I’m currently writing some estimates for jobs that wouldn’t get underway until next spring — at least six months from now. they’re not particularly large jobs, but every penny seems to count when it comes down to it.
Any suggestions on how to cover myself for increases in material costs between now and then? With gas prices continuing to rise, building materials are bound to continue their upward climb. Is this something that should be factored into the estimate in a concrete way now, or would it be better to write into the estimate that a percentage increase will be tacked on for inflation at the time the job is performed? Any suggestions or experience that anyone can pass on? Thanks.
Replies
It's a tough call. I tried that once and the customer wanted to know all my material costs so if they went down what discounts he could expect.
I don't do big jobs... usually 40 grand and less, mark up materials 30%. Haven't had a problem... yet.
This time of year I always deal with a few customers that want to be 1st or 2nd on my list for next spring, but they want an estimate today so they know what to expect in the $$ category.
So, all of my estimates state "pricing is valid for 10 days" and I add another line and tell them in person or on the phone that material & travel costs are very dynamic and we'll need to adjust the estimate based on current costs as we get closer to the actual work start date. Reasonable people understand that.
I tend towards the smaller jobs so it doesn't take alot of effort on my part to update pricing.
-Norm
I-ball
Prices at the sawmill continue their downward trend. While prices at the lumberyard continue their upward trend..
I asked a lumberyard owner why that was when his sales were going down by so much.. His reply was that due to soft sales the overhead per unit sold was higher and thus his costs were higher..
This is the same lumberyard owner who said his prices were higher when things were busy due to higher demand..
To sum it all up prices go up when sales go down and prices go up when sales are up..
This has been discussed a few times. If you're clever you can incorporate a materials escalation clause that ties the contract price to the cost of certain materials when purchased in the future for the actual job. If the materials cost more, the owner pays more, if less the owner pays less. There was a sample clause from the NAHB floating around at some point... I'll see if I still have it.
In my estimates I have a line that states that a contract agreement must be signed within 30days of the estimate or it is no longer valid and all my contracts are cost plus.
Also a 1/3rd deposit plus any special order items must be paid on signing the contract and the next day I place my material order and lock in my price. If they do not sign a contract and give me a deposit then the estimated price is no longer valid.
If my cost go up so does the price. If the client is not ready to start then they must understand that the price may change. And I have never had a price come down in 15 years. Yes maybe some costs may very up and down but over all costs almost always go up over time not down.
I get work based on reputation not on low bid and I never worry about losing a job because the client wanted a fixed price and I would not give them one. I may give a fixed price on my profit but if my cost go up so does the bill I am not in this to lose money. Now once I have a signed contract and it may have a fixed price but only as far the original work agreed to if anything changes work stops and a change order is written and agreed to before work continues and that would include a increase in material costs not originally in the initial material order.
Man you make me jealous. Here in Maryland that kind of contract would be illegal, resulting in loss if license, fines and threat of possible jail time.
I gotta get out of this state.
In MA we can even charge for an estimate. And in restoration and structural repairs it is very common. But I am surprised that Maryland does not allow an expiration or time limit on an estimate. After all to not allow it would be like asking a car dealer to sell you next years car for this years price just because you walked in and asked to test-drive one with out signing a agreement or giving a deposit. An estimate is not a contract it is an estimate of expected costs it is not even a proposal and by no means is it an agreement to provide a service and goods for a fee without any regard for future cost increases.
Now a signed proposal can become a contract for work but not until signed by both parties and all provisions of the proposal are met. Such as a deposit if that is specified in the proposal and it is signed with in the time frame provided by the proposal. I find it hard to believe that Maryland law would hold you to an old estimate forever waiting for a client to be ready to hire you. If that is the case you could end up building a house in 2020 that you bid in 1989. There must be some kind of provision allowed you under the law to limit how long your price is good for. And if you did get a signed contract and a deposit you should be allowed at least enough of a deposit to place your orders but if for some reason (like you can’t get the credit) you need to wait on some of the materials until you reach a certain part of the job to be completed first (waiting on a bank draw for funds) then at least see if your suppliers or subs can offer you a contracted price as early as possible to avoid having to take a hit on materials or outside labor you did not estimate for.
Or at least check with others in your area it may be as simple as a 5% -10% allowance added to your bid if Maryland allows that.I am not an expert on Maryland law and do not claim to even be a expert on MA or CT law I just know that within a contract you are allowed to cover your costs. Or better yet ask a lawyer to help you draw up a contract that protects you from financial insecurity. His fee now will be low compared to his fee in the event of a lawsuit.
MD law lets you have time limits and escalation clauses. It's the amounts of money on a contract and when it can change hands that is the problem. Had one a few months back, customer wants me to supply and install a new front door. Door cost over $7,000, all I could collect for deposit was around $2,600 for a 1 day job. Not interested. We have a whole lotta laws concerning home improvement. Watch the movie "tin men" covers alot of why and where it started.
Sorry for the confusion.
Thanks all for all your input. For a small job, like mine, I've taken the route of just telling the client at the beginning that the material estimate might not hold up until spring. She was fine with that.
Get a sample quote now for later reference... i.e. one 2x4-8, one sheet of 1/2" CDX, one sheet of drywall, one piece of trim, etc. I am buying a lot of cedar right now and it is up quite a bit since the quote I got in January. That quote will be useful in explaining to the owner that this particular material is costing more.
eye....
here is an escalation clause from the NAHB... i've never used it but i was tempted to about two years ago , right after katrina and the plywood prices went wild
<<<<
NAHB ESCALATION CLAUSE FOR SPECIFIED BUILDING MATERIALS
The contract price for this residential construction project has been calculated based on the current prices for the component building materials. However, the market for the building materials that are hereafter specified is considered to be volatile, and sudden price increases could occur. The Builder agrees to use his best efforts to obtain the lowest possible prices from available building material suppliers, but should there be an increase in the prices of these specified materials that are purchased after execution of contract for use in this residential construction project, the Owner agrees to pay that cost increase to the Builder. Any claim by the Builder for payment of a cost increase, as provided above, shall require written notice delivered by the Builder to the Owner stating the increased cost, the building material or materials in question, and the source of supply, supported by invoices or bills of sale.
Specified Building Material / Current Price per (Unit of Measurement) / Date / Supplier
1)____________________/_________________________________/_______/______________
2)____________________/_________________________________/_______/______________
3)____________________/_________________________________/_______/______________
4)____________________/_________________________________/_______/______________
5)____________________/_________________________________/_______/______________
6)____________________/_________________________________/_______/______________
SPECIAL CIRCUMSTANCES – RIGHT OF TERMINATION
Should there be a rise in the cost of any specified building material or materials, exclusive of any other price changes, that would cause the total contract price to increase by more than _____(%),
the Builder shall, before making any additional purchases of specified material or materials, provide to the Owner a written statement expressing the percentage increase of the contract price, the building material or materials in question, and the dollar amount of the price increase to be incurred. The Owner may then, at his option, terminate the contract by providing within _____ business days both written notice of termination to the Builder, and payment to the Builder for all costs expended in performance of the contract to the date of termination, plus payment of a prorated percentage of the Builder's profits based on the percent of completion. Should both notice of termination and full payment not be forthcoming within _____ business days, as provided herein, the Builder shall have the option to terminate the contract, or to proceed with the contract and purchase the specified building materials at the increased price. If termination is elected, the Builder shall provide to the Owner a written notice of termination, and the Owner shall be required to pay the Builder for all his costs expended in performance of the contract to the date of termination, plus payment of a prorated percentage of the Builder's profits based on the percent of completion. If the Builder elects to proceed on the contract, he may then purchase the specified material or materials at the increased price, and the Owner shall be required to pay the increased cost incurred.
CAUTION - The sample language provided in this clause is intended for general informational purposes only, and may not be appropriate for some agreements. Care should be taken in the drafting of any contractual clause, and it is advisable to consult an attorney.