A fixed price proposal, sometimes called a bid, is a term which is often used in the building industry. It means that a specific amount of work will be carried out for the price set out in the contract. A good example would be: 100 square foot of vinyl flooring will be removed and replaced with 100 square foot of wood flooring with a material’s guarantee of 5 years.
If, any extra work is required, or there is a change in materials, an amendment to the contract is issued, and it is known as change of work order. When you change anything on a fixed price bid project, you need to make sure a change of work order is completed.
The Pros of a Fixed Price Bid
There are pros to the fixed price bid for both homeowner and contractor. The homeowner will know exactly what materials are going to be used and the project cost. Attached to the fixed price is often a payment schedule or calendar. This helps both the homeowner and contractor to stay on track with financial obligations.
Bids can sometimes mean more work for a contractor to start with, but many homeowners prefer them as they are easier to compare to other contractor’s bids. Building Contractors often prefer bids as they can also allow an “extra cushion” for expenses.
The Cons of a Fixed Price Bid
Sometimes homeowners can end paying more for a fixed price bid because of the cushion built in by the contractor. There is often a lack of detail in fixed price bids, and this can lead to change of work orders being issued. Most of the time, this means that the emphasis falls on the homeowner to increase the funding of the project. The other option is to go for a time and materials contract which can be less costly when it comes to the final payment.
An important point
I have worked with fixed price bids for many years, and I always make sure they contain a scope of work. This is really a legal term for a detailed description of the work that must be included along with clear details of materials.
That doesn’t mean that materials can’t be changed, but you would once again be forced to issue a change of work order.
A bid sometimes also includes allowances. This means that the materials for a specific part of the project have not been decided on yet like kitchen hardware, appliances or something fundamental as what type of roof insulation to use. If, you do decide to go down this route, be aware of the fact that these allowances can reduce as well as increase the cost of the project.
Understanding the final cost, and making sure that you can pay the final bill, should never be underestimated when it comes to bids and estimates. Home remodeling projects are never cheap, and it is best to make sure you have the entire budget available before the work starts.