General Contractor Costs & Pricing Methods
How Much Do General Contractors Charge?
Without a doubt, that is one of the most common FAQs in the construction industry, and there are many websites out there that haphazardly attempt to provide visitors with rough “average costs.” However, putting too much faith in these online average cost estimates is a risky prospect since they are, after all, just that – estimates based on aggregated and averaged data.
Truthfully, answering the question “How much do general contractors charge?” can’t be done with a generalized, one-size-fits-all average cost estimate from an online source. In reality, total costs are contingent upon too many variables to generalize into one single estimate. Depending on the construction companies near you, the pricing methods available, and a host of other factors, the total costs of any job will vary widely on a case-by-case basis.
Read on to learn more about factors impacting the total costs of different construction projects. You’ll also find a helpful overview of two of the most commonly used pricing models in the construction industry: lump sum and cost plus.
When it Comes to General Contractors, You Can’t Cut Costs While Retaining Quality
One of the most important things to remember is that there are no free hours involved with a construction project. This rule applies to not just the client, but also to the general contractors at the construction companies who have to use their own resources and subcontractors to get the job done.
In addition, the most experienced personnel – whether that be designers, builders, electricians, plumbers, or any number of other subcontractors – are generally the most expensive as far as overall labor rates. Indeed, regardless of where you live, experienced contractors with years of experience in the industry should cost more than any first-time or independent contractors, or any other companies offering cheaper alternatives.
After all, it’s no secret that additional quality comes at an additional cost, and when a construction company promises to cut costs or save you the most, you can be sure that they’re cutting corners on quality as well. Even so, it is possible to find a trusted firm that can provide you with a fair price and accurate estimate for that higher level of quality, ensuring you get the highest-level ROI and personal satisfaction possible.
Construction Project Contract Types: Lump Sum & Cost Plus
Two of the most commonly used pricing contracts in the high-end construction industry are lump sum and cost plus. Here’s an informative overview of both, spotlighting the unique specifications, advantages, and disadvantages of each.
Lump Sum Construction Projects
A lump sum pricing contract is generally regarded as the most basic agreement type between a general contractor and client. This type of contract requires the general contractor to provide all of the specified, agreed-upon services for a fixed price.
With lump sum contracts, the client essentially assigns all risk to the general contractor. In turn, the contractor can be expected to ask for a higher markup in order to take care of unforeseen complications. However, experienced general contractors will take such complications into account during the early planning phases to help minimize them.
For example, a construction manager might plan out several days for no activity whatsoever in the project schedule. That way, if a subcontractor falls behind, or if essential materials happen to be delivered late, these built-in “no activity” days can be then used to play catch up instead of forcing the construction manager to extend the promised timeline.
Because of all of the above factors, a lump sum contract is usually preferable when construction projects have a well-defined scope, allowing contractors to more effectively estimate total costs as early in the process as possible.
Cost Plus Construction Projects
A cost plus pricing contract requires the client to pay the total cost for all materials, administrative support and physical labor used throughout the course of the construction project and the total overhead costs & profit which are determined prior to the contract signing. For instance (these numbers are for example purposes only) if the cost of the material, labor and administration are 5 dollars each and the overhead and profit are a fixed 20% the total would be 5+5+5=15 for the work and 20% on top of the cost 20% of 15 dollars is 3 dollars so the total would be 15 + 3 = 18 dollars total.
Based on that information, you can probably see why this particular pricing agreement is preferable when the total cost for the overall scope of work is less certain. Then if the total costs end up being lower than the original cost estimates, the client keeps the savings. However, if the total costs end up being higher than the original cost estimates, then the client must pay for the additional costs as they are incurred.
Work With Industry-Leading General Contractors Near You
As you can see, there are many variables that might change the answer to that ever-popular question, “How much do general contractors charge?” In truth, it always comes down to the quality you want and the years of experience possessed by the firm you choose to work with. It’s also impacted by the type of contract you choose to go with. Therefore, no matter what sort of construction project you have in mind, you should always look for trusted and experienced construction companies for any home improvement processes or new home builds.
At Sleeping Dog Properties, Inc. we have nearly 30 years of experience guiding clients to the most appropriate contractual agreements for home projects, regardless of how big or small jobs are. We also have a unique client-centered approach that allows our customers to collaborate with our team as much as they want to manage plans, engineering drawings, business processes, and more. We also provide industry-leading pricing transparency by providing line item prices for services and materials required for every home project, allowing customers to see exactly where their money is going and the value behind it.
Contact us today to start on the next path of your new home build or home improvement journey as soon as possible!