Understanding the Art of Evaluating a Subcontractor Bid in Real Estate
In the world of real estate investment, understanding how to evaluate bids from subcontractors can play a pivotal role in the project’s success. This critical process resonates with lessons from Victor Menasce’s Real Estate Espresso Podcast, where he discusses the crucial aspects of accepting a subcontractor bid.
Proper Specification and its Importance
One of the areas Victor emphasizes regarding Real Estate Development Subcontractor Evaluation is the procurement process used by many government departments in the U.S. and Canada. It’s noted that the purchasing process should not merely rely on the lowest bidder who meets the minimum requirements. Victor argues for a more holistic approach, considering factors beyond price, such as the longevity and quality of a product, requiring a thorough specification document.
| Specifications Category | Impact on Project |
|---|---|
| Required by Building Code | Mandatory for project completion. |
| Product Life Cycle | Defines the longevity of a product. |
| Product Quality | Determines client satisfaction. |
The Risk in Overlooking Specifications
Failure to properly specify can lead to grating risks in a project. Misunderstood scopes of work can often result in steep cost disputes between builders and subcontractors. High-risk circumstances include situations where subcontractors quote a lower price but fail to deliver the proper quantity of material.
Take for example a scenario where ceramic tiles or paint used do not meet your standards but were the cheapest option available. Resolving such an issue can lead to extra costs, disrupting the original budget and potentially leading to disputes.
Understanding the Root of Cost Overruns
According to Victor Menasce, cost overruns in the real estate industry happen with “alarming regularity.” Subcontractor bids that seem enticingly economical initially might turn into a financial nightmare due to overlooked specifications in scope.
The conversation further highlights how critical it is to pay attention to the scope of a quote to minimize misunderstanding and miscommunication. This ensures that every aspect of the project, from the required work to the quantity of materials needed, is understood and agreed upon by all parties involved.
Preventing the Misunderstandings with Detailed Specifications
Victor advises that ‘refining the specifications for a bid can prevent most misunderstandings and disputes with subcontractors.’ He further observes that employees paid on an hourly basis may not work as efficiently as those hired for a specific job. Considering how to pay workers as part of the bid evaluation can result in significant cost savings, higher productivity, and significantly fewer misunderstandings.
In conclusion, when evaluating subcontractor bids in real estate development, consider more than the price. Understand the importance of a detailed specification document, be aware of the common causes for cost overruns, and take time to refine the details of a project’s requirements to ensure a compatible scope of work for both the client and the subcontractor.
