How Do You Price That Construction Project?
Contractors always face the predicament of correctly pricing a job. Too high and lose the work; too low and make no money. A good price is one that works for both the contractor and the customer. Basing a price on what the competition is charging may sound like a good starting point but the costs available to one company may not be the same for another. As well, neither material nor labor costs are hardly ever fixed, especially over the term of a project which often spans many months.
What’s a contractor to do? Many include a price adjustment clause in their contracts. If costs increase between the time the contract is signed and the time the materials are ordered, then that increase will be passed on. Some make their supply houses or subcontractors guarantee quoted prices for up to a year, passing down the risk of any increases.
Of course, some price adjustment clauses provide for both upward and downward movement, and those usually include a ceiling of some sort (generally in percentage form) to protect against a runaway adjustment.
Not pricing a job correctly could easily transform a profitable project into a money-losing proposition. One would, therefore, do well to consider including some sort of price adjustment formula in each agreement.