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Contractor's Costing

House costing

To estimate the cost of building a house, contractors usually use the cost per square meter as the basis.  But while contractors use this estimate, proposals and contracts should contain more than these broad cost quotations.  Make sure that your contract should detail the exact materials to be used for your house.  This will avoid misunderstandings later on, ensure that you know exactly what you are paying for, and help avoid overpricing.

Planning ahead is really a key to lowering the cost. Contractors complain that there are clients who frequently change their minds about materials and design or who prefer to plan along the way rather than set everything from the start.  As long as the materials have not been bought yet and the client decides to change his or her preference from that of the plan, then there is no problem.

If, however, the materials have already been bought, the added cost is, of course, chargeable to him or her.  If the materials have already been installed, the contractor usually comes up with the cost of building such a portion of the house which the client wants to change and simply multiplies it by two plus the added material cost.  All these changes presume that there are no basic structural changes to the house.

Fair Profit

So how do you know if your contractor is overpricing? Actually, usual fair profit that a contractor should have for his projects is between 20 to 25% (although this would be at the lower end). That is, he can take home an extra 20 to 25% above the total labor-material cost. 

You will know if your contractor is overpricing if his labor cost comprises 50% of the labor-material cost. Usually, labor costs accounts for only 35 to 40% of the total project cost. While this is the usual case, there may be some exceptions, especially when the materials used are the more inexpensive ones. That is why it is best to get the details of the material and labor costs. For example, when painting walls using latex, labor cost should equal to material cost, if not more. When using the more expensive enamel, labor expenses should be one around 40% that of the material cost. Other aspects of house building will have its own acceptable ratios.

Payment Terms and Contract Type

The most commonly used billing method when building a house is the progress billing. The usual practice is to give 35% down payment upon signing of contract. That would be about the minimum. This money is usually used to buy the materials needed.

Thereafter, payments will be made based on the progress of the construction. There are expected milestones in a given time frame, such as the completion of the structure (beams and posts), the shell (walls), and the finishing (paints). There are corresponding budget requirements for each part.

The most basic structure, for example, will require around Php8,000.00 per square meter to complete. Therefore, the budget released should be equivalent to this by the time this portion is finished. If say, the structure will make two to three months to make, the release of the funds for the construction of the structure will be divided two to three times ending on the time the structure is complete.

For many contractors, they will require a monthly release so as to ensure that they have the proper cash flow to buy materials and pay their people. The bigger companies have the funds and may need payment only every two months.

Be sure you have a retention of between 10 to 15% of the total labor material cost. This is needed for your warranty and may be paid one to three months, if not five months after the turn over of the house.

Very rarely, there are individuals who prefer a different type of contract and billing terms. This is the open budget contract where the client requires the contractor to declare the actual labor and material costs and then add 20 to 25% for his profit. This is most often done by individuals with almost no ceiling for their budget and may from time to time add materials while the construction is ongoing or change the mind about certain aspects of the construction.

Warranty

As prescribed by law, all houses have a warranty of up to 11 years for structural defects. These include the beams and posts, its collapse or deterioration to the point where it might cause the house to fall or crumble.

The liable person in such cases is the structural engineer who signed your plans.  That is why it is really best to go through the right process of getting the right plans, have them signed by licensed individuals, and execute the plans properly so you can exact responsibility when needed.  The requirement of having plans signed by the right professionals is not to be seen, therefore, as an added pain in the neck hatched by the Office of the Building Official (OBO) just to make your life miserable, but a way of ensuring quality and safety in the construction of your new home.

The warranty for other problems of quality is not directly covered by law, such as, hairline cracks in the walls, electrical, and plumbing problems. That is why it is advisable that you retain 10 to 15% of your final payment until after one to three months from the time the house is turned over to you. Such a provision should appear in your contract.

Variance from OBO requirements

There are instances when your desired design goes against set standards by the building code or zoning and building ordinances. In such cases, there may still be a chance that your preference will be implemented legally. You may actually request exemption from OBO. In many instances, there are already corresponding fees pegged for such deviances from the requirements. However, the approval of the local legislative council will be required to approve your requested variance from the standards. This may be a tedious process, but to some is well worth it just to be able to build their dream house.

 

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