If you are in the process of finding a contractor to do some upcoming renovations on your home, you are likely feeling stressed and overwhelmed. For many homeowners, interviewing contractors and getting bids and estimates can be the toughest part of the remodeling process. As you go through this, keep in mind that it will eventually be over, you’ll find the perfect contractor for you, and you will ultimately get to enjoy your dream house.
One thing that can make this whole process less daunting is for homeowners to research the differences that exist between bids and estimates; they are not actually the same. As you read this guide, you will find out precisely what makes something a fixed price contract (a bid) or a time and materials contract (an estimate). After you have a clearer understanding of these two kinds of documents, you should more easily be able to choose a contractor who fits all of your needs, including your budget.
What is a fixed price contract?
A fixed price contract, more commonly known as a bid, is a document that states a contractor will do a certain renovation job, or series of jobs, for a set rate. This kind of proposal may, for instance, state that a new roof with flashing, a new gutter system, and attic insulation will be installed for $8,000 plus any applicable taxes.
The point of a bid is that both the contractor and the homeowner know exactly how much money will change hands before the renovation even gets underway. This can be extremely helpful for both buying materials (on the contractor’s part) and planning a budget (on the homeowner’s part). The only time that a bid will change is if the homeowner alters the design plans or finishes themselves.
As a general rule, contractors find bids easier to give than estimates because they tend to involve less overall paperwork and have more precise numbers. In fact, one of the major perks of fixed-price contracts is that a payment schedule can be created before a job’s start date. This allows the contractor to prepare for when he or she will have an idea on when to place the material order, schedule the drop-offs, planning for the crews and labor billing cycles.
The only real downside to a bid is that contractors can find themselves spending more money on materials than they initially intended to, which can cut into their profit margin. In some cases, subcontractors and specialists also increase their rates between the time a bid is given and the time work actually begins.
What is a time and materials contract?
A time and materials contract, more commonly known as an estimate, is a document that states a contractor will do a certain renovation job, or series of jobs, for a variable rate that depends upon various materials’ prices, subcontractors’ rates, and other associated costs. This kind of proposal is generally drawn-up as a line item form. Depending on how big of a project you’re doing, there may be hundreds of items for you to review, each with an individual price.
The main benefit of estimates is that they are easy to review, especially if you interview multiple contractors and have several documents to compare. Some homeowners also prefer them because they never require one to pay for more hours than a contractor actually works; some bids have “cushion” hours built in, so homeowners can technically overpay in some instances.
The primary downside to a time and materials contract is that it can greatly confuse homeowners who aren’t sure how to read it. This can lead to people choosing a professional who is not offering them the best value.
At Hatch Homes, we take pride in providing our clients with clear, easy-to-understand quotes. We’ve been serving families in the Carolinas and Virginia for many years, building a reputation steeped in trust. We hope to be considered for your next job and look forward to helping you every step of the way.