What do you need to solicit a quote

Whether you are hiring an architect or a general contractor, in order to ensure you receive a good comparable quotes, there are certain key pieces of information you must include with your solicitation.  If you are missing any of these items you could find that your quotes have a wide pricing spread.  Don't just assume that the high number is wrong, make sure that the basis of all bids is the same.  You can do this in hindsight after the bids come in, but best practice is to ensure that your initial quotes are all on the same basis.  Ensuring that your solicitation includes the following elements is a good way to make sure you get comparable bids.

Scope of Work

The most obvious piece of information is the scope of work.  Your scope of work depends greatly on what type of services you need and what phase of work you are in.  If you are just starting your project, you might need to have some preliminary work done in order to help document the scope for your Architect.  In later phases of work, your Architect's drawings become the scope of work. 

Scope of Services

Another piece of information you will need is the scope of services.  The difference between the scope of work and the scope of services is that the scope of work reflect what you want to build, the scope of services reflects how you want the services performed.  For your designer, this document should address how many design milestones your require, how drawings are to be presented to you, and what level of interaction your Architect is expected to have with the local building department.  For the GC, this should address, site clean-up, working hours, and parking.  These are just a few examples of the topics that should be included.  

Schedule

Another key piece of information that you will need to solicit a quote is your project's schedule.  It's important to let your consultant or contractor know what kind of time you have in mind for the work.  This could impact the amount of resources needed and how quickly they will need to mobilize.  When you are communicating your schedule you don't need to be very detailed.  All you need to have is your key milestone dates identified.  For example, you may only know that you want to start design on a particular date.  You may not know when construction will start or when construction will end.  Alternatively, you may have a specific need date in mind.  If so, communicate your intended end date and allow the bidders to plan the intermediate dates accordingly. 

Contract Terms

Contract terms are another key piece of information when soliciting a quote.  Make sure you know what form of agreement you expect to use before you even asking for numbers.  This will ensure that everybody is meeting the contract terms or at least they're aware of them.

Bid Form

Another key component of a good solicitation is a bid form.  This is less about information for the bidders and more about your ability to compare quotes.  It's not a good idea to allow bidders to submit their quotes in any format they choose.  There is no standard way to quote a project.  Invariably, what will happen is that you will be forced to try and reconcile the differences on the back end.  That can sometimes be impossible and you may find yourself working harder to confirm details with each bidder.  In the end, you may still be left with uncertainties and may be making an uninformed decision.

There are a number of best practices that go along in creating each of these documents.  I'll tackle each of these individually in future postings.  Regardless, the main idea here is that all of your bidders should have the same complete information on which to base their quotes.  If you are not clear, the bidders may make assumptions which could be reflected in higher or lower quotes.  This could lead you to bad award decisions.

Why you need a budget

So you have decided to take on a construction project.  You have a clear vision of what you want and you have a dollar limit in mind for the work.  Are you ready to move to the next level? 

If you have not sat down to estimate the cost of your vision the answer is no.

It is important to note that an estimate and setting a dollar limit are two different things.

Your budget should not be based simply on how much money you have available.  Your budget should be based on a well-developed estimate that meets the scope of work you want.  

You will need to do a little legwork in order to be ready to develop your budget. 

Make sure to invest in preliminary studies and conceptual designs to document your vision. 

Don't be discouraged if your first concept comes in higher than you expected.  There are a number of design options to help lower costs without compromising your vision.  Work with your concept designer to modify your concept until the design has been optimized. 

If your optimized design still exceeds your available funding you have three options:

1. Shrink your program.  If your vision was too grand, you might want to consider a smaller version of your vision.  Perhaps you can do with less square footage or one story instead of two.

2. Phase your project.  Do you need everything all at once to operate, or can you build a portion now and the rest later?  Consider a phased approach which allows you to begin operating while you generate revenue and save for phase 2.

3. Can you secure financing?  There are a number of financing options that can help you reach your dreams.  Perhaps you can finance the cost of the project and actually hang on to more capital.

Preparing an estimate will arm you with the information you need to anticipate your funding needs.   You don't want to start the project unless you know you have the funds to finish the project and you wont know this without an estimate.

Let me know your thoughts and write me if you have questions.

How to avoid change orders on roof replacement

A couple recently came to me upset that they were forced to accept a change order on their roof replacement project.  The value of the change order was 50% more than their initial quote. 

The contractor presented them with the change order only after their existing roof tiles had been stripped off the roof.  He told them that the change order was for extra unknown work required by the local building code.  He said that he could not install the new roof without first replacing the existing plywood decking.  A local fire ordinance required fire rated plywood that was installed prior to 1992 be replaced with new fire rated plywood.  The house was built prior to 1992 and the code requirements did apply.

The couple argued with the contractor which caused the contractor to call his men off the roof and stop the work. 

The couple stood their in front of their home with their roof exposed and a pile of old roof tiles on the front lawn.  The contractor produced his contract which excluded replacement of the decking and another document that cited the code regulation.

For anyone caught in this situation, this can be gut wrenching.  You have no choice.  The contractor could charge anything he wants and you would be obliged to pay.  The alternative would be to go back out and find someone else, but you would have to deal with an exposed roof and maybe even have to cart away the debris the first guy leaves behind.  Basically, there is no choice but to accept the change order and move on.

So what went wrong and how could this have been avoided?

First let's see what the couple did right.

This couple did solicit multiple bids, so they were not relying on a single proposal.  They did solicit quotes from local contractors familiar with local regulations.  In this case the couple also had unit pricing for new plywood, so the contractor had to honor that rate.  One would say they did go about this the right way.  They claimed that all of the solicited contractor's excluded replacing the plywood decking.  They all stated that they could not know if the plywood needed to be replaced without taking up the tiles.

There are a number of subtle changes that this couple could have made which would have resulted in better results.

1. They failed to request the proposal on the same bidform.  When they solicited proposals they did not present the contractors with their own bid form.  This gave the contractors freedom to present their quotes in whichever format they chose.  In turn this made the homeowner's work of comparing the quotes more difficult.  Before you solicit a quote always create a bidform and require that the contractor presents their price on your form.  Ask for as much detail as possible.  I will post an article on how to build a bidform in the near future.

2. They failed to ask for a fixed price.  All of the contractor indicated that there was a chance that the plywood would have to be replaced.  In hindsight, it seems obvious that they all were aware of the local ordinance and simply were not forthright with the owner.  Anytime you have a potential for a change order, the way to deal with this is to ask for a fixed price (this is called an add alternate price), in this case the couple had a unit price.  Fixed prices are better than unit prices because a fixed price is more predictable.  Make sure your bidform includes a line item for add alternates, but make sure you describe the scope of the add alternate in as much detail as possible.

3.  They failed to invest in preliminary studies.  It may seem unreasonable to spend money on an architect for a simple roof replacement, but for a few hundred dollars, an architect could have informed the couple of the local ordinance and could have inspected the plywood from inside the attic to determine if it needed to be replaced.  In this instance the Architect's cost would have been less than 5% of the total cost of this work (inclusive of the change order).  The Architect could have also advised the couple on how to breakdown pricing on their bidform and helped draft the description for the add alternate.

These simple subtle changes would have saved this couple the gut wrenching drama they experienced.  I also think that they might have paid less overall (including the architect's fee).  Soliciting prices from contractors is more than picking up the phone and asking for a quote.  Even the simplest remodel or repair work deserves some level of investigation and preparation.

Tell me your stories.  Have you experienced similar circumstances?  Do you think these simple changes would have helped you?

Why Honesty is critical to a successful construction project

In the construction industry you have a lot of stakeholders and partners to work with.  This makes teamwork really important.  In order to foster a good team environment, trust is priceless.  Trust is built over many weeks and months of good will and cooperation, but trust can be broken in a single moment of weakness. 

Our human condition is inherently defensive.  It's common to behave evasively or defensively when we make mistakes, but in order to retain trust, we have to avoid reverting to this basic instinct. 

Although the repercussions of a mistake could be difficult to bear, the impact of obfuscating or deflecting responsibility has far greater implications.  Here are a few reasons why being forthright is the best policy.

Promotes problem solving
All projects encounter problems, the ability to promptly and effectively solve problems is critical to success.  When the team communicates honestly and completely with each other, problems can be mitigated.  Often when problems are revealed early, the impact of mistakes can be minimal.  Conversely, when problems are ignored or hidden, the issues becomes more difficult to overcome.  Communicate your mistakes promptly.  You may be pleasantly surprised when your team rallies behind you to mitigate your mistake so they have no impact at all.

Avoid conflicts
Nothing raises ire and frustration on a job site more than failing to own and acknowledge mistakes.  Conflicts on the job result when one person appears to make more work for others.  Revealing a mistake and owning the resolution of the mistakes is an effective way to avoid conflicts.  When others see you've been honest about your mistake, they are likely to respect you.  This helps them trust you and also promotes honesty from others.

Promotes good will and cooperation
When mistakes happen and you take responsibility for it, others appreciate you more.  Most can empathize with someone who makes mistakes because they know that one day it could be them.  When you own your mistakes, others are likely to help with its resolution.  The act of recognizing your error and then working to correct it shows you are honorable and trustworthy.  People naturally gravitate towards trustworthy individuals and makes them want to work with you.

Enhances quality results
The combination of good will and trustworthiness resulting from your honesty simply leads to higher overall results.  When people enjoy coming to work their work products is better.  An honest and cooperative work environment produces good results consistently. 

Regardless of whether the news is good or bad, being able to rely on accurate honest information is paramount.  Maintain your integrity throughout every project (even when things go bad).  Team members and colleagues will stick by your side when they know you can be trusted.  No one is expected to be infallible but honesty throughout breeds a positive and nurturing work environment that can overcome most problems effectively and with minimal impact.

I have communicated the benefits of honesty in the context of a construction team, but I think these benefits hold for all aspects of your life.

What do you think?  Are there times when you shouldn't be honest?  Were there times in your life where you were honest and wished you hadn't?

Design and Construction Work without a contract. The reason why Owner's should never allow it

Today I want to address the reasons why Owner's should never allow any work to be performed without a fully executed written agreement.

In Today's HGTV world where entire room renovations happen "While you were out" and "Restaurant Impossible" rebrands failing eateries in a weekend, the notion that construction should happen quickly is all too prevalent.  These shows don't reveal the pre-work that goes into performing these miraculous transformations and they don't account for the incredible amount of man-power that goes into these feats.  The most critical component of all of this work is the written agreements that must be in place for any of these projects to happen. 

Aside from the magical transformations that we are treated to on TV, it is all too common in the construction industry for Architects or Contractors to jump right into the work without taking the time to negotiate an agreement.  There are various reasons why these pros are so eager to get started.  For starters, you may have expressed a desire for a very aggressive project schedule, which they are all too happy to demonstrate how responsive they can be.  Maybe the scope of the work is exciting and they can't wait to get started.  Maybe they are short on work or coming off another project and they need the work.  Whatever their reason for wanting to jump right into your project, your reasons for not allowing this are stronger.  Take time to negotiate your agreement and don't skip any steps.

First, when you allow a vendor to start work you give up all of your leverage to negotiate.  Leverage is most important for negotiating pricing and favorable legal terms.  Without this leverage the Vendor has almost complete control over you.  This means you could be pushed into unfavorable agreements that limit your recourse when things don't go well. 

Written agreements are the prevailing document protecting both parties in the event of a dispute.  If you allow a vendor to commence the work or even perform the entire scope of the work without a contract you are relying on verbal communications between yourself and the vendor.  Verbal agreements are not only subject to interpretation, they are also prone to selective recollections.  Problems can arise at any stage of the project including very early on.  Don't allow any work to happen until you have things in writing.

Another reason Owner's should not allow work without a contract is that the scope of work needs to be carefully written and agreed to by both parties.  Without a well-written scope of work, you and your Vendor may have different interpretations of the scope.  Not only does this cause tension between the parties, but then it also opens the window for the Vendor to ask for more money.  

These three critical concepts illustrate the reasons why you should never allow anyone to perform any work without an executed written agreement.  It is too easy to get caught up in the urgency of a project.  Owner's need to take disciplined measures to ensure that they have all the protections possible before any work begins.  Expediting or skipping the contracting process puts Owner's at great risk.  Projects that are allowed to go on without written agreements tend to be more contentious, they cost more to complete, and can actually take longer than projects that are contracted.  Take the time up front to agree on the scope, schedule, cost, and legal terms and your project will run more smoothly and if you have any issue, you will have a basis for resolving whatever comes your way.

Tell me about your experience.  Have you done work without a contract?  Was it successful?  

Building Rules and Regulations for your home construction project.

I've just published my first Article for the year.  The topic I'm addressing this quarter is rules and regulations for a construction project.  I hope you find this helpful.  Here is an excerpt from the article check out my website to read the full text.


There are multiple level of clean-up required during a construction project. Each phase of construction should have clear rules about what you expect.

While construction is ongoing establish expectations to keep the floor free and clear of tools, screws, nails, or other tripping hazards.  Construction debris will be piled neatly until it is ready to be removed from the premises.  Appurtenances that are suspended above the work area will be safed and secured at all times.  Exposed wiring and plumbing lines to remain will be deactivated and safely secured in place.

Rules for daily end-of-day cleanup are also important.  The area of work will be broom swept daily.  No construction debris will be allowed to remain in the area of work overnight.  Tools will be collected and stored in a secure tool chest or carried off the job site daily.  Construction materials will be stored neatly in designated areas.  All electrical equipment will be unplugged from it's power source and stored in a secure designated location.


Check back next week when I return with my weekly blog.

Should you hire an engineer directly or through an architect

Just about every project requires the services of both an architect and an engineer.  In some rare exceptions you might be able to do a project with an architect and not need an engineer.  Such projects are generally simple alterations that don't impact any building systems, but If you are building a new house or adding a substantial addition to an existing house, it is likely that an engineer will be required.

Once the decision to hire an engineer has been made, you will need to consider how to contract the engineer.  Some might suggest the engineer should be hired directly by the owner, while others recommend contracting the Engineer as a sub-consultant of the Architect.  There are pros and cons to both options.

Acknowledging my bias as an architect, I hold a pretty strong view that the architect should always be the lead designer and the engineer should be subcontracted to the architect.  It is true that you will pay some amount of mark-up to the architect in order for them to subcontract the engineer, but for most projects the risk vs reward evaluation does not support hiring the engineer directly.

To fully appreciate this statement it is important to know that the coordination of the building systems is an essential part of the architect's responsibility. 

It may surprise some that architects are responsible for coordination of building systems, but the only licensed professional in the design team that is educated in all of the major systems of a building is the architect.  Engineers are specifically trained in their respective disciplines and tend to know their part very well, but they are generally not familiar with the other systems of the building.  It's critical that you have one central figure responsible for coordination of the design to avoid a large amount of costly coordination during construction.

If your architect does not have a contractual relationship with the engineer and the engineer does not have to answer directly to the architect, the architects authority over the engineer will be limited.  This may put the burden of coordination on to the owner and the owner could take on a needless risk and expense. 

We also need to recognize that the mark-up added to the engineer's fee will be minimal.  Also, most architects are generally willing to negotiate the markup, so if you are concerned about how much you are paying you can discuss this upfront.  Generally a 10% to 15% fee is common.  The lower the value of the engineer's fee the higher you should expect the percentage mark-up paid to the architect.

You may pay a bit more allowing the architect to hold the engineer's contract, but empowering your architect to coordinate the various parts of the project will pay dividends well into the construction phase of work.  What do you think?  Is it worth the additional mark-up for design phase coordination or would you prefer a lower design fee?

For more tips on how to manage your project, check out my articles on www.luisgile.com.

Best Practices for Managing sub-contractors

In most construction projects, sub-contractors represent the majority of the Cost of Work.  Most residential Owners spend no time considering who their sub-contractors are.  While it is not prudent to come between a General Contractor and his subcontractors, it is prudent to establish some parameters for accepting a subcontractor.

In considering the best practices for managing subcontractors, we need to keep in mind that the legal relationship is expressly between the General Contractor and the sub-contractor.  While you can and should establish parameters to govern who the General Contractor can hire, the final decision should ultimately be theirs.

Requiring that all sub-contractor's hold a minimum level of insurance is a must.  There are many trade contractors with little or no insurance and some GC insurances include provisions that could put you at risk if an insurable event occurs.  Speak with your property insurance carrier to establish what minimum insurance requirements you should require from the GC and his subs.

Request proof of licensing for sub-contractor.  This is not cut and dry, there are some trades that are not required to hold licenses.  Call your local Building Department to determine which trades require licensure and require that those trades that do, provide proof of licensure prior to award.

Request copies of the sub-contractor agreement.  The GC must have a written agreement with every sub-contractor.  The GC may be hesitant to provide you with his subcontractor agreements.  This is so because part of the way a GC makes money is by marking up the trade contracts.  The point here is not to uncover overcharges or to negotiate price.  It is important to see that a formal agreement exists between the GC and the subs and that the provisions of the the GC's agreement provide adequate protections for the Owner.  If your GC objects to sharing his agreements allow him to redact any pricing information from the agreements first.  This allows you to see the terms of the agreement without revealing too much of the GC's financials.

Establish communication protocols.  All communications should flow through the GC.  Dont ever give directives to a sub-contractor.  You must respect that the GC has to retain control over the site.  If you give a trade contractor direction to make a change without the GC's knowledge you will be compromising the GC's control over the job. There could also be gaps in the direction you gave which could impact other trades.

Its important to know just how much control is appropriate when managing sub-contractors. Too few controls could mean poor quality, unsafe working conditions, or illegally performed work. Too much control could delay your project, add cost to the work, or increase the owner's risk.  Strike a perfect balance and your project will benefit greatly.

What level of controls have you placed on your subcontractors? Do you feel you had too much or not enough?

For more tips on how to manage your project, check out my articles on www.luisgile.com.

How to ask a Builder for a quote

Asking a Builder to quote a project sounds like a simple task.  Most people put very little thought into requesting a quote, but taking this too casually could be a terrible mistake.

Your first formal communication with an Architect or a General Contractor is when you ask for a quote for your project.

If you don't take the time to communicate how you want the pricing to be presented, you could receive quotations that are difficult to compare.  In the construction industry, there is no standard way to present a quote, so while one bidder may provide you with a detailed quote, another may simply quote you one all-in number.  If you are not clear about how you want the quote to be presented, you may not be able to compare one quote to another.  This will make it difficult to discern which bidder addressed your scope completely and which one will be hitting you with change orders during the work. 

Another common oversight is soliciting a quote without a complete scope.  There are several ways that an Owner can (and should) influence scope.  When soliciting a quote from an Architect, there are several preliminary studies and preliminary design work that you should commission before you solicit a quote for construction documents.  When requesting a quote from an Builder, be mindful that the Architect's drawings alone will not fully address every aspect of your project scope.  If you fail to address all of the elements of the scope, assumptions will be made and you may not be pleased with the results.

Give yourself sufficient time to prepare.  Don't skip any of the typical phases of work.  Spend the time up front to understand your project scope before you make expensive commitments.  The cost of making a change can be as much as six times more expensive during construction phase than it is during design phase.

If you follow these basic steps;  you will be more confident when you solicit your quotes, bidders will know you are serious, you will have bids that can be readily compared, and you will have all you need to make an educated award decision.

What information did you request in your solicitation? Were you able to compare bids? Was your scope clear and complete, or did you deal with several change orders?  Tell me your best or worst experience.

Are you a Project Manager

One of the most important yet commonly overlooked roles in residential construction is the Project Manager.

Owners know they need a builder and most recognize when they need an Architect but few ever consider hiring a Project Manager.

This results in the Owners taking all of the duties and responsibilities of the PM without even knowing.

This gap in the project is felt by all of the team but typically is most detrimental to the Owner himself.

This results in; increased fees, delays in schedule, and poor workmanship.  In addition, Owner's typically come away with a general sense of being overwhelmed and often other members of the team are blamed.

The Project Manager plays a key role in the project team.  The PM has a number of responsibilities.  Getting the most out of a PM means that the procurement of the PM should meet a few key conditions.

     1. The PM should be an experienced construction professional.

     2. The PM should have no affiliation with any of the project team. 

     2. The PM should be hired directly by the Owner.

The Project Manager's role is to act entirely in the owner's interest.  The PM drives scope, schedule, and budget on behalf of the Owner.  Employing an independent professional to work in your best interests can greatly reduce the stress of a construction project.

Follow these simple suggestions and you will reap the benefits of this important member of your project team.

Are you acting as your own Project Manager?  If so, how are things going?  Did you hire a PM and find they were not as helpful as you expected?  Write me and tell me your experience.

Find your builder match

Finding a Builder can be an overwhelming and scary task.

There are many sources where you can find a builder, but making sure he's the right one for you isn't an easy task.

Don't settle for the first guy that answers the phone.  Keep searching until you have at least three viable firms.

Do your due diligence by asking questions and calling references. 

Don't work with anyone who makes you feel intimidated or uncomfortable.

Don't loose sight of the fact that you are the Client.  You are not expected to know construction.  Anyone that acts condescending or does not take the time to walk you through things is not worth considering.

Above all, no matter how large or small your project find someone you feel comfortable with, but don't skip calling references or verifying licenses and insurances.

Were you successful in your search?  How did you find your match?  Did you make a bad choice?  What steps did you skip?

What's new for 2016

Happy New Year everybody!

Yes, I know I'm a little late, but better late than never.

Im going to start 2016 in a slightly different way.

If you were with me from the start (launched my website in March 2015) you will note that the content and design of my site has evolved quite a bit.

From the start, I wanted my site to be a place where you could find articles full of in depth content to help you manage your projects more effectively.

I feel pretty good about the current state of the content and the design of the website so I want to shift my focus to shorter more frequent blog entries. 

My hope is that this shift will allow for more of a quick read along with more interactions between you and I.

I will still be producing articles (like the ones I published in 2015) but there will be fewer of them. 

I would love your feedback on this approach. 

Do you prefer long articles with lots of content or blogs that offer a quick snapshot on a single topic?

Where do contractors hide profit?

Where do contractors hide profit?
By Luis Gile
December 2015

The title of this article suggest that's all contractors are out to hide profits, but I want to make sure that you don't take away that impression because it's simply not true.   The majority of contractors are honest and hard working.  They are running a business and every business is entitled to make a profit.   Unfortunately, there are instances where a contractors "double dips" (charges profit on top of profit) or deliberately hides profit in their invoicing.  In some cases these infractions, are the result of common but incorrect business practices.  Other times it may be intentional.  Either way, my goal for this article is to identify for you some of the potential pitfalls and call your attention to the places where this is most likely to occur.  

Number One:  General Conditions

The General Conditions of Construction is one of the most common places for double dips to happen.  This is also the place where additional charges are improperly applied when a construction change order is necessary.  The key to avoiding this is to make sure that you completely understand and have defined what general conditions include.  This MUST be done up front.  Before you even request the bids.  In other words, you need to tell the contractor what you expect the general conditions costs to include.  This will ensure that when you receive all of your bids (hopefully you have solicited at least 4), each of the bidders have quoted their price in the same way.

Number Two:  Self Performed Work

Self performed work refers to any trade or construction work that the General Contractor performs with his own workforce (as opposed to sub-contracting the work to another company).  In residential construction many of the companies that operate as general contractors began their businesses as trade contractors.  Some may have been carpenters, plumbers, or even electricians, but as they grew and started to get more and more work they evolved into a General Contractor.  This is good because it is a sign that they are very capable and if you understand this, it could be an opportunity for cost savings.  Unfortunately, most homeowners don't know to ask and actually end up paying the general contractor twice as much profit for the portions of work that the GC self-performs.  Don't be afraid to ask about which portions of the work the GC will self-perform and make sure to ask what the profit margins are for both the GC portion of the work and the trade work.  Keep in mind that each trade contract will include profit that the trade contractor needs to make for his business.  If your GC is self performing a portion of the trade work himself, then you should be able to either negotiate a lower profit margin or no profit margin at all for the work he is self performing.

Number Three:  Rental Equipment

Construction Equipment such as bulldozers, backhoes, cranes, lifts, and dump-trucks are commonly used on construction projects.  Most of the time, sub-contractors will provide their own equipment and include the costs of the equipment in their price.  Other times, the GC might rent equipment from an equipment rental company, these costs are invariably passed along to the Owner as rental equipment costs.  Rental equipment costs could either be included as part of the cost of the work or as part of the general conditions.  In some cases, the GC might own his own construction equipment and he may charge the owner a rental fee for using that equipment for the project.  Construction equipment is expensive to own and maintain and contractors are entitled to charge fees to cover their costs.  However, the cost of maintaining equipment should not be the same as the cost for renting equipment.  Costs for GC owned equipment should be treated the same as self performed work.  Don't be afraid to ask who will be providing equipment for your project.  If the GC will be providing some of his own equipment, ask him to quote you his rates and make sure you understand how he will be applying profit to those rates.  

Number 4:  Change Orders

It may seem pretty obvious that change orders are a great place for profit to be hidden, but you may not know how profit is hidden in change orders and how to avoid overpaying for change orders.  The most common way that GC's overcharge on change orders, is to add general condition costs to every change order.  If you have properly defined what is included in the general conditions costs, then you should be able to discern when a change order should include general condition costs and when it should not.  To ensure that you are not overpaying for change orders, make sure you negotiate change order rates as part of your overall price negotiations.  Ask for change order rates as a percentage mark-up.  These rate can be applied to change orders by multiplying the costs of the change by the percentage markup to establish the GC's profit.  Also, if you know in advance that a certain portion of the scope is subject to change,  the best way to avoid overpaying for a change is to solicit alternate pricing.  Alternate pricing can be used to price alternative solutions for almost any part of the scope of work.  By soliciting this cost up front during the bid you are ensuring that you have competitive pricing for this alternative scope.

The various cost elements that make up the cost of a construction project can be very complex.  You have multiple contractors and lots of moving parts to track.  Being clear and deliberate about every cost element is the best way to ensure that you are getting a fair price.  Be fair to your General Contractor.  He should not be expected to eat costs or perform more work than you are not willing to pay for.  Keep in mind that he is running a business and he is entitled to earn a fair profit margin on everything he does for you.  Conversely, you are entitled to know and to negotiate just how much of a profit margin you are willing to pay.  Address all of these issues early on and you will have a much more successful project.