Bidding Budgets

In the spirit of being a consultant I wanted to discuss a topic that we have seen create frustration and cost money for some developers.  Bidding Budgets; or “bidgeting” as we have heard it called.  It is when early drawings are put out to multiple General Contractors for the purpose of obtaining their budget estimate which will be utilized to select the contractor for the job.  In the beginning, the intent may have been to go with the best OVERALL choice, but in the end, the contractor with the lowest budget estimate is selected to work with going forward.  This is not working on a negotiated basis, this is bidding budgets.

There are inherent risks to this process and at the end of the day, it doesn’t necessarily provide you with the best price solution (one of our brand promises by the way) that you were looking to move forward within the first place.

Here’s why:

  • When a project is put in front of multiple GC’s to provide a budget estimate for selection purposes they are all required to be overly aggressive in order to be selected to work with you.  This is creating a scenario where you will likely get a budget that can’t be hit (kind of an ask for forgiveness later approach).
  • What you want is the right price to put in your proforma.  One that will hold up through design and permitting!  It needs to be a reasonable, fair price, but it also needs to be realistic.  That’s not always what you get with multiple contractors in a race to the lowest number.
  • We get more calls than you can imagine from prospective clients that reach out to us because their contractor blew their budget by 10% – 15% or more in the later stages.  That creates all sorts of problems that you CAN imagine.  These include changing plans after they are complete, at great expense in dollars and time, late-stage value engineering which generally involves cutting finishes, which is one of the easiest cuts but most important to leasing.  It also requires adjusting proformas and capital structures which is painful, lowers returns and reduces credibility.
  • In the end, the price will be the price based on the market and what is on the drawings.Our recommendation:

Get involved early with the contractor who you believe is the best overall choice up front.  One that will give you a realistic budget will help control costs during the remaining design stages and that you trust will provide you with an excellent finished project.  This will save you a lot of aggravation, cost, time and will maintain credibility.

Don Diedrick
Director of Business Development

Read More >