Construction Cost Estimator: Fixed Costs vs Estimated Costs

Cost estimating involves the monetary management of planning and monitoring for a project and its budget. A cost estimate takes into consideration: labor, materials, equipment, services, facilities, hardware and more. Project cost estimates are held to a timeline decided on by a contractor and the customer. There are two cost proposals in commercial construction: fixed costs proposal and an estimated cost proposal. 

Continue reading to learn more about fixed costs vs estimated cost proposals.

FIXED COST PROPOSALS 

Fixed costs, usually established by contract agreements, are costs that do not change with production levels a company produces. A fixed cost is set over a specific period of time, and the cost estimate remains the same.

A contractor will estimate how much labor and materials your construction project will need. A fixed price will be provided for the project, including details such as the contractor stating they will do x amount of work for x amount of dollars. 

In most circumstances, no bargaining is allowed over a fixed price set. With this contract, an agreement will be decided on and signed. The contract will list the final cost and the length of time for the fixed price. The price is agreed on and will remain the same no matter how many materials or time has been put into the project.

Pros

• Provides stability during the contract’s length. It allows the buyer to set an exact budget in advance. The total cost is known before the project begins. 
• Limits the number of changes during the project. Contractors are aware of budget confines and present detailed plans.
• Both the buyer and construction company can budget easier with fixed cost proposals. Customers prefer transparent contracts.
• Business owners can control hiring costs outside of their company. The contractor and business work out details of the agreement’s total value before signing. 

Cons

• Less flexible. Fixed price contracts can be not as flexible when it comes to managing changes or requests.
• Value of work becomes less important than the price. The focus is on the fixed price, and it can potentially be at the expense of certain project aspects like quality, creativity and timeliness. 

ESTIMATED COST PROPOSALS

An estimated cost proposal projects the total amount of costs to build or construct a project. Expenses can be related to the land, planning and design process, materials and equipment, field supervision of construction, financing, taxes, etc. The cost proposal depends on the parameters for the project, and if the owner strives to gain the lowest possible project cost consistent with investment objectives.  

Under an estimated cost proposal, you will receive an itemized list from labor and materials costs to insurance, and instead of paying a fixed price for the project, you will pay actual market value for the entire construction process. 

Pros

• Itemized list. Having an itemized list of details your construction project needs can be beneficial.

Cons

• Attentive that project stays on budget. Unlike a fixed cost proposal, estimated costs don’t display the entirety of the project. Builders need to be extra adamant to ensure the project stays on budget.
• Costs can vary. The estimated costs vary depending on the stage of project development.

FIXED COSTS VS ESTIMATED COSTS: WHY WE USE A FIXED COSTS PROPOSAL

We want to make the process stress-free and finish it as timely as possible on a budget. A fixed cost proposal allows for our customers to not be as diligent with monitoring the construction process. This can help relieve stress from a project. Fixed cost proposals help you to understand the details, no matter how big or small. If you select a contractor with a solid reputation who can demonstrate their work, you will get quality craftsmanship and a plan that stays on budget. 

It can become confusing to receive an itemized list of every detail your construction project will need. With estimated costs, you will have to be diligent to ensure the project stays on budget as opposed to a fixed cost with the details at-hand prior to starting construction. 

To make the process easier for you while still implementing quality work, we believe fixed cost proposals are the best option.

Lee Reger Builds, Inc. is one of North Central West Virginia’s premier commercial contractors specializing in pre-engineered buildings, conventional and masonry structures. We help clients maintain low ongoing operating and maintenance costs. 

Our team listens to your needs, and we’d like to hear from you! Contact us today at (304) 592-2083.