26 February 2013

Loose products and equipment should be NIC

While it may seem like a good idea to specify every last item necessary for a complete, ready-to-use building, specifying loose items - those that are merely set in place - in the construction contract incurs needless expense for the owner. 

In most cases, the owner is better off buying loose items directly from suppliers, with installation provided either by the supplier or by the owner's employees. Going through a contractor adds labor cost and at least one markup for overhead and profit; additional markups will be added by each subcontractor involved.

There is little incentive for a contractor to search for the best price for these items, especially if they're small, so the owner will pay more than necessary. That's just to buy the product; then the contractor has to bring it into the building, set it in place, and remove the packing.

If it's a public sector project, it's likely that prevailing wage rates must be paid. So now, the owner is paying a laborer $40 per hour to just carry things into the building. I recently checked labor wage rates for a college, and found their laborers make about $20 per hour, half what the contractor's laborers are paid. Even if the project is not in the public sector, the contractor's laborers will probably make more than the owner's employees.

Many owners regularly purchase supplies through office supply stores, where they often get discounts and free or inexpensive delivery, resulting in significant savings over getting the same things as part of a construction contract.

Unless a contractor's expertise is required, it's better to keep loose stuff out of the contract.

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