Dan,

I've seen different ways of calculating the sq feet. The most common was:

std ceiling living areas 1:1 (as in 1 actual = 1 calculated)
cathedral ceiling 1:1 1/2
basement / garage / attic (unfinished) 1/2:1

This is used to get a "calculated" sq feet of the house to measure building costs against. Your actual sq feet will vary (especially with a full basement & attic)

Look on the bright side, that cathedral celing room is 25% cheaoper than if it had a second story.

Regarding including the walls, It doesn't make a large difference, maybe that's why he was cheap at $70 per sq/ft?

To evaluate your costs from different builders, simply calculate the total cost using their price per sq foot & their sq foot calculation.