during the tender stage I don't think many usually worked to any form of written contract at all. 

 

So, my advice would be to choose a main contractor that has priced realistically for your area and try to agree a firm price contract, rather than accept a quotation.  There is always a risk with a firm price contract that the price will be a bit higher, as the contractor will build in some risk contingency to his price, but for you the advantage it that you know what the final price will be.  The other down side with a firm price contract is that it limits your options to change things as they go along - each change needs an agreed variation to the contract.  Alternatively, agree a fixed price contract, or accept a quotation, and ensure that there is a clause requiring the main contractor to discuss price changes with you on a regular basis.

Edited February 15, 2017 by JSHarris

[Ferdinand]

Everything is negotiable.

 

+1 for JSH comments.

 

I would just ad an aphorism (?) that the easiest negotiated reduction is the one that the contractor has already taken off the price.

 

Comparison: when buying a car we look for an already offered good value price, and start from something already in our favour.

Edited February 15, 2017 by Ferdinand

[ToughButterCup]

Hello, and welcome.

 

I have a quotation in front of me for our foundation. Looking at the detail I can already see a couple of minor errors: I already have the GeoTextile we need -deduct £280- , we don't need the MuckAway services (because we are on a slope and can handle our own surplus soil) deduct £960, I'll dig my own land drain, deduct a few hundred quid.

 

As Jeremy (@JSHarris) says above, discuss price changes on a regular basis. And that means fostering a good working relationship with your contractor.

Please keep the questions coming!

 

Ian

[PeterW]

As per @JSHarris you need to understand the basis of the quotation. One thing to look for is the contingency that the contractor has built in - ask the direct question - and then how much contingency you need to add over and above. 

 

Check how much is in the costs as "price sum" and also how much they have allowed for general items such as internal doors and ironmongery.

 

For example, I can get a standard white 6 panel door with 2 brass hinges and a barrel lock with brass plate handles for around £30 all in, fitting would be 1 hr of joiner time. So in this instance I would price in around £55 per door. 

 

If you chose an oak veneer door at £70 with a decent brass handle it would need 3 hinges and therefore your costs could rise to around £130 per door. Doesn't sound a big rise until you work out there are around 12 doors in a standard 3 bed house ..! Your "quote" has just gone up by £900..!

 

Ask the contractor what he will charge as a handling fee for you buying items too - some add a 10% charge to cover the issue of fitting non standard items. 

 

Last thing is to keep a log of all discussions on site - triplicate book is ideal - and you can agree the changes requested and they can be priced and agreed as you go so there are no surprises. 

[Ferdinand]

48 minutes ago, PeterW said:

As per @JSHarris you need to understand the basis of the quotation. One thing to look for is the contingency that the contractor has built in - ask the direct question - and then how much contingency you need to add over and above. 

 

Check how much is in the costs as "price sum" and also how much they have allowed for general items such as internal doors and ironmongery.

 

For example, I can get a standard white 6 panel door with 2 brass hinges and a barrel lock with brass plate handles for around £30 all in, fitting would be 1 hr of joiner time. So in this instance I would price in around £55 per door. 

 

If you chose an oak veneer door at £70 with a decent brass handle it would need 3 hinges and therefore your costs could rise to around £130 per door. Doesn't sound a big rise until you work out there are around 12 doors in a standard 3 bed house ..! Your "quote" has just gone up by £900..!

 

Ask the contractor what he will charge as a handling fee for you buying items too - some add a 10% charge to cover the issue of fitting non standard items. 

 

Last thing is to keep a log of all discussions on site - triplicate book is ideal - and you can agree the changes requested and they can be priced and agreed as you go so there are no surprises. 

 

On the other hand some cheap wooden doors bend like bananas in the humidity, so the fitting could more than cover the difference :-).

[Vel810]

Guys, many thanks for your input and advice. Very much appreciate it. 

 

@JSHarris I am doing exactly what you described. Got an architect to plan and get a main contractor to do the building. I have no prior experience of building. I did not know about the difference between Quote and Firm price. Hence I am really grateful for that advice. 

 

what would be a good percentage for negotiation? 5% or more? 

 

Thanks

[Jeremy Harris]

I think it very much depends on the way the future looks, in terms of prices of materials and labour (we're now back in an inflation period) and how much the main contractor wants the work, as the latter will determine how much profit he/she is prepared to lose in order to get the job.

 

I've found some of the sub-contractors I've employed have been open to a bit of negotiation, some none at all, so I don't think you can put a hard figure on what you might be able to reduce a quote by.  Also bear in mind that if you drive the price down too hard, then corners will be cut, often in areas you may not be able to see.  It's very common to see poorly fitted insulation in new builds, for example, as it takes time to fit insulation properly, so that it actually works.  A walk around any big development will show badly fitted and missing insulation, and although you may not be able to see this in the finished build it could have a big impact on both the performance and longevity of the structure of the house.

 

Edited February 16, 2017 by JSHarris
typo, "to" when I meant "too"

[jack]

Down our way (Hampshire/Surrey borders) not much is negotiable at the moment.  Looking at what friends have been through recently, you're lucky enough if you can get anyone to even quote, let alone be open to discussing lower prices.

 

I wouldn't negotiate individual trades down much if their initial quote seems reasonable.  The last thing you want is someone cutting corners because a couple of unforeseen issues have popped up and they're losing money on the job.  

 

Even with a main contractor, I think it's a false economy trying to squeeze every last penny out of them.  Negotiate fairly, but leave something on the table for everyone.

[Vel810]

Thanks Jack and JSHarris. Will keep that in mind.

[DundeeDancer]

This is a very interesting thread to me at this moment.  

 

Within the next 3-4 weeks the builder will hopefully start on my first renovation project.

 

I have created a plan with an architect/Principal Designed role to change the apartment into having:- an open plan kitchen lounge, a new opening for a new window, a storage cupboard converted to take a washing machine and all bathroom fittings to be replaced.

 

The architect suggested we get a quote for all the work we could possible want done, turned out to be around £20k + vat.

 

We don't want to spend that much on what will be a long term rental flat, so we have suggested reducing the scope of the changes to get the price down to £15k + vat.

 

Going to go and discuss on-site with the architect and builder this Friday the proposed works.

 

Hopefully will get a steer from them what kind of contract they would like to use, have dropped hints in a few emails recently but they have been a bit quiet on the subject of contracts and price.

 

I can see the benefits of a firm priced contract for the client, I will do some digging into how hard they are to set up.

 

Many thanks, DD.

 

[Archer]

They are not hard but the terminology can be a little daunting to begin with. JCT Homeowner Contract 2016 could be a good starting point for you. For smaller projects there is always going to be a balance between how far you go with due diligence - sounds like you already have a professional architect on board which is a good first step. Having a detailed scope of work, accurate drawings and a simple contract (which includes payment terms) are all useful ways of protecting yourself. Common sense and human decency go a long way as well in my experience. For larger, more complex projects we would look at things like contractor solvency, references, insurance (site, public liability etc), performance bonds and retention. This is likely overkill for your proposals and I am finding the same on my extension - the risk is spending more on professional fees as a percentage of work than you get back in value. 

 

If you are interested in further reading then the RICS Construction Project Managers Pocket Book is very comprehensive, alternatively Mark Brinkley's "House builders Bible" is a great accessible read. 

[Ferdinand]

On 15/02/2017 at 06:51, Vel810 said:

Hi all, 

 

I am in the process of receiving tender quotes back for my new build residential family home. This is my first project.

 

I am going down the route of a 'main contractor' who will buy the materials as well, apart from Kitchen and bathrooms.

 

The question I have is , are these quotations normally negotiable? and if so by how much on average?

 

Any help would be appreciated. Thanks.

 

Vel810

 

Welcome to the site.

 

All questions are good ones, especially the ones that other people are too embarrassed to ask.

 

[Ferdinand]

On 16/02/2017 at 08:57, Vel810 said:

Guys, many thanks for your input and advice. Very much appreciate it. 

 

@JSHarris I am doing exactly what you described. Got an architect to plan and get a main contractor to do the building. I have no prior experience of building. I did not know about the difference between Quote and Firm price. Hence I am really grateful for that advice. 

 

what would be a good percentage for negotiation? 5% or more? 

 

Thanks

 

As long as you have experience of project managing and ideally purchasing, you have a head start, Just make sure to reflect on how the skills transfer.

 

2-5% is the sort of reduction you might get to let them get the job ... but you risk that they may cut small corners to maintain the margin. 

 

It is far more robust to find ways to reduce *their* costs, as they can pass that through with no loss of margin. That comes down to things like cutting out waiting time, or finding bits of the project that are not necessary, you sourcing materials at 30% cheaper than they can, choosing other items which are as good but less expensive. All of that kind of "sweat the detail" stuff.

 

If you save them a man-day of work it should be worth £100-200 to you. 

 

But if you are on a firm price contract you will have to agree terms up front so it is more challenging.

 

The categories i tend to think in are saving money, risk and time for me or them. And there are tradeoffs.

 

Ferdinand

 

 

Edited August 17, 2017 by Ferdinand

[Ferdinand]

8 hours ago, DundeeDancer said:

I have created a plan with an architect/Principal Designed role to change the apartment into having:- an open plan kitchen lounge, a new opening for a new window, a storage cupboard converted to take a washing machine and all bathroom fittings to be replaced.

 

The architect suggested we get a quote for all the work we could possible want done, turned out to be around £20k + vat.

 

We don't want to spend that much on what will be a long term rental flat, so we have suggested reducing the scope of the changes to get the price down to £15k + vat

 

@DundeeDancer

 

Are you a hoary old landlord-developer with all the scars, or fairly new to this with only a few years and properties?

 

I think my most useful comment would be that while tenants and purchasers will look at bling and finish when they move in, the place not to skimp is the stuff that means your tenants will stay for 6 years not one-and-a-half, and love living in your flat, since those extra 3 tenant changes could cost you the equivalent of six months rent. If you run the numbers a 5% higher rent takes 2 years to recover the loss of one month of rent if you have a one month longer void - without all the tenant swap costs. Even a 10-15% higher rent will take ages to cover all those.

 

I would argue for not skimping on, for example, sound insulation, ventilation, energy efficiency, very bottom of range appliances, letting the first T choose the carpet colour, perhaps allowing pets (dog tenants stay longer) Mira shower, walk in shower not a telephone box type, and so on.

 

It is very easy to get the things right that make a tenant move in, but avoiding the things that make a tenant move out is equally important.

 

As one example, I have just had a T move into one of mine whose previous 3 bed end terrace was running energy bills of £200 per month. In my semi of the same age they will be saving about £120 a month, as they should come in for £750-1000 per year - not itself very good but reasonably OK and  very comfortable.

 

All depends on your market, mind, 

 

Ferdinand

 

Edited August 17, 2017 by Ferdinand

[Archer]

That's very good advice from Ferdinand - especially around prioritising good ventilation and acoustics - get those two right and you knock out 50% of complaints straight away. Allowing pets is more of a gamble, fine with considerate owners but I've seen some horror houses chewed up by dogs as well (plus neighbour considerations etc). 

[Ferdinand]

3 hours ago, Archer said:

That's very good advice from Ferdinand - especially around prioritising good ventilation and acoustics - get those two right and you knock out 50% of complaints straight away. Allowing pets is more of a gamble, fine with considerate owners but I've seen some horror houses chewed up by dogs as well (plus neighbour considerations etc). 

 

I always meet the pet first in its own previous home (which gives an opportunity to inspect the home and owner discreetly), then usually set it up such that the dog tenant is responsible for the decorating - so if the hound eats the wallpaper there is no pained conversation about replacement costs.

 

If a T stays for 5 years, the Deposit Schemes have depreciated items such as carpets and decorating to a notional zero anyway for the purpose of arbitration so you won't get anything back for those items anyway even if you went full bureaucrat on the tenant.

 

Ferdinand

Edited August 17, 2017 by Ferdinand

[DundeeDancer]

5 hours ago, Ferdinand said:

 

@DundeeDancer

 

Are you a hoary old landlord-developer with all the scars, or fairly new to this with only a few years and properties?

 

I think my most useful comment would be that while tenants and purchasers will look at bling and finish when they move in, the place not to skimp is the stuff that means your tenants will stay for 6 years not one-and-a-half, and love living in your flat, since those extra 3 tenant changes could cost you the equivalent of six months rent. If you run the numbers a 5% higher rent takes 2 years to recover the loss of one month of rent if you have a one month longer void - without all the tenant swap costs. Even a 10-15% higher rent will take ages to cover all those.

 

I would argue for not skimping on, for example, sound insulation, ventilation, energy efficiency, very bottom of range appliances, letting the first T choose the carpet colour, perhaps allowing pets (dog tenants stay longer) Mira shower, walk in shower not a telephone box type, and so on.

 

It is very easy to get the things right that make a tenant move in, but avoiding the things that make a tenant move out is equally important.

As one example, I have just had a T move into one of mine whose previous 3 bed end terrace was running energy bills of £200 per month. In my semi of the same age they will be saving about £120 a month, as they should come in for £750-1000 per year - not itself very good but reasonably OK and  very comfortable.

All depends on your market, mind, 

Ferdinand

Hi Ferdinand, I'm fairly new to the practice of being a Landlord (a few years in) and this will be my first renovation project.

 

I seem to be thinking along the same lines as you at the moment i.e. a practical home that tenants will enjoy living in and won't mind paying a little premium to live in. So no square toilet seats or square bathroom sinks!

 

I'm just looking at the "Scottish Conditions of Appointment of an Architect" agreement...Small Project Version ASP/2005 (Apr 2015) that we have with the architect.

 

We are pretty much at the door of "Progressing the Build"
7.1  Administer the Contract

But I haven't yet seen a contract document and at a previous stage "Preparing to Build" it says the following:-
Work Stage 5.0 – Construction Documentation
5.1  Advise  on  and  agree  form  of  Building  Contract,  including  Contract Administrator.
 
So I'm starting to get a bit twitchy. 

Anyway onsite meeting tomorrow with me, wife, architect and builder.
I'm sure all my worries will be resolved, one way or another  

 

Thanks, DD.

[DundeeDancer]

Another snippet of information is that this medium size project is the pre-cursor to a much bigger renovation to our main apartment where we are thinking of making much more energy efficient, MVHR, triple glassing, more insulation, the works.

 

So the plan is to do up the rental place to a good standard, then live there ourselves for 3-4 months while our main apartment gets fixed up.

 

So this first project should not be a hit and run but building a working relationship to go on to bigger and better things.

 

Will need to get a blog going on here soon to track progress to share the experience.

 

Best wishes, DD.

Edited August 17, 2017 by DundeeDancer
typo

[Archer]

Good idea having a practice run first so to speak. Is your architect appointed to be a contract administrator as well? This is a separate service from design (a form of project management) and most professionals would charge significant fees. In return you should get regular, managed site meetings and an element of quality control and sign off on the payments. Depending on your trust in the builder you may not feel that you need this level of service on £15k of works. 

[DundeeDancer]

On 8/17/2017 at 11:30, DundeeDancer said:

So I'm starting to get a bit twitchy. 

Anyway onsite meeting tomorrow with me, wife, architect and builder.
I'm sure all my worries will be resolved, one way or another  

Thanks, DD.

 

On-site meeting revealed Architect plans to write up a "Home Owner Contract with Consultant contract", feeling less twitchy now

[DundeeDancer]

Back feeling twitchy again, build contractor doesn't want to sign contract until they are on-site!

 

I clearly expressed in an email 4 days ago that contract had to be signed at least 5 days before work started.

 

Today is the day I need proof that contract is signed, sinking feeling it won't be and I'll need to start emailing ultimatums.

 

First one will be if contract not signed by Saturday noon then 3rd of October start date is off.

 

Second one will be if no contract signed by noon on Monday 1st then they won't be my builder.

 

This is the builder the Architect recommended and they live very close,and done many jobs before. 

 

I can't figure it out, I just find it stressful.

 

Do most contracts start in this stressful way?

 

Thanks, DD.

[Ferdinand]

With the husk off.

 

I would say that without a good reason (perhaps he has one - ask him?) it is possible that you are being played and *may* (or may not) be being set up for his ultimatum of some kind.

 

Either way, you are going to need to demonstrate who is boss or you have lost the authority. But demonstrating that authority could be investigating what the causes are first and brokering an acceptable solution for both of you.

 

If you think you are being played, I see three options:

 

1 - Come over the heavy uncle now.

2 - Do not, and be ready and prepared to walk away on the day if he plays silly buggers.

3 - Communicate via the architect if he is still involved.

4 - Try some diplomacy.

 

I do not think 3 would resolve it - feels a bit sheep-like and running to daddy, and not sufficiently in your control at the micro level.

 

Could you offer to meet him on site first to discuss any concerns preventing him signing in advance as one way ahead?

 

You perhaps also need to consider the ease of creating a plan B for the profile of your escalation. What will it cost in money, time, risk if you lose him?

 

But that is all just my opinion, of course, and I am commenting without responsibility or consequences!

 

Ferdinand

 

Edited September 28, 2017 by Ferdinand

[jack]

The only thing I'll add is that I wouldn't ever email an ultimatum in such a situation. If you can make your next communication in person somehow, that would be ideal. Next best would be a phone call.

Putting things in writing just seems to inflame things in my experience, especially in "difficult" situations, or where something doesn't seem/feel right.

[DundeeDancer]

Thanks for the options Ferdinand. 

I've nothing to lose by delaying the project and finding another builder.

He seems like a nice guy, just been on holiday (might be an excuse), has multiple people and multiple projects on the go.

When I offered to take the the contract over to him to sign he was like, I'm too busy, I'll do it at the Architects office on Thursday or Friday.

Just can't see it happening, so it's going to be a show down soon.

I just think it's a really bad idea to be signing the contract on the day.

First job is for subbies to erect scaffolding, so they are booked in already.

It's just a little strange and annoying.