Why Do Construction Companies Charge So Much?
A common misconception exists that construction companies charge too much for their services. If you request bids, you’ll learn that estimates are typically fairly close to one another, generally within a 10 percent range.
The largest cost to construction companies when considering a new project is risk. Companies carry the risk of costs for materials increasing in the middle of a project. In the case of a fixed bid project, guess who pays the difference? But don’t let the high costs be a mystery to you. Explore the following reasons why construction companies charge so much money.
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Every construction job will include some type of heavy equipment rental. From cranes and backhoes to bulldozers and cement mixers, equipment rentals are vital parts of most large projects. A construction company may need to request quotes, place equipment orders, arrange for delivery or pickup of the equipment, use the equipment efficiently, and return the rented items in good condition and on time. Prices for equipment rentals can change considerably from company to company.
The cost of land acquisition is more than the sales price of the land. You also need to consider the cost of taxes, titles, insurance, and development costs. Development costs include bringing in utilities such as water, electrical, and sewer, as well as adding sidewalks, conducting traffic impact studies, undertaking geological surveys, and more. These costs add up quickly and are often difficult to anticipate ahead of time.
City, county, state, and smaller community entities all have different fees and permit requirements. Often, these requirements can add up to more than 20 percent of the total cost of construction. The construction company not only has to pay for the permits, but it also takes many hours to apply for these permits and stay in communication with the permit offices.
Many permit applications first require engineering work. For example, before you can get a building permit, an engineer may need to design and approve a foundation or supports. Engineers are highly paid professionals, and the cost of their services is commensurate with their experience.
Estimating materials for a long project involves some unknowns. The cost of materials, such as wood, cement, and gravel, is constantly fluctuating. Sometimes, unforeseen material shortages occur, and in cases of a fixed-bid job, the construction company has to allocate for that risk. Sometimes, the job also requires more materials than their estimates initially provided. In the case of a fixed-bid project, the construction company has to pay the difference.
Many factors are involved in a construction project. Land acquisition, labor, materials, equipment rentals, insurance, and permits all cost money. Those costs have to be passed on to the customer so that the construction company can make a reasonable profit and pay employees and suppliers on time.
While the costs may seem like an extraordinary amount of money to individuals outside the industry, a detailed process exists for generating bids for jobs. Now that you know some of these details, hopefully you have a better understanding of why construction companies charge so much.