Throughout this blog, I have posted several articles addressing the various pricing models available for your project. Today I want to take a moment to specifically cover the three cost categories you should address in every construction quote.
It must be stated that depending on the pricing model you use and also the delivery model you use for your project, the way each of these categories is solicited may change. I will cover these differences in future postings.
Regardless, whenever you solicit pricing for construction services, you should always address these distinct cost categories.
Cost Category #1 – Fee
The first pricing category is the General Contractor’s fee. This is where most people place their focus, but it should be noted that as a percentage of total cost, the GC’s fee represents the lowest percentage of cost. I define this pricing element as the company’s overhead and profit. This should include all labor, material, and equipment used off-site by the GC to oversee and manage the work.
Cost Category #2 – General Conditions of Construction
The second pricing element is the General Conditions of Construction (GCoC). The GCoC are the costs incurred by the GC for managing the work. I define this as the expense required for supervising a clean, safe, and orderly construction site. This should include all onsite labor, consumable materials, temporary equipment, project insurances, temporary facilities, utilities, and miscellaneous expenses directly incurred by the GC for managing the construction.
Cost Category #3 – Cost of Work
The final pricing element is the Cost of the Work (COW). The COW is made up of all of the trades that go into performing the construction work. I define this as anything that provides a permanent improvements on the property. This includes all of the trade labor, materials, and equipment that goes into the building. It should be noted that most of these costs come from subcontractors, but some GC’s may also self-perform trade work. Self-performed work must be treated slightly differently, but it’s still part of the COW. The COW breaks down into several line items, how we break those downs will be a topic for a future posting.
So those are the three cost categories in every construction project. Regardless of how you choose to price and deliver your project, these categories are always there. Defining these up front is critical. There are no standards for this in construction and one GC will define these differently than another, so you will need to define these ahead of your solicitation or you may not have apples to apples quotes.
I hope this helps you better understand construction pricing. Have you used the same categories or do you have another way of evaluating construction costs?
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