GC over budget for lumber and materials

12 years ago

We are doing a cost plus 10% build. Our GC gives me the invoices and I pay all of the bills directly to the subs. We are about $10K (almost 20%) over his estimate for building materials (mainly lumber and framing materials). We still have a screened porch that is unfinished that is included in that estimate, so it will go higher. Any ideas on the best way to approach this with the GC? I'm doing my best to stay within our estimates but have no control over this one.

My biggest concern is the appraisal, of course. I'm extremely concerned that our appraisal will not come in at cost and we will be having to come up with the extra cash.

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Comments (9)

worthy
12 years ago
This is why some cost-plus contracts have an upside limiting factor, or the reverse, a bonus, if the cost comes in lower than projected.

As more often a spec builder/renovator than a client-centred contractor, I'm always within 2-3% of my estimate.

So unless there were expensive changes or unforseeables in the building process, 20% low is pretty p*** poor estimating by your GC.

Also, need I point out that there is an incentive by the GC in bidding to lowball his "estimate" on a cost-plus contract?

( I remember once being told my estimate was "bulls**", then three months later being called by the same charming person wondering if I had time to come and finish the job that someone else had started. "Uh, no." )

What you can do at this point other than express your disappointment I leave to finer minds.
dash3108
12 years ago
Yes, I guess that's the warning I've gotten about "cost plus" contracts. As I was learning about the different types of contracts when we first bid out our house a few years ago (haven't built yet, life got in the way), I was warned that that's the risk you take with "cost plus." I agree that it doesn't seem like there's much you can do???
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Worthy - I totally understand what you're saying. I've read enough of your posts to get a feel for how thorough you are. I know the work before saves heartache in the long run. I'm hoping my contractor is current enough and understands my desires as far as finish. I've asked for a detailed list from him where we fill in what exactly we're expecting. He is currently building two homes, both about our size, and he says the finish is very comparable. Experience and knowlege is a great asset in a general. 8mpg- I work for an electric cooperative, so I am in tune to the market in our area. I will also be able to purchase the unit direct from the manufacturer. This will save me an additional 3k or so. Unfortunately, I don't live on our electrical system and won't qualify for the additional rebate of $750 per ton. That would have eliminated any need to balance the cost/benefit. I'm planning to install a bibs fiberglass insulation system. The contractor does very good work and comes highly recommended. I'm tossing around the sheathing material and still unsure if it is smart to put insulation under the slab. We are planning to finish half of the basement and plan to stain the conrete. I'm concerned about how cold the floor may be. Thank you all for taking time to post. Many folks say they over-run or they upgrade and I at times have wondered why they just didn't tell their contractor they wanted granite, hardwood, ground source, etc... in the ffirst place. I guess Worthy is correct in saying experience and planning are important. Not underestimating in the first place... that is the trick it seems.
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Pensacola, good plans, but what do you do if, say, the tile you want to use is discontinued? And perhaps (?) obviously no one is going to store ALL of it before you get close to that far? I'm mentioning this because I had no less than 4 tiles I'd chosen discontinued, but I was able to find spare bits of one of those enough to make me happy. (I kept my replacements that I picked later within the same price range.) I also lost out on my first choice for one of my quartz countertops... (ain't no one storing that!) but actually found something much better once push came to shove, and the old one was gone! I also don't know exactly what light fixtures I want until I see the place in situ. Some yes, some no. Where I could be definitive before the structure was built, I certainly was.
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Yes take a comb through the materials and price them out. Have at least 4 builders price out your project with all the trades. Sometimes GCs that offer a level of self performance like carpentry can avoid double mark ups. Did you see any of the major quotes like excavation, framing, plumbing, etc? I'm doing a lower level finish. One bid was 60% over budget....another 44%....then with due dillengence we ended up 4% over budget but went with the contractor that was 10% over budget. Pricing wasn't the only varible at the end of the day. I'd hold the line and get more bids if you can - too much time and money vested - but if the bids come back similar time to cut the cord unless the redesign to meet budget is free.
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bry911 had an excellent suggestion of how to handle this, and also a very important point at the end about how things are likely to end with your GC, and how much you might have to spend. Do be firm about having him show how costs are now 18% above when he was saying you were on track. You might be able to come to some agreement about some of that overage. Maybe, but don't get your hopes up.. If it's any consolation, we began our build with the most specific set of cost estimates that we could get our GC to come up with. The GC sends us draw requests about every two weeks, which include each invoice that we're paying on that invoice. My spouse is amazingly detail-oriented and tracked every single payment; he noticed a number of oversights or errors on the part of the GC or the applicable sub, which were then fixed. Even with all that, we still ended up over the amount we intended to spend. (Partly due to unforeseen issues, a couple of mistakes, and only one or two changes that we decided to make that increased the price of something.)
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robin0919
12 years ago
ditto what worthy said.

20% over is outrageous! How big is your house? Is there anything in the contract that states the 'estimate' has to be within x amount of % of actual?
lazypup
12 years ago
Obviously you guys have not been watching lumber prices in the last few months. With all the homes lost to flooding, storms and other natural disasters in the last 4 to 6 months the cost of framing materials has gone out of sight and you can't expect them to return any time soon.
david_cary
12 years ago
Lazypup - where do you get your info?

NAHB has lumber prices down a bit in the last 6 months. July 29 was $270 per 1000 board feet. In the winter it was $300.
robin0919
12 years ago
lp.....do you live in one of these areas that had natural disasters? The companies that sell lumber in those areas probably raised their prices substantially to take advantage of the situation. NOT moral....but business as usual...
worthy
12 years ago
Well, the prices are certainly up from early '09. But overall, lumber has been pretty steady in price for the last two years. Even where I am where housing is booming.

But how about those '04-'05 prices in the upper $400s!

Here is a link that might be useful: Lumber Prices
mepop
12 years ago
Cost plus contracts have only two advantages in my opinion. First if a building owner has the money and they want top notch quality, cost plus typically gets them a better building as there was no builder incentives to cut corners. If you care about quality above everything else, cost plus is the way to go.

Second, if the building owners are educated in construction, they can verify the initial budget is accurate and the project can typically be completed for less than a fixed price contract.

It sounds like (I may be wrong) that this contractor didn't do his homework as well as he would have on a fixed price contract. Let's face it, he had nothing to lose and that's why cost plus can be risky in your situation.

If your framing is way over budget, what else may be over budget? Framing is in the early stages and it sounds like a good size construction project if the framing alone is around 50K. I would be concerned what else wasn't budgeted properly as more trades over budget could kill your project unless you have money to spare.

If it were me, I would have the contractor stop work, sit down with him and review the budget from top to bottom. I would ask for all subcontractor and supplier bids and verify yourself that they are correct and you are getting what you were supposed to get for the amount you budgeted.

You are likely liable to the contractor to pay for these framing cost overruns plus his 10%. Again, I would be more concerned about what else is coming. Good luck!
sierraeast
12 years ago
Dimensional lumber has been staying at a level, but sheathings,( osb, plywoods), have gone up as well as sheetrock. Seems sheet goods fluctuate and go up with natural disasters.

How long between your project and the last project your builder took on. If it's been awhile, he might have been lazy on his takeoff concerning lumber pricing and just winged it off the last build.

GC over budget for lumber and materials

Comments (9)

worthy

dash3108

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