Why Your Contractor Bids Don't Match

Yesterday we got bids back for a client. Three general contractors, the same set of drawings, the same house. The spread between them was two hundred thousand dollars.

One of those builders budgeted $27,000 for the cabinetry. Another budgeted $115,000. Neither of them knows what cabinetry this client is going to pick.

If you have ever been handed a stack of bids like that, you already know the feeling. Something must be wrong here. Someone is padding this. Someone is trying to take advantage of me.

I understand that instinct completely. When you cannot read a document, suspicion is a reasonable default. Most homeowners have never seen a construction bid before the week they have to choose one, and there is a lot of money attached to a decision you feel unqualified to make.

But in my experience, a $200,000 spread almost never means someone is lying to you. It usually means the three bids are not measuring the same thing, and nothing in the documents tells you that.

Here is how to find out what you are actually looking at.

Quick disclosure, because it matters: we also build. Kaage Homes is a design-build firm, so sometimes we are one of the bids. Sometimes a project is not a fit for our schedule or our scope and we design it and then help our client choose the right builder. I am going to tell you how to take apart a bid like mine.

There is no standard format for a construction bid. Every GC has built their own over years of running their own jobs. The line items are roughly the same work, but they get different names, they show up in a different order, and they are grouped differently.

So when you lay three bids side by side, you are not comparing three prices for one project. You are comparing three different documents that each describe the project the way that builder thinks about it.

And the single biggest reason the numbers diverge is buried inside them, usually unlabeled.

An allowance is just a budget for materials.

Your bid will carry allowances for cabinetry, tile, plumbing fixtures, lighting, hardware, countertops, appliances, and a long list of other things. It is the builder’s placeholder for a decision you have not made yet.

Nothing in a bid highlights these in yellow. Sometimes allowances are broken out on their own line. Sometimes they are baked into a labor number and you would never know. Sometimes they are labeled clearly and sometimes they are labeled something else entirely.

This is where the money hides.

On this project, one builder allowed $27,000 for cabinetry for the entire house. Another allowed $115,000. Same house, same drawings.

That is not a pricing difference. Neither builder knows what cabinetry you are going to choose. In most cases you are free to order cabinetry from anywhere you like. They may have millworkers they use and recommend, and that recommendation is worth something. But nine times out of ten an allowance is a builder saying this is what people spend, this is what seems reasonable to me.

It is a guess about a decision that is yours to make.

Here is the trap.

You compare three bottom-line numbers and pick the lowest one. What you may have actually picked is the builder with the lowest guesses about your material budgets, whose labor is the most expensive of the three.

You will not find that out at signing. You will find it out six months later when your cabinetry comes in over allowance and the number you agreed to stops meaning anything.

To compare bids honestly, you have to even them out.

Go through each bid and identify every allowance. Ask the builder directly if you cannot tell, and be specific: which of these line items are material budgets, and which are labor? Any good builder will answer this without hesitation. Hesitation is itself information.

Then zero them all out.

What remains is the actual thing you are comparing: labor, supervision, and the builder’s fee. That is the real bid. That is the part that reflects who is going to be in your house every day for the next year.

While you are asking, ask this too: am I allowed to buy materials from anywhere, or do I have to buy through you? That single answer determines whether the allowances in front of you mean anything at all.

I cannot stress this enough.

All carpenters are not the same. All painters are not the same. All tile installers are not the same.

If you strip the allowances out of three bids and find three different paint numbers, do not simply take the cheapest one. I have seen a three times spread on paint for the same house. One painter at fifty thousand dollars, another at a hundred and fifty.

Both of those numbers can be correct. They are pricing different standards of work.

I know this because I once tried to save five thousand dollars on a lacquer room and it became the most expensive mistake I have made as a design-builder. The short version: I got a quote for $17,000, my stomach dropped, I bid it out, found $12,000, and felt like a genius. The finish came back with orange peel everywhere. We ripped all of it out, sanded and re-primed the entire room, and hired the painter who quoted $17,000 in the first place.

I paid for that lesson twice. So when I tell you the cheapest number is not the cheapest number, it is not because it is not my money.

This is the part almost nobody does, and it is the part that changes the outcome.

Tell your builder what you actually care about.

If budget is the thing that matters most, say that out loud. If you have found a house you love and you want to make it work and you know it is not going to be perfect, and you can live with a caulk line that is not flawless, your builder needs to hear it. That is a completely legitimate way to run a project and a good builder can hit that target.

If you are someone who will notice every imperfection, your builder needs to hear that even more. If you are going to see the one place where the blue tape came up wrong, or where the cabinetry does not meet the stone perfectly, then you need the best craftsmen your GC knows.

And I am going to be honest with you: those people are expensive.

The mistake is not choosing a price point. The mistake is not telling anyone which price point you chose, and then being disappointed by a result that matched a standard you never named.

There is more than one legitimate way, and none of them are wrong. They are just different, and you should know which one you are signing.

Open book, cost plus. This is what my team does. Every receipt from every subcontractor and every material is available to our clients when they ask. We lead with our fee because we know exactly how intense our project management is and what our service is worth. We are not the cheapest, and we are not close. We would rather stand on the fee than bury it.

Marked up. Some builders quietly add margin on top of the work. This is normal and it is how a lot of the industry runs.

Supplier relationships. Some builders have arrangements with suppliers and receive something back for directing work there.

All of this should be disclosed in your contract. If you cannot tell which model you are looking at, ask before you sign, not after.

1. Lay the bids side by side and find every allowance in each one.

2. Ask each builder directly which line items are material budgets and which are labor.

3. Zero the allowances out and compare what is left.

4. Ask whether you can source materials anywhere.

5. Tell each builder, in plain language, what standard you are trying to hit.

6. Ask how each one gets paid.

You will still have three different numbers when you are done. But you will finally know what they are numbers for. And you will feel fabulous about it.

If you remember nothing else, remember this - the lowest bid is not always the one with the smallest total. It is the one with the fewest assumptions, and you cannot see the assumptions until you take the allowances out.

This is one of the things we are building The Design Office around. When it opens, I am handing over the actual GC bid comparison matrix my team uses on real projects, so you can do this yourself line by line.