I like the Idea of cost plus. Seems like it would most benefit the “clipboard G.C”. You know, the guy that runs the job without actually strapping on tools.
What happens when the GC takes a hands on approach on one or more phases of the project? Does he calculate his time/material for that phase then add on his cost plus percentage?
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Replies
You just bill your time like you would anybody else on your crew.
Don't forget that since you are the head dog you get to bill it out at a higher rate :)
Edited 5/17/2004 6:50 pm ET by ClimbOn
You say you like cost-plus. Can I ask why? Are you a homeowner? Contractor? Sub? Architect? Neutral observer?
We often use cost-plus but it does have significant downsides. You should do a search for past threads which outline these in details, but your particular question addresses one of these problems.
Yes, the GC should be compensated for actual work that he does on the project, including supervision of his own employees and the subs, meeting with the owners and architect. However it is not as simple as this. Should he be compensated at the same rate for all the tasks? If he is filling in time while waiting to meet with the painter by sweeping up sheetrock dust, what should his billing rate be, that of an experienced project manager or that of a laborer? Is this spelled out in the contract and how is it monitored?
I don't think that there are any clear answers for this and we solve the problem by billing out all our labor, including supervision, at one flat man-hour rate. We figure that this eliminates some petty squabbles but it opens up another area of dispute. From the owner's perspective, am I getting a mix of workers that is as experienced and productive as I expected from the reputation that I am buying?
Cost-plus can work well as long as there is a high level of mutual trust. It breaks down rather rapidly and unsatisfactorily without that trust. If you think that you can maintain that trust without earning it, you are deluding yourself and should stay away from cost-plus.
I'll agree with post 3, and reassert an opinion I expressed in another thread. If YOU want to do a cost plus job, YOU shoulder the responsibility to maintain the trust level, and that invariably equals an open book policy. I do not understand people that want to do a cost plus job and then balk at the idea of showing their costs to the homeowner. Duh.
If you're doing a kitchen remodel, and you're playing GC but say want to do the hardwood floor. You bid it like anyone else. When you're having the sit down with the HO going over costs and getting ready to sign, you're showing them I have an electrical bid of this, the painter will charge that, this is what I'll charge for the floor . . .
Anticipating the next question - profit. If you want to make a profit or cover overhead, then line item at the bottom and tell them. Here's what I'm going to charge you for project management, this is what I want in profit, this is what overhead is. And again, if that makes you squeamish, then easy. Use a different method.
Another good idea with Cost plus is how to deal with contingencies. I've seen a number of ways, and in flat bids, I usually have a percentage in there for nothing more than the little gee whizzes that you invariably run into, fix, deal with, what have you. I don't know ahead of time what they will be, but I have a pretty good sixth sense of how much of an unknown I'm looking at. So if I add 7%, I'm probably going to burn up right about 7% with things that were unforseen. But with cost plus, explain that. So you put in a line that says contingency. Now it's in the budget. This is the cost to cover those things we can't pinpoint. If we use it, you as the HO aren't surprised with extra costs. If we don't, bonus. You get to keep it.
Ditto on warranty stuff. Mind you, larger scale jobs. But put a chunk aside for warranty items and escrow it for a year. Now here's the way it works. Anything that the customer feels needs to be fixed, will be. If it's faulty workmanship, it's the GC's job to make sure the sub comes and does it. If it's materials, the manufacturer gets to. But you know there's times where the manufacturer will replace the part but you still need to install it. The labor on that gets billed to the escrow account. At the end of the year, 50% to GC and 50% to HO. Incentive both ways. The GC wants to keep things tight and avoid corner cutting - profit at the end. The homeowner gets to think twice about pulling a drywaller in to fix one screw head. Every dollar they spend is two they don't get back. With credit to a friend of mine for coming up with that one. It's a champ.
"If you pick up a starving dog and make him prosperous, he will not bite you. This is the principal difference between a dog and a man." - Mark Twain
mav,
I am the co. I do the work, subbing the non carpentry trades most often. All my business is repeat or referral. I offer the same terms to each customer. Cost plus 10% of everything (materials, subs and my own labor. I offer a proposal on a from $ to $. Changes and additions are dealt with as they come up. Sizable ones get another from/to estimate. Smaller get rolled into the original, but notice is given that it will affect the finished price. This has proven beneficial to the customer as well as covering my own ####. Remarkably, always come out in the middle of the proposal price (no additions or changes). On the rare occasion that they want a firm price, I'll bump the cost/plus proposal figures. If they wish a "not to exceed", bump it also.
Many builders don't like it, I do it almost constantly and don't make a fortune, but sleep well at night. To each his own.
Remodeling Contractor just outside the Glass City.
Quittin' Time
calvin
your business sounds similar to mine. I do most of my work on an hourly basis, time and materials. I almost never give a quote. most is repeat business and clients know how I work and what they should expect. I dont get rich this way and I never go hungry.
Recently I,ve been asked to run significantly larger work than I like to. I don't think I want to put my own tools away. I suppose I should offer a competitive estimate for the work that I do, demo, drywall, trim etc.
My question is would it be out of line to tack on a percentage as GC to the sub work that I also do or should I charge what I usually get and not factor this work into the final spreadsheet? Either way the client pays the same amount
I don't know the answer to your latest question. If you think the hourly covers your overhead and/or profit, then just add it on the bottom. In my case, I would either include it in my b/4 10 percent figure, or raise the hourly rate and put it on the end. My business accumen is simple minded. That which the customer is interested in is the bottom line. They probably don't much give a hoot how I get there. Just give me the total. I do know this, before I added the 10 percent, I didn't get it. And 10 % of quite a bit is pretty damn impressive at the end of the year. That was money I didn't get prior to adding it on. Bummer.Remodeling Contractor just outside the Glass City.
Quittin' Time
It seems to me that the customer is paying more if you tack on your fee percentage. Not that I have a problem with that. As long as the work that you are actually doing is a good value to the customer, i.e., if your work is priced competitively to that of a sub. The customer is paying the same amount they would pay if the work was done by a sub in this case.
This should be clear to the customer before the project begins. If it is not, it is an area of possible conflict.
Once again, let me emphasize that this contract requires trust which is not created by paperwork or procedures but by a willingness on your part to make concessions and go over and above the letter of your agreement. When the customer realizes that you are looking after his best interests, a lot of conflict simply never occurs.
Another guy with a very similar business in remodel. Low overhead, nothing out on advertising, all referral. I run myself and one other journeyman carpenter, both billed at $40.00/hr, with no mark-up on Labor. (Skilled laborers, when used, are billed at $27.50) My feeling is that my labor price should include P&O and so it does. Subs and materials at cost plus 15%. A relatively simple contract that says "You tell me what to do, I do it, and you pay me for it" Each job is as lucrative as the next. I don't make a killing, but I do make a living, and I get to do quality work. I try to involve the HO as much as they are interested in, even swinging a hammer if that's their thing. Much of my work is small stuff (less than 10K) a lot of kitchens and baths, the occasional whole-house.
Trust is everything. I am working for the Homeowner's interest and to maintain my reputation. And if I know I'm making wage, then I can always make decisions based on the quality of the job, and the homeowner's bottom line, instead of my own. Makes the job more enjoyable, and is a great sleep-aid.
I'm interested to know where my hourly rate falls compared to other GC's. My plumber's hourly rate for Journeymen is $82.50. My only sub with a lower hourly rate than me is my drywaller.
Your thinking is right in line with mine. I bill about the same except I have'nt been getting mark up on hourly arrangements. I should start.
I am famous for putting the homeowner to work. Most people are more than willing and they work harder than my helper does. They just need a little direction. Also great for gofer.
The best part about putting the homeowner to work is that they first-hand understand the pitfalls. I was installing a wall oven in a cabinet that my HO had ordered. She had asked to make a custom drawer below the oven, cuz there was room. We found and ordered a couple of parts we could modify to fit the space. When they arrived we realized that I had neglected to factor in part of the space that was being occupied by something else. I started shaking my head, imagining the lost time and expense in reordering. The HO looked at it and, instead of blaming me for my mistake, came up with a solution for utilizing what we had. An obvious solution, but I had been too embarrassed and panicked to see it. I credited her with the solution, and she calmly observed that she simply hadn't panicked. A homeowner that understands firsthand the pitfalls in our work is our greatest ally. I find it funny that so few builders are willing to have HO's work alongside. The small business environment is much more accomodating for arrangements like that.
"I find it funny that so few builders are willing to have HO's work alongside."
I don't think that this is the result of a preconceived notion. I think that it is because of bad past experiences. I do encourage any willing homeowner to take on specific tasks, often painting. I make it clear to them at the outset that the financial gains that can be achieved by doing some of the work are less than they imagine and that we will not hold up the project by waiting for them to do the work.
Clearly, this is not an arrangement for every contractor or homeowner. Each to his own.
I am doing a job now where the HO is helping out. I dont mind except for his painting skills lack severly. I like to see a quality end result when I am loading up my tools but I dont think thats gonna happen here.
The good thing is the project is a home movie theater (120" screen, 2,000 watts of power). All dark colors. The lights will never be turned up enough to scrutinize.
it is awfully disheartening to have a hundred hours of fine carpentry ruined by three hours of sloppy painting
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I sympathize with you but I have had some tremendous homeowner painters, much better than my regular painters, especially with regard to cleanup.
We used a homeowner painter for the first time when we built a custom kitchen for my parents more than twenty years ago. We would work a twelve hour day building the cabinets and my father would work from 6 to 11 at night sanding and varnishing the completed work. He was never more than a day behind and kept the fridge well stocked with beer at the same time. Tough to beat that.
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