Advice on a Cost Plus Contract
Wayfinder
13 years ago
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Comments (7)
dekeoboe
13 years agoperiwinkle18
13 years agoRelated Discussions
What kind of contract is this--fixed or cost plus?
Comments (4)It appears to be a turn-key (not owned by you until finished) Fixed Price contract with Allowances for some items. Allowances are like small Cost of the Work contracts within a Fixed Price contract. These Allowances should be well defined in the contract. I've never known anyone to be responsible for permit fees other than the owner of the project but if the builder owns the project until the end I guess the permit fees would be part of the Fixed Price unless specifically excluded or listed as an Allowance....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 Morecost plus contract
Comments (33)Before I start this too long post, I question whether or not understanding contracts helps. The lion's share of builders are good people trying to make a reasonable living building decent homes. They may not really understand or even really abide by the contract they signed, but they are still diligently producing a good house for a reasonable cost and not attempting to take advantage of a homeowner. I often pay monies that I could probably avoid using contract law and possibly the courts, but I want my contractor to make a decent living working on my projects. There is so much communication friction when building a home that it is easy to get into an adversarial mindset and sometimes that is needed, but you should make every attempt to avoid it. --- One of the problems with attempting to understand contracts in the residential construction industry, is that the residential construction industry often doesn't understand contracts. Which leads to a further discussion of whether or not they should. Ideally, a fully specified cost plus contract should be convertible to a fixed price contract. If you know every single part number for fixtures and have chosen the exact flooring, cabinets, etc. then bids from subcontractors are for those items. Those bids are firm commitments from subcontractors for installation of those items. Add all those bids together along with the markup from the builder and that becomes your fixed price. If a specified item ends up being more difficult to install than he originally anticipated, that is on the subcontractor and he can't raise the installation portion of the bid because of that. In reality, these bids from subcontractors often include an expiration time and so as inflation increases the price may increase. The particular requirements for this get a bit tricky, generally if a project includes a time range then the bid must be firm for that time range. However, if the bid is for purchase of materials it will usually include a date range (often 30 days) that ignores the product timeline. If the bid is for both materials and installation then the materials price can generally increase if material costs have increased but labor and overhead can't so long as the project is occurring in the specified time range. Most of the above comes from the contract doctrine of detrimental reliance. If I make a decision based on your promise and you can reasonably foresee that promise as a basis for reliance, then you are obligated to perform. On a related note, allowances for items in a fixed price contract are for materials only unless specified otherwise. The default position in contracts is that an allowance is really a "materials allowance," and doesn't include storage, handling, or installation. However, contractors are allowed to modify that to a materials and installation allowance. So by default it is only materials. Also in contracts, "cost" has a very specific meaning, which is the consideration surrendered by the contractor after all discounts and rebates. In other words, no hidden markups....See MoreResponsible for poor vendor relations on cost-plus reno contract?
Comments (3)This is an extremely nuanced question and therefore any unnuanced response is going to be wrong. Cost plus doesn't mean whatever it costs nor does it mean that work occurred and you have to pay. It generally includes direct, and indirect costs necessary to complete a project plus overhead and profit. If your contractor makes a mistake and has to correct it, you don't have to pay the marginal cost of the error (your cost is essentially the cost that should have occurred without the contractor making an error). I suspect that subcontractors declining work before they have fully accepted a contract is common enough that any expenses would be borne by the homeowner... However, in a cost plus contract, a contractor shouldn't be charging hourly rates for his/her time. All of their money comes from the addition of overhead and profit (often called the builder's percentage). An hourly rate may be appropriate for a change order that wasn't in the original scope of the contract that requires an investigation by the contractor, but this should be rare and wouldn't include the cost of communicating about the original contract with subs. Your contractor seems to be turning a cost plus contract into a time and materials contract (which are not allowed in some areas). A time and materials contract is a different creature altogether. Now, whether your contract allows this really depends on your contract. Whether it is a cost you have to pay depends on the specifics of the contract and the situation. Whether it is worth even fighting over is also another matter altogether... sometimes eating a few costs may result in a better home....See Moredavid_cary
13 years agobevangel_i_h8_h0uzz
13 years agorobin0919
13 years agoWayfinder
13 years ago
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