Negotiating Margin on Cost Plus
DoubleOhHoya
12 years ago
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pps7
12 years agoNESooner
12 years agoRelated Discussions
Cost +, not to exceed or Lump Sum Contract?
Comments (14)Many thanks to pbx2 for posting those articles....so much to think about. I truly trust my Amish crew, but the contractor wants to use expensive products.....so I may have to ask ways that we can cut some of the costs. I really miss DH at these times...since he was an architect/contractor and we "thought" he would be taking care of our new build and now I am left alone to do it by myself. He had planned to act as our GC in our new build and pick out and arrange for all materials that we used. He had many contractor contacts, so we could have saved a lot of money, but now he is gone and the business has closed. All of your responses are appreciated, even if I do not understand them all. I get angry at the person who sold that condo right out from under me just because I asked for a mold inspection, and left me stuck with this decision to build. There is nothing there to buy and this house is sold, so I must find somewhere to live other than stay with my friend very long....See MoreCost plus fixed fee - plus overhead?
Comments (18)He's just splitting his Fee into a % of actual cost for overhead and a fixed sum for profit. How he arrived at the Fixed Fee becomes irrelevant as soon as it is established. When you said the overhead % fee was "in the costs" you meant it would be added to the costs in the bill. I think you understand all of that now. I agree that a Cost of the Work contract can be difficult for a homeowner to administrate. The success of the Fixed Price/Lump Sum option depends a great deal on the quality of the documents and the subs he intends to use. Choosing the contract type is a conundrum. IMO the best contract is a Cost of the Work with a Guaranteed Maximum Price and Shared Savings. It corrects for the deficiencies of standard the contracts. However it requires someone, like an architect, to manage your side of it which would add to your cost. I use it whenever I can but I act as the architect from the beginning to the end. The savings can be greater than my fee but sometimes not; you can't know in advance. And then some contractors are not comfortable using a contract they haven't used before. Conversely, some have gone on to use it exclusively on all of their projects. Who designed and documented the project?...See MorePaying builder, cost plus flat-fee?
Comments (6)The only dependable "cost plus" contract (if cost control is important) is a cost plus with a guaranteed max. With this type of contract an owner has assurance that the maximum construction cost will not exceed the guaranteed max, as long as there are no approved change orders. Cost plus contracts often have a provision to split any savings below the guaranteed max with the builder, commonly on a 50%-50% basis. This provides an incentive to the contractor to stay below the guaranteed max sum. To achieve a guaranteed max, the contractor will include a sizable (undesignated) reserve to protect him/her from surprises. The same thing happens with lump sum construction contracts. Construction contracts are all about risk sharing and who bears the risk. Cost-plus, like time and materials, puts all the risk on owners. Every builder has their own preferred contracts which favor them. Thus, for custom homes, owners have to identify what protects their owner's interests and negotiate the type of contract. For tract homes and for builder subdivisions, many builders may not negotiate the type of contract. I have no idea what a "turn key" contract is....See MoreThe right GC contract: cost-plus or fixed bid?
Comments (13)I agree with homechef, the liability insurance is a flow through cost. In terms of whether these are reasonable amounts, it depends on the scope of your project. For instance, is the overhead fee applicable to your bottom line? Or is it only applying to certain line items? If so, the overhead fee + the builder fee totaling 19% seems to be on the higher side for my area, which is usually about 17% for most cost-plus contracts. Also, if you are being charged a builder fee + a Project Superintendent fee + a Project Manager fee, you may want to get specificity on exactly what role each of those parties will play in the build. My builder charged a flat monthly fee which encompassed the salary for our Project Sup, his office overhead and his builder fee. Home chef gives you some really good advice that I have to echo: the project should have lots of supervision and activity on an almost daily basis. One other thing I would add for anyone building is that you WILL go over budget. I thought I would be the *special* person who could manage the project from our end and stay completely on budget, but the scope was so huge that at some point you begin to think in terms of what is efficient. For example, we added a few things now that we originally thought we would go back and do later. We realized over time that it would cost more and be too much hassle to do later. At a minimum, triple whatever your builder has set for a contingency. There will be some things that you just cannot plan for that will crop up as the project progresses. And while I'm doling out unsolicited advice ;) I'll add this: building a custom home, or doing an extensive remodel as you've planned, is a labor of love. While you will undoubtedly have to compromise on some things, choose a few key details that you have in your vision and don't let anyone talk you out of them. These projects are custom for a reason. And above all, even on the frustrating days, remember what a blessing the space will be for your family and enjoy the process! :)...See MoreSpringtimeHomes
12 years agodavid_cary
12 years agoUser
12 years agoNESooner
12 years agoDoubleOhHoya
12 years agoUser
12 years agobrickeyee
12 years agoDoubleOhHoya
12 years agoShmomey
11 years agoaucorley
11 years agoUser
11 years agoUser
11 years agolvangorp
8 years ago
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