Bid Versus Management
There are generally two ways builders provide their services; a fixed bid contract including all labour and material or, a construction management contract that is essentially a time and material (pay-as-you-go) agreement. The end result is often very similar but each process has many distinct differences.
With fixed bid, an estimate for a specific scope of work is provided prior to starting. The builder has complete control over how and when the work is executed. They supply their own crews, materials, and equipment in a manner that expedites labour time and minimizes material costs. The mechanics of the project are a closed book and owners generally have no input into who is hired or what materials are used to complete the work in their home.
In theory, a fixed bid should allow an owner to accurately budget a project and make decisions accordingly. In practice, renovations in older Toronto homes rarely go exactly to plan and unforeseen circumstances often increase the scope of work. Since the estimate is limited, any work outside of the contract is likely to generate change orders and add cost to the original bid. Furthermore, if the builder hasn’t accurately priced the work, change orders can significantly increase the cost of the project. This can become a source of tension because owners rarely understand how change order costs are calculated. Unforeseen circumstances are part of the renovation process and, if handled incorrectly, can complicate an already stressful situation and foster an environment of conflict rather than collaboration.
Construction management (CM), which is frequently used in large, commercial and industrial projects, has been gaining popularity in residential renovations. CM contracts generally consist of two parts: 1) a management fee based on the projected time required to manage all aspects of the project, and 2) a detailed scope of work and schedule that allocates and tracks expenses for every part of the project. The process is designed to be transparent and flexible. Fees, labour costs, materials, sub-trade agreements are disclosed, and labour is performed at pre-determined rates. Owners can participate in hiring crews, sub-trades, and may select and pay directly for materials used during construction.
CM minimizes the effects of unforeseen circumstances that can occur when working in older Toronto homes by, maintaining communication and collaborating with owner’s in the decision-making process. Since the scope of work is designed to be a flexible plan based on time and material, if unforeseen circumstances arise, the impact to the project schedule and cost is often minimized due to the fluid rather than fixed nature of the agreement. Moreover, the CM system keeps project details readily available, promoting good relationships between the owner, builder and site work professionals throughout the renovation.
Renovations are costly and can be very stressful. There are endless choices in material finishes, construction techniques, and design possibilities. Administrative and legislative requirements constantly change and can greatly impact a renovation. Finding the right fit with a builder is an essential part of the renovation process, and knowing all of your options will help determine what type of contract will work best for you.
Dan Robinson Construction Management
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