Cost plus fixed fee - plus overhead?
mo142
8 years ago
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cost plus fixed fee
Comments (2)Is it a negotiated Fixed Fee based on an estimate of cost or will it be determined as you proceed at 7% of the actual cost? How complete are the drawings? Have you done this before? Are there any allowances or undefined design elements? Has the builder already contacted his favorite subs for estimates without competitive bidding? Will there be any markup for any of the Cost of the Work? Will you be on the site every day? Is there a design professional involved to review the costs and the progress of the work? The cost of the job will be dictated in a large part by the prices the GC accepts from the subs so it is important to determine how that will happen. Who will select the sub contractors for bidding and who will choose the winning sub? Will you be involved? Paying the subs directly means you will, in a sense, be acting as the GC with this guy acting as a Construction Manager even if he does some of the work. Being a GC normally means you take the construction risk; a CM normally does not. What portion of the work will he do with his own forces? Does he own his own truck? (sorry, irresistible old joke) What is the advantage of paying the subs directly other than to relieve him of liability for their performance? A Cost of the Work contract is not simple; there are very many important variables to resolve before the contract is signed. Did he write the contract or is he using a form?...See MoreCost-Plus or Fixed Price?
Comments (15)We have a cost-plus contract and I am very happy that we have it, because I'm the type to want details for everything going into our home. There are so many things that come up after signing the contract. I like the flexibility of being able to see costs, evaluate our options, and control what products/upgrades go into our home. We have a guaranteed maximum. Every line item was budgeted prior to our construction financing. We have a 10% builder's reserve for things that they may have under/over estimated, and we also have an owner's reserve that was baked into the financing for wiggle room with upgrades. I agree with what others say in that the key is finding a reputable builder. We asked for samples of their progress bills up front and gained an understanding of how the accounting would work. They gave us actual copies of other projects (addresses omitted), and showed us Change Orders and everything. Even though, there's some minor frustrations at times, the Cost-Plus is reassuring that quality is not being cut. Our GC also agreed to take out a few lines out of their workscope, but they helped us with a budget for the bank financing. We have the option as the project proceeds to cut different things -- like landscape, fencing, irrigation, etc. They have also agreed for me to personally purchase a few things (thus eliminating their fee), like a mail slot, dog door, one special chandelier that was purchased prior to us signing the contract, etc. They are small things, but in that way, they were not so petty to say that they needed to collect their fee on every single item. These things were discussed up front and is all part of the "trust." And trust is a big, scary factor. Just do your research on your GC, and make sure your contract is really ironed out!!...See MoreFixed Fee Cost under a Cost Plus Fixed Fee Contract?
Comments (6)This has come up many times. Seems like you get as low as 8% and up to 20%. It depends greatly on your local market. I personally think that builders at 8 and 10% are probably making some extra money elsewhere. I've also seen builders have a fixed fee or %age plus and then charge an hourly rate for their supervisor. Total crap but I've seen it and that was on top of an 18% fee. I paid 80k with a 540k cost on a 4000+unfinished basement. The problem with using that as a comparison is that in some markets that might be a basic house and in some it might be completely custom with far more complexity than a basic house. I am getting ready to pay a higher percentage to build in a more challenging area. In my mind I can justify that because it is a smaller house but more complicated at the same time....See MoreCost-Plus, Fixed Bid, Time & Materials
Comments (25)I wrote a lot a long time ago and have learned a lot since then. We did three projects with two contractors. All were done to high standards. The first contractor, the one I thought I could trust to do cost plus, ended up being a mess. He wasn't dishonest, just incompetent as a GC. His estimates were almost worthless. He didn't really care if his subs ended up spending more because it just got passed on to me. His scheduling was horrendous so there were too many periods of time where nothing was happening. He always had excuses for why things were late/over estimate. I really don't think he knew how much things were going to cost. In the end, he was no less expensive than the other high priced contractors we talked to, though he appeared to be at first. Hard to say if he was more expensive. And like I said, the quality of work was very high: he did have good subs, so quality didn't suffer. (And his custom cabinet maker walks on water: the nicest guy and such great work. We use him for lots of stuff.) So we went with another contractor for the second project (an extensive cottage remodel) and a finished workshop. We did another extensive search. Both of these projects were fixed price and were fairly expensive. The cottage contract ended up having lots of change orders: but that was because the cottage was a mess. We expected a lot of issues and we got them. It really wasn't possible to know what we would find when we started and the contractor made that clear. When we called references on him, one person, maybe a realtor?, said "I can't believe I'm actually recommending a contractor ..." The second and third projects were fixed price but it wasn't just given as a lump sum: he gave us a breakdown for cost for every division (though that doesn't break out labor/materials). And he added profit and overhead at 25%. The biggest thing about him was there was never an excuse. If something was wrong, it was always "we'll fix it." We mostly dealt with a super (which we also really like) but dealt with him directly on stickier issues. So the big thing for us is finding someone we trust. We've been lucky to find that with a landscape contractor, too: same attitude: "we'll fix it." Sometimes there are issues of "has to be this way" but always trying to achieve what we can and always fixing anything that goes awry. We do smaller cost plus jobs with them on an ongoing basis so we've done both fixed and cost plus. Trusting is not just about the way the work gets done: it's also about pricing. We trust that he's charging market rates and not trying to take advantage of us. We ask about costs for projects now but it's more to see if we can afford it than it is to price shop. (With the cabinet maker, we don't even ask ahead any more ... we totally trust him and have no comparable sources anyway.) We feel really fortunate to have found folks that we have such a good relationship with....See Moremo142
8 years agoUser
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