Audio transcript may not be 100% accurate:
Hi, everyone JJ Levenske from Bleuwave live today. I’d like to go over part three of the three part series on the estimate and how to present the estimate on what it means. So in the previous two episodes, we talked about the above the line general conditions type stuff, then the middle part of the estimate. What that represents in as far as the hard costs. And now I want to talk about the below the line items and how to explain that to your owners or what is encompassed in there.
So this is basically now you’ve tabulated everything up, and now this is the last formulaic part. So you have to take into consideration. Or you should take into consideration things as far as like, the applicable sales tax, bonding, your fee, contingencies and any other soft costs that you want to either disclose or discuss with your owner.
Depending on, are you gonna have liability or for that, or is that gonna be entirely by the owner? So let me dive into each one of these.
Big thing I see on sales tax is that people don’t do their homework and look at what this means. So let me give you an example in Arizona we have. So this isn’t hard and steadfast. Don’t hold to this. But in general it’s 65% of the combined sales tax rate is what we apply to the bottom line of a general project.
Now there’s a lot of nuances to that. But by and large, that’s what it is. So we take the time to make sure that within our municipality of the proposed project that we really do a double or triple check on that so that we can convey that to the owner.
Now what does that mean? Well, it’s it could be a big difference. For instance, across different municipalities could be a 2 to 3% difference in tax.
And you do the math. That on a couple million dollar job is a big difference. So make sure you effectively communicate that and calculated appropriately bonding.
I’m not gonna go a lot into bonding that will probably be another issue, but again, just make sure that you have the correct formula and therefore your bond costs, and make sure that you communicate to your owner what that means and what it includes.
Um, because again, sometimes this is not through deceit, but sometimes it’s not clearly communicated. What it includes is far as, the bond and what was required for that particular project if one is required at all your fee again. This, to me is a very subjective conversation.
We talked a little bit about it as it relates to your general conditions in your top of the line costs. So we tend to look at the fee a little. Well, I should say we look at it differently because we don’t.
We tend to be more linear with us because we do a more defined job with the general conditions. So we’re pretty static and pretty consistent across the board on the fee structure, and I’m not gonna go into a lot of detail. But just again, make sure you explain to the owner why you have what’s in there.
It’s a pretty easy conversation if you’re not too high or too low. If you are you playing in the that realm on the periphery, you better be able to explain why contingency is sometimes a contested thing. But let’s be honest contingency is necessary on any on any project, whether the owners carrying it, whether you’re carrying it, whether it’s a hybrid approach where you’re doing it in a, joint solution. If you will make sure that you identify what that is, why it is and be able to talk around it.
We use it as a set of tools. So a lot of times we try to sell the contingency as a cost sharing, vehicle where we can take down, bonus. If we do a lot of other things really well, it’s been very effective force, and we have yet to see where most owners aren’t very appreciative of that. And I could go into a lot greater detail. But again, just high level here.
Use continued not for your advantage. Use it for the project’s advantage so that you’re mitigating the risk for both you and your owner in that capacity insurance. Make sure that you have the appropriate insurance calculations in there for your general liability and builder’s risk.
And then on your, if you’re into different arenas, especially in the commercial market or the multifamily market, there’s different wrap products that need to be clearly identified and itemized out so that everyone has a clear understanding of who’s doing what on the insurance.
Back when I was in the residential world, I saw this being poorly communicated a lot of times where the owner might take out a rider on their existing policy to cover the construction, and the general contractor would also take out a policy.
And in essence, the two parties were over paying and over, ensuring the project and the product. So don’t fall into that trap. Have a very again poignant discussion with the owner of who’s covering this and why? And what those calculations, equate to. The final topic is soft costs, which can include things like ff & e which is furniture fixtures and equipment.