Controlling Costs in an Inflationary Environment

It can be very tricky and frustrating taking on build projects during times of unprecedented inflation, both for the clients and the contractors. However, there are methods and contracts that keep this process transparent while controlling costs and maintaining positive relationships.

In our opinion, the best approach and the approach BONSAI uses, is a CostPlus Fixed Fee contract. This type of contract gives the greatest ability to deliver affordable architecture. Unfortunately, this type of contract is not universally used, and there are multiple other kinds that get implemented by contractors frequently.

The most common contract you'll see is a Guaranteed Maximum Price or GMP. This contract sets a maximum price or limit that the client will have to pay. This method requires a full set of detailed/specified construction drawings for a project, which are necessary for the contractor to understand everything before going to bid on the project. This allows the GC to understand cost, but then, these prices are marked up 30-50% before being presented to a client  This total is the GMP price which will always come at a hugely over-market cost.

Another fairly common type of contract you may run into in the design and build industries is a Cost Plus Percentage of Cost or CPPC. This method essentially allows the contractor to forgo providing a fixed number by bidding on every individual line item and then tacking on a percent markup for each. In these situations, you may find that contractors are not always motivated to get the best price, therefore extra costs become inevitable despite the open-book nature of this contract.

Our solution to these issues that come with contracts such as these, is our Cost Plus Fixed Fee contract. Once the scope of a project is defined via our Concept Service, we then develop an estimated budget which gets bid out during the design+build process. This method is completely open book that is transparently passed on to our clients with no hidden fees or markups. As the design+build process develops and something within the budget is not working, we have the ability to make adjustments, re-bid, and find a solution that is both cost-effective and satisfactory. This practice has proven to be best means of controlling costs and leveraging good relationships with our clientele despite difficult economic times. If you'd like to learn more about our process and Concept Service, reach out for a free consultation with an Architect.