[idopmstuff]

A couple of reasons: 1. Just like with software, you make assumptions that may be wrong because you don't have enough info up front. Whenever you remodel a house, there is always a chance that you're going to open the wall and find that the wiring isn't up to code and needs to be fixed. You always know it's a possibility and can make some guesses about how likely it is based on things like the house's age, but ultimately you're probably not going to include it in the estimate. After all, there's a ton of stuff like this that can come up, and if you included all of them in the estimate, it'd always end up being way too high. 2. Competitive pressure. You're bidding against other contractors. If you bid $1 million and the other guy bids $800k, you're going to lose. When that other guy comes with the bad news that it's going to run $200k over budget, the client grudgingly accepts because the cost would ultimately be higher if they switched contractors at that point.

[araes]

I find comment 2. interesting for a couple reasons.

a) What it says about lowest unique bid auctions [1] and reverse auctions [2] with multiple bidders and multiple auctioneers. That the auctioneers will often (?) take the lowest bid, even if it represents "unrealistic" based on the criteria of the auction (this seems especially relevant in contract procurement).

Especially though, that even in a market, with relatively "transparent" information (concrete costs this much, lumber costs this much, ect...) there's still not much consumer transparency on what "reasonable" prices for construction represent. And consumers or "auctioneers" are likely to just take the lowest number, like a lowest unique bid auction. Whether its lack of information, strong preference for lowest price, can't be bothered to check reasonableness, purposeful cost obfuscation, or some other issue.

b) That people often fall for sunk cost issues. Especially on big purchases. Gov't might drop $100k contract without much notice. Except a $10B contract? Just keep throwing good money after bad. Consumer might switch soap brands on a tiny price fluctuation. Except a $1M house? Just keep throwing good money after bad.

Australia's had a rash of collapses lately, and it's felt this way.[3] 2000 companies in two years, and reading along, lots of companies that basically said "Give us another $200k as a payment right now." ("Even though we know we won't be able to finish your house, because our financials are horrible.") Except buyers felt like they had to, because they already committed to an expensive project.

[1] https://en.wikipedia.org/wiki/Unique_bid_auction [2] https://en.wikipedia.org/wiki/Reverse_auction [3] https://www.9news.com.au/national/building-construction-comp...

[idopmstuff]

> That people often fall for sunk cost issues.

In this case, it's not necessarily sunk cost. There are switching costs associated with bringing in a new contractor, so it is likely cheapest to continue with the current one, even if they didn't bid it right initially.

[conductr]

Switching costs are massive in construction. The permits and loans involved are often tied directly to the contractor and sometimes their subs for licensed trades. Many contractors wouldn’t want to come in and take over at a late stage because they can’t really vouch for what’s been done so it will be seen as risk.

[mym1990]

Ah so little to no incentive to actually get estimates correct out of the gate.

[masklinn]

It’s not just that there’s little incentive, it’s that just as in software getting the estimation right is an almost impossible job.

Hence if you go the other way and include severe penalties you’ll only get significantly padded estimates because the contractor now has to bear significantly more risk.

[ChainOfFools]

There's also a huge moral hazard in these negotiations due to the different traditional ways ( arising from the problem that all parties have perfect knowledge of the agreed upon price, but very imperfect knowledge of the putatively agreed upon product) that we view responsibilities of the person spending the money versus the person delivering the product. and it is doubly hazardous in that it disproportionately harms the honest, thorough vendor by artificially equating their product to the dishonest, corner-cutting vendor.

The buyer has an advantage in that they can negotiate the vendor down through competitive bidding techniques, and by doing so transfer the fault for insufficient delivery entirely on to the bidder instead sharing the fault themselves. If I work two contractors against one another to drive one into the position where they are now no longer safely comfortable they can deliver the product they promise for the agreed upon price, (however I am now safely in my own comfort zone knowing that I've got the lowest possible price extracted from them), well if they fail to deliver what is requested it's now their fault for promising they can do it, not mine for pressuring them into a risky position.

[scrubs]

Surely that's only half the story. A competent customer has got to know low balling now just defers "unforeseen" costs later. If I've done 100 projects surely it's occurred to somebody to look at bid v. actual to gauge discrepancy?

[nikau]

Like all estimates it depends if you must do it for a fixed price or if its just an estimate.

If its just an estimate, you underbid everyone else, win the contract, start building, run out of money past the point of no return, then get more funding.