As an architect, I am not the party responsible for the exact cost of construction. I do have a lot of experience with construction costs through the work of designing buildings, but I am not the one responsible for what they cost. Only a builder can decide how much they are willing to build a project for.
The builder needs to have a thorough understanding of what needs to be built, with what materials, and with what expectation of quality. A builder can make a pretty good guess at how many hours they believe it might take to build something, but the builder simply does not have any control whatsoever on the cost of materials or the cost of any subcontractors that must be hired such as plumbers, electricians, excavators, or concrete crews, for example. A builder can call around and get multiple bids from suppliers and subcontractors for the work that is depicted in the drawings, but those vendors are the ones that control their prices. In a busy climate, those vendors have higher prices (and a lower level of service) since they are too busy to really bid on projects. In a busy climate, it is difficult for a builder to succeed in getting multiple competitive bids on materials and subcontracted labor. For that reason, clients and architects should acknowledge that there is little anyone can do to anticipate an exact price to build a project. We can all certainly come up with reasonable estimates, but those estimates are merely based on past experience by comparing this project to that old one. We can all say, “this is what happened last time,” so it will probably happen again this time, but the situations are always changing, and we can only do our best to compare old situations to current ones. Even builders that construct spec homes can have differences in the cost to build two homes that are supposed to be identical.
Another problem with bidding the cost of construction is that the builder must create a buffer to over-estimate the cost of construction to ensure that they do not end up working for free. If a builder underestimates on a bid, they would be paid a fixed amount of money to do a certain amount of work, and that builder would inevitably be working at a reduced rate if they underestimate. This might happen in a slow economy to keep crews busy, but this would never happen in a busy climate. In an average or a busy climate, builders typically will over-estimate the cost of construction to give a reasonable buffer to themselves and their bottom line. This means the client will end up paying more than what the builder worked. In a time and materials arrangement, there is no bid, so the client ends up paying exactly for the work that gets done. At the end of the project, the total construction cost might be more than, less than, or exactly what the client wanted to pay, but the reality is that the client will pay for exactly the work that got done and nothing less and nothing more. In a bidding arrangement, there will be a winner, and there will be a loser. Builders know more about construction than clients, so they will inevitably set themselves up to be the winner. Since builders must over-estimate their bids to run a profitable business, the client will inevitably be paying for more than what has been received. In other words, the cost of the product is inflated by a factor of the bidder’s confidence or cockiness. Sometimes builders will put in a 10% buffer, or 20% buffer, or if things seem vague, they may double the cost of certain aspects of the projects to build in a level of certainty that they may feel comfortable. The client gets a guaranteed price, but the client also has a guarantee that they will pay for more than what has been provided. In a time and materials arrangement, clients pay for exactly what has been provided to them. In all arrangements, the builder is still guessing at what something will take to build. I prefer to limit the amount of guessing and limit the amount of buffer by choosing to pay for the exact amount of work that must be done in a time and materials agreement. The onus is on the client to be reasonable and ask for work that seems appropriate and within a budget. This means the client must do research to determine what their budget is and what the current climate requires for the cost of goods and services. The onus is on the builder to be honest with the client because their reputation is on the line if they get off track.
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