There are three general contract bid types presented to home owners. IDL recommends and uses the type described as transparent bidding: a fixed fee with material and labour at cost. You as the client know exactly what you are paying the new home builder, what the sub-trades costs as well as materials and labour.
Below is an overview of the three typical types of bids a new home builder will present.
- Fixed bid: When a new home builder provides a fixed bid they are proving a bottom line amount and that’s it. The problem with this type of pricing presentation is that builders have to build in padding for any uncertainty. These types of bids typically come in at 20-25% more expensive. If your new home builder does use this type of bid be sure to have term and conditions attached detailing what is included and what is not.
- Cost Plus: The problem with cost plus is that as costs escalates the builder typically makes more money and generally interests are not aligned between the home builder and home owner. Cost plus can be the best solution in times when the estimated amount of work can’t be for foreseen, such as in an extensive renovation of an older home. The key is making sure an agreement is in place for how much per hour will be charged per hour of work and to see the breakdown of hours, materials and sub-trades.
- Transparent Bidding: The builder is paid a fixed fee for management of the job site and all materials, labour and sub-trades at cost. This bid is completely open book. The home owner knows exactly what portion of the cost goes to the builder and exactly what all the sub-trades are charging.