Tenders and quotes

Pricing the job

Before you invite tenders from builders, you may want to get some costings for the job to get an idea whether you can afford to go ahead. You can use a quantity surveyor to get an accurate costing before you put the job out to tender. Then when the tenders come in you have a good basis to evaluate them.

Quantity surveyors

A quantity surveyor (QS) is a person trained in construction methods and costs. They work closely with you and the architect/designer, engineer and builder to itemise the quantities of materials and labour needed to build the house, using the design drawings.

The quantity surveyor’s estimate can give you a reasonable idea of the costs and it can be used by the builders when tendering their quotes. (Note that the builder should only be given the QS estimate of materials required, not the price.) Make sure that when you engage a quantity surveyor you know what sort of service they are providing. If you ask a general question, such as “how much to build a garage?” you will get a best guess which may be way off target. But if you ask for a precise costing, you will get more accurate information.

A QS can also be used to calculate progress payments and to cost variations during construction. They can also advise on the type of contract or the meaning of any special clauses that should be included in the contract. You can buy part of a QS service, for example, you might only use them for progress payments.

You would most likely use a QS if you are only getting one quote. Or if you are managing the project yourself. That way you have a benchmark to see if the quote is fair.

You can also use a QS to estimate costs of alterations and renovations.

The New Zealand Institute of Quantity Surveyors represents QSs. A full member of NZIQS is entitled to use the initials MNZIQS (Member of the New Zealand Institute of Quantity Surveyors Inc).

Inviting tenders

It is a good idea to invite at least three builders to tender. Let each one know that you are getting others to tender. This is in fairness to them but also so they are more likely to give you a competitive quote. You should also let them know that you won’t necessarily pick the cheapest tender but will be considering other criteria like reputation and qualifications.

When you send out the invitations to tender, you need to give the builders the detailed drawings and specifications outlining the extent of the work and the materials, the construction details, the location of the building site and position of the house on the site. Also give them the QS's estimates for materials if you have any.

Specify the type of building contract the work is to be under (full, labour-only, or managed labour-only).

The more information you give, the more reliable the quotes. This will help to avoid disputes later when the job starts to reflect the actual costs, as opposed to guesswork on the part of the builder due to insufficient information.

Tender documents received from the builders should provide exact costings (including GST) for all the materials and fittings, and for the labour of the builder and subcontractors, as long as you specify that you want this level of detail and you have provided the schedule of materials, etc. (Note that often fittings and fixtures are chosen later, using prime cost sums.)

Also ask for the builder’s hourly rate (including GST) so that you know how much to expect if you ask for any additional work to be done.

The builders you have asked to tender may be tendering on other jobs at the same time. If the builder gets other work they should tell you if they have to pull out of the tender, or ask if you are prepared to wait until they are available.

Even if you bypass the tender process and go straight to your favourite builder, always ask for a detailed quote in writing.

About quotes and estimates

There can be a big difference between an estimate and a quote. An estimate is only a best guess at what the job will cost and the builder is not bound by it. However, it is reasonable to expect it to be within 10 – 15% of the final cost. A quote is an explicit promise based on detailed specifications and is the price you pay, barring matters outside the builder’s reasonable control or increases in the cost of materials or labour (if the contract allows this), or other variations.

All estimates and quotes should be in writing, signed and dated.

Never use one builder’s quote as leverage to get a lower one from someone else. It is unfair to them, could compromise workmanship, and you should be looking at more than just price. You should be comparing tenders on other criteria, like their levels of experience and reliability, which will also have a bearing on their price.

Be wary of low tender prices compared to others as it could mean the low tenderer has misunderstood the building project.

Be careful of provisional sums in the quote – this is where the price is uncertain, for example the cost of some materials. Provisional sums are often underestimated so if they appear in the quote ask the builder to confirm that the amount quoted will be adequate for the quality of goods you are expecting.

Guaranteed maximum price

A guaranteed maximum price (GMP) is where the builder/contractor guarantees a maximum price in the contract. These sorts of contracts can work well as an incentive to the builder to finish on time and within the budget. You avoid the risk of uncontrolled extra costs and time.

But you will pay a premium under these types of contracts because the risk of delays and extra costs will be factored into the price.

If any savings are made during construction, generally these savings will be shared between you and the builder. The ratio of sharing should be specified in the written contract. The incentive to make savings has the advantage of ensuring cooperation between you - you’ll both be trying to avoid overrunning the GMP. The builder is also more likely to employ reliable subcontractors who will meet deadlines and work within budgets.

Any variations you ask for will be outside the GMP and you will have to pay for them.

Prime cost sums

Sometimes the architect/designer sets aside a fixed amount, known as prime cost (PC) sums, for certain items, for example the taps and door handles. This leaves you to choose them yourself. If you choose the most expensive items, you will need to find extra money over and above the specified PC sums to buy them.

Reality check

Once the tenders are in, you will be able to see how close they are to your original ideas of how much the project would cost. If the quotes are far higher than you budgeted, then you will have to revise your plans, take out a larger mortgage, or change some items to get closer to your budget.

The architect/designer should have designed to your budget, so your first move would be go back to them, or the quantity surveyor if you used one, and see if they can point out areas that have caused the costs to explode. Sometimes, if there has been a long delay between finalising the plans and seeking tenders, the cost of materials and building costs may have significantly increased.

If you have already put in your application for the building consent, any major changes to the plans at this stage will mean you have to either put in a new application, including a new set of documents, or ask for an amendment. Building consent authorities can advise what you need to do, depending on how major the changes are and also what additional fees are payable.

Advising unsuccessful tenderers

When you’ve finally made your selection, it is courteous to advise those who missed out, in writing. It takes time and money for builders to prepare tender documents, often for no result.