Blog Version 6 of 6
Soliciting multiple quotes from a variety of dealers is recommended as a best practice, however, careful analysis needs to be conducted when making purchasing decisions based on the information returned from the dealers. Three sets of variables impact ultimate price of a material package from a dealer:
1. Material Quoted
2. Quantity Quoted
3. Per Unit Price
Giving the building material dealers any leeway, whatsoever, damages any hopes of making accurate comparisons between material comparisons. As was seen in the Exteriors section, even when a specific siding was requested as part of the package, multiple material dealers took it upon themselves to substitute lower cost, lower quality materials to drive down the package price for an inherent price advantage over their competitors. While savvy builders may have caught that nuance in the material package, they shouldn’t have to. A certain degree of trust should be inherent between a customer and the dealer. When a prefinished product is requested, the accompanying accessories should also be prefinished.
Beyond the siding, multiple examples exist throughout the quote that illustrate the liberties estimators take when creating a material takeoff and subsequent quote. Unless every item is specified throughout the quote discrepancies are going to exist when comparing quotes between competitors.
Similar to the various material discrepancies, quantities ranged greatly between the quotes. This was expected given the various judgement calls estimators need to make when performing a takeoff. These discrepancies can be attributed to variations in measurements, the means of which those measurements are taken (handheld ruler/scale, digital tools), and various waste calculations each estimator implement to arrive at their final quantities. It should be noted that nowhere in the quotes were waste factors addressed. They could range from 0% to 20% with no communication to the person making the decision. With that large of a range for variety, any particular dealer could have won or lost multiple portions of the estimate.
Per Unit Price
Individual unit price is ultimately what should determine the winner(s) of the estimate when determining low bidder. Per unit pricing is based on each dealer’s purchasing power, quantities in which they purchase (rail car, truck load, unit, loose), timing of their purchases (high vs. low markets) and the margins they apply to those items. As we saw in the framing section, OSB is one of those items that vary a great deal based on the factors listed above. When a particular dealer purchases linked with their purchasing power and method along with the margins applied to a particular product can significantly influence the package price and likelihood of winning a bid.
Builders should look to take responsibility for determining exactly what materials they want to use on a project and specifically call out what quantities they want utilizing waste percentages they know and understand that they can attribute to the specific crews working on their jobsite. Most large builders do this already and as a result eliminate two of the three variables that impact material package pricing. For smaller builders who believe the process to be too complicated or time consuming, they should look for independent take off services to work on their behalf to determine products and quantities for a specific job. These services can be obtained for around $500 or less than 1% of the material cost on a typical project. Utilizing an independent take off service and determining products independent of a material salesperson also ensure builders are getting the products they want versus a product a salesperson may be incentivized to sell based on higher commissions and/or margins.
Smaller builders are also more likely to trust their ‘gut’ when making purchasing decisions and only make purchases from a single material dealer with whom they have a good relationship with. While a lot of builders value their relationship with their building material salesperson, what is that relationship worth? Is it worth $5000 on a project? More? Less? The relationship can still exist while making sound business decisions based on fair and accurate comparisons. If a builder doesn’t consistently shop between a variety of dealers, they will end up paying more job to job and sacrifice profit or value to their customer. A best practice is to shop pricing on each job to know exactly where each dealer sits and then make decisions based on relationship once that information is known. In other words, its best to trust, but verify.
Beyond taking control of the takeoff process and material selection, builders should utilize tools to make sound purchasing decisions, such as spreadsheets or pricing matrices. Over 100 pages of documents were received with these five quotes, all in different formats with varying product descriptions with item pricing spread throughout the quote. No two dealers provided pricing information in a similar format. Some created a single long list with randomly placed items while a couple broke down pricing by project stage. Even with those that broke the line items down by stage, many crossed over with which stage they were included. An example of this was house wrap. One dealer included it in the siding/exteriors package while others included it in the framing package. It’s difficult for builders to understand their pricing information if they have to flip between multiple pages to draw it out and make accurate comparisons. The building material dealers are putting the builders at a disadvantage via the methods in which they are delivering their pricing information.
Builders, when asking for material pricing, should specify the materials they want with specific quantities and ask that that information be returned in the exact order it was provided, ideally in a spreadsheet. This will allow the builder to take a few steps and consolidate their information into a single spreadsheet and make accurate comparisons to know where each dealer sits on price. Once that information is known, the builder can make purchasing decisions not only on price, but on other items dealers compete on such as delivery timelines, percentages of deliveries made in full, return policies and overall level of service.
This LBM blog post is one of a series of posts outlining the findings from a study conducted on 5 various building material suppliers. To download the entire White Paper visit: https://www.lbmsupply.com/lbm-white-paper or visit https://www.lbmsupply.com/shop for purchase options of unredacted versions with pricing included.