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Why Project Costs Vary
Office Design Issues
Value Engineering
IFCs - Industry Foundation Classes
Construction
Management Specialists
111 Pine Street, Suite 1315
San Francisco, CA 94111
(415) 981-9430
www.TBDconsultants.com
Our TBD Bid Index continues to climb, even though the ENR Building Cost index for San Francisco actually dropped a bit this previous quarter.
We have also noticed some softening of prices for some smaller projects, presumably resulting from contractors and subcontractors who have been affected by the weakening housing market starting to bid on projects outside that field.
That change in one market is resulting in variances in bid price levels, and the following lists other special conditions that can affect the costing of a project:
- It has been established that a reduced number of true bidders results in an increase in bid prices. On average, under normal market conditions, bids can be expected to be up to about 15% higher than estimated where only one or two bids are received. The reduced number of bidders and the increase in bid prices are both reflections of the bidding market.
- A strong construction market will also mean that there is not the migration of workers that is usual in the construction industry, since workers will then be able to find employment near to home. Consequently, the Bay Area is experiencing a shortage of skilled workmen. This is especially true in the MEP trades. The prevalent, prolonged effect of overtime has adverse effects on productivity and labor costs. It has been shown that in a period when contractor’s work-books are full, prices can be up to 30% or more above the “norm”. While there is undoubtedly a measure of overlap in this issue and the preceding one, they both have measurable effects on pricing levels. This factor will (in general) be consistent across the bid packages, and reflects the added costs of doing business in a busy market, over and above normal escalation/inflation.
- Another factor of a strong construction market is that contractors can get choosier about projects, and bid accordingly. Work that is straightforward (e.g. new construction) will attract more attention and have some competition, whereas work that is unattractive will (if bid at all) be priced at a level that covers all current and future risks, and possibly more. Renovation work generally would fall into this “problematic” category for many trades, and the premium (over and above the other premiums) could be up to 50%. This factor will vary, depending on the type of work, e.g. it may be expected to affect the structural sections, but might have minimal affect on finishes.
To summarize the above three factors affecting bids, we have the following range of effects:
| Low Range | High Range | |
| Lack of bidders | 0% | 15% |
| Hot market conditions | 5% | 30% |
| Attractiveness markup | 0% | 50% |
| Total effect | 5% | 95% |
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