What is pre-construction? A homeowner’s guide to fair pricing.

In theory, bidding seems like an ideal approach to ensuring fair pricing. What could be more revealing than sharing plans with various builders and asking them to determine the cost of construction? The truth, however, is that bidding is far less straightforward than you might think.

Builders tell us that bidding is less common now than it was 20 years ago. In its place, pre-construction is becoming the new standard. Pre-construction offers a collaborative and effective process for aligning design with budget while also building a trusted team. Find out what this process entails, the benefits it provides, and how it supports quality.

Pre-construction benefits the entire project. It improves the quality of the home that gets built while also strengthening the team working to build that home. Here’s how:

1. Design aligns with budget

"Our role is to play devil’s advocate to both the architect and homeowner,” said Michael Conneely, Owner of Chicago-based Greenside Design Build. “We’re there to make sure the target budget is always the target,” he said. This is how you avoid designing a project you can’t afford. The builder brings to the conversation knowledge about the true cost of construction in your market. As the pro who’ll hire the labor and buy the materials, they’re best positioned to price a project.

2. Constructability is improved

The builder will also bring a boots-on-the-ground perspective on how design translates into reality.  They can anticipate challenges and opportunities that might not be obvious on paper. “We’re making sure you’re not leaving opportunities by the wayside, asking the good questions, and really understanding what it’s going to take to execute the project before starting,” said Schiffer. Their perspective can positively impact design. In fact, most architects agree the best projects involve the builder early.

3. Trust is built

Pre-construction allows for an extended getting-to-know-you period with the builder. “Pre-construction builds a high level of trust,” Conneely said. Generally, pre-construction contracts are separate agreements from building contracts, so you're not committed during this phase. You get to wait until the detailed plans (design, schedule, and budget) are set before you decide if you want to move forward with the builder.

While the specific deliverables will vary by builder, a pre-construction contract will typically include the following:

• Design assistance: As you meet with your architect to develop the design, the builder will join these meetings, weighing in about both costs and construction feasibility. They may already be exploring how details could be built by reaching out to manufacturers, like us, to request shop drawings — detailed drawings manufacturers can provide to support installation.
• Estimated schedule: One of the biggest questions related to a new construction home is, “How long will it take?” At the end of the pre-construction process, a builder will have an answer in the form of an estimated schedule. 
• Project Budget: Once the blueprints are complete, the builder will deliver a comprehensive budget for building the home that your architect has designed. The budget will reflect the materials, labor, permits, and other details. Wondering what’s in a new construction budget?

Ask what pre-construction services include when you interview prospective builders. Want the complete set of questions to ask a builder.

“Generally speaking, we’re all paying the same amount for labor hours and materials,” said Schiffer. One builder’s overhead and fee could be different from another’s, but even with variations, the difference between what one builder charges versus another shouldn’t swing wildly. “Everyone should be within a few percentage points of each other,” said Steve Tankersley, President and Owner of Sacramento, California-based Tankersley Construction. “If you’re working with a builder who shows you the information you need to make your decision and explains how they came up with the total cost, then it’s a fair price,” he said.

TIP: The right fee structure lends transparency that can make accepting the cost easier. One of the most popular fee structures used by builders is called cost-plus. Under this model, builders bill for the cost of construction and their agreed-upon fee as the project is being constructed. This means you see the costs as they’re incurred, and you can ask questions. You might even be involved in some of the decision-making. Ask about fee structure when you interview your builder — find out what other questions you should ask your builder before hiring.

TAKEAWAY: Bidding and pre-construction aren’t the same thing. Instead of parsing bids that likely aren’t equivalent, pre-construction gives you a deeper understanding about why the cost is the cost. It informs your decision–making and empowers you to collaborate with both your builder and architect on a design that leverages their expertise while also making the most of your budget.