Replies

1. 
   Dan_Dear | Oct 17, 2000 05:07am | #1

   *
   Rick, don't get frustrated, irritated, or let any of that show. Just smile and be accommodating.

   1st, switch to the Proof Mgt. System, RE: placing all of your overhead in labor.

   2nd, charge them for profit lost my not providing those materials.

   3rd, charge them for "professional expertise", by including :"X" amount of money in your pricing.

   4th, revise your estimating sheet/program to include the additional line items entitled: Consulting, Sales Cost (a percentage), Recaptured Lost Material Profit, and finally Client Special Needs (or nuances) to accommodate the above and more.

   5th, relax once you've initiated the above, and smile all the way to the bank.

   One more thing, the amount you charge for "advising" them is at a higher rate than your normal labor rate, since in effect, you'll be utilized as a Construction Consultant" and "Speicifier." Any idea how much money they make?

   The above changes will elevate you from being a schmuck to a bona fide business man, just like it did for me. It took me looking into a mirror and saying to myself, "Sonny, when are you gonna stop being a schmuck?"

   Oh, I almost forgot. Also, start charging for SCAs (Specification & Costs Analysis), what I previously called "estimates." Many people are now successfully doing so.

1. 
   Ryan_C | Oct 17, 2000 02:09pm | #2

   *I disagree with Sonny on this one.Sonny's right that no matter who buys materials, you still need to make the same money and I tell my clients this poing blank. I tell them that they can't get a better price by buying materials because I still need to take home the same money at the end of the week whether I buy materials or they do.But unlikd Sonny, I never let the client buy materials. 1) I need to be incontrol of the job. I need to control the schedule or I'm sitting at home losing money waiting for that window to come in.2) When the window fails, it will be a fight over who's problem it is, the installer, or the window buyer. If I bought the window, I know who's problem it is.3) If I'm half way through the install and I'm missing a jamb clip. I can call my lumberyard and tell them to get one out of a stock unit and they'll bend over backwards to help me. When the homeowner calls (If you can get a hold of them at work, on the road or wherever they are), the lumberyard will say "Who are you?" And I've probably got to drive around looking for the thing anyway. I might as well just pick up the windows.

1. 
   Stephen_Hazlett | Oct 17, 2000 02:38pm | #3

   *Ryan is absolutely correct,especially with points 1,2&3.I would find Sonny's method mind-numbingly complex to implement and a real time-burner to explain to customers. Plus I think for me it would encourage even more petty haggling from customers.I think even Ryan(who has pretty good reasoning) is spending to much time explaining the facts of life to prospects.When this subject comes up with prospects I tell them " We supply all labor,materials,& permits as described in our proposal,---You supply a deposit check,access to electricity and pay the balance in full upon completion" If the prospective customer insists they want to supply the materials I tell them" We wouldn't be interested in doing the job in that situation"I feel this keeps me in controll of the situation from the very beginning. If the customer is gonna nickel and dime me over materials right off the bat,I am pretty sure they are gonna nickel and dime me over other things later on.Better that we get this straight at the very beginning.Good Luck All,Stephen

1. 
   Rich_Thompson | Oct 17, 2000 03:49pm | #4

   *Thanks for the input guys. I said to a client yesterday that I don't provide just labor. She just kept insisting on buying the windows because she wanted to make sure she got the ones she wanted. I told her that is not a problem and all she needs to do is pick out the windows and I'll take care of the rest. She still didn't want to do it and than asked if my price was negotiable. It has been my experience that when someone asks if the price is negotiable they will not be easy to work with.

1. 
   Mike_Smith | Oct 17, 2000 06:35pm | #5

   *and....and then you said....and then she said.......whoa.. yur leavin us hangin ........go back and read ryan and stepen again.. you gotta maintain control so you can deliver your best product....and maximize your income...you're a one-man band , right ?how are you going to get the income you need for 2000 hours of production and 1000 hours of non-production.. (60 hours a week)..?.hope you gat a plan....

2. 
   blue_eyed_devil_ | Oct 18, 2000 01:07am | #6

   *I'm not sure that you can't take Sonny's approach and "work with the client". I've successfully allowed clients to supply materials. I've always assumed that my labor rates were sufficient to stand alone. That hasn't always been the case, but at least thats what I've figured.Yes there are pitfalls, but then again, if you've already charged for the unexpected, then it's expected. If a jamb clip is missing, send the homeowner running. Yeah, then send them again for some caulk. Then some shims. I guess it's not that good of an idea unless strictly limited in scope. I also think Stephen is right. The haggling can become incessant. I remember haggling with a young doctor about installing a set of french doors for him. We went round and round about who is liable if I drop the damn things and all the glass shatters. Eventually he paid me more, so I would assume the liability. It went in without incident however.The point is, there is a figure attached to everything. If you want insurance on your wrist and elbow, you can call Loyd's of London. If they want to supply the materials, you can charge them your markup for letting them chase the stuff. By the way, how many hours does a remodeler think they will work in a year?Blue

3. 
   Mike_Smith | Oct 18, 2000 01:36am | #7

   *...i think a one-man band will get in about 25 hours of production a week....as a quartet... i get maybe 5 ... . plus another 5 of fetch-it..... but my design time is chargeable...and then there is all the time i get paid by FHB for posting......my guys.. i'm assuming if i can keep the work comming.. i'll get about 1800 hours of production from each....sometimes i live in fantasy land.....b what , me worry ?

4. 
   blue_eyed_devil_ | Oct 18, 2000 02:28am | #8

   *Mike, 1800 does sound like a lot but not impossible especially if you do inside work and can horde it.I really ought to take a real hard look at my last few years production. I'd probably be depressed thinking about how much time I screwed off!But life is too short to work 3000 every year! At least I'm not having heart attacks.blue

5. 
   Richard_Morrison | Oct 18, 2000 03:08am | #9

   *Rich:I may be a little out line suggesting how you might run your business since I'm an architect rather than a contractor, but I see this situation pop up more than most contractors do (since I'm involved in maybe 15 or so large projects a year). I'd really like to see more residential contractors who understood "Cost + A Fee" contracts. This is common in commercial work, but I seldom see it in residential. In a nutshell, you just figure what the total overhead & profit you think the project ought to make you, and charge this to the customer as your "Fee". (Fixed price, usually billed in installments. Of course, if scope increased, your fee increases.) All other job-related costs are billed as reimbursables at your actual costs, including any discounts. This allows for completely open books, plus allowing you be an advocate for the customer in helping to "value engineer" the project without causing you to lose money. This arrangement might or might not have a guaranteed maximum price. (Higher than what you think the "real" cost is, so the risk is shared more equitably between contractor and Owner.)When the customer sees that there is no economic benefit to buying their own material (since there is no "mark-up"), believe me, they will gladly forego the hassle.Richard

6. 
   blue_eyed_devil_ | Oct 18, 2000 03:21am | #10

   *Ive used this technique successfully a couple of times Richard. Most customers don't trust the open contract idea. If you put a limit on it, you might as well use a standard contract.I did one cost plus and one cost plus, not to exceed. It's a good option if the buyers don't mind.Richard, I've been considering jumping into commercial contracting. Would you say that the carpenters do better or worse than residential (it's got to be better). What is the going rate for rough carpentry? Finish carpentry? What is the normal cost plus fee?blue

7. 
   B_Novick | Oct 18, 2000 04:20am | #11

   *I'm currently doing a job for a customer that is cost plus. I am able to bill my guys out at $35.00/hr to the homeowner. I get 21% on top of ALL costs. I also get to bill myself out for time spent picking up material or other direct job cost functions. I also have a bonus in my contract for me. Lets say I look at the print to bid the job and I figure I would do it fixed cost for $100,000. If my cost would have been say $60,000, I tell the customer the true cost and I get half of anything leftover under $100,000. So in this example, if I was right (never happens) and the cost was $60,000, plus my profit of $12,000 would add up to $72,000. $100,000 less $72,000 leaves $28,000, and I get a bonus of $14,000. If my costs go over $100,000, I get no bonus, but I still get my profit and the customer pays even if we end up at $150,000.Why would you enter into a contract with a not to exceed. It would seem to me you take all the risk and have limited benefits!Barry

8. 
   Richard_Morrison | Oct 18, 2000 04:23am | #12

   *Since I decided to specialize in residential about 5 years ago, I haven't taken on any commercial projects, so I'm a little out of the loop on current pricing. But in general, I'm not sure that commercial carpenters necessarily do _that_ much better, if at all, partly due to there being a bizillion commercial contractors around here. (Well, residential contractors, too!) Commercial work attracts mostly production-type companies, whereas the carpenters who value craftsmanship over speed (and who can charge for the craftsmanship)are gravitating to the high-end residential work. And those production companies are often doing a mix of residential and commercial and not necessarily charging different rates for billing out carpenters. Okay, that's a gross generalization, but I'll stick to it. Also, a lot of the commercial work in this area is by union workers, who generally do better financially than non-union. Going rates are all over the board here (in Silicon Valley), so anything I threw out probably wouldn't be helpful. Also, if you're in any other part of the country, going rates would sound INCREDIBLY high. But you wouldn't believe the housing prices, either. I don't think there is any "normal" cost + fee. Every company has different overhead & profit goals. (I've never figured out how Walt Stoeppelworth(sp?) calculates that 67% markup is appropriate for just about everyone! Yeah, a sole proprietor doing two very modest -- for around here -- million dollar cost houses a year would do okay. Ha!)Richard

9. 
   Richard_Morrison | Oct 18, 2000 04:32am | #13

   *Barry:>Why would you enter into a contract with a not to exceed. It would seem to me you take all the risk and have limited benefits!You're right if the Not-to-Exceed price is the SAME as if you were doing a fixed price bid. But I wasn't suggesting that. I'm suggesting adding a contingency allowance within the guaranteed maximum so that the risk would be SHARED between contractor and homeowner.A completely open-ended contract is great work if you can get it, but a customer would have to be nuts (IMHO) to essentially sign a blank check. Part of what I would expect a responsible contractor to provide is cost control. If a reasonable maximum cost can't be established, it would indicate to me that either the contractor doesn't have enough experience with the project size and/or type, or the scope hasn't been defined well enough. Either case does not bode well.BTW, I HATE seeing bonus provisions. I think it leads to cutting corners, and almost inevitable disputes. (Also hate penalty clauses, too, though.) Anyway, what's the problem with just charging a good price for managing the project and being done with it? Seems like life is complicated by all these bonus calculations. And why couldn't you just inflate the "fixed price" number so you'd have a heftier bonus potential? Sorry, this arrangement just seems like there's too much potential for abuse in the wrong hands. Personally, I think this "lottery" approach (setting up a situation where if the planets are in alignment and everything goes really well, you get a windfall) does not help the reputation of the construction industry. Just my opinion, though....Richard

10. 
    bobl_ | Oct 18, 2000 05:00am | #14

    *Richard, Cost doesn't include overhead? I think it would. These are costs that need to be recovered, before you make a profit. You charge a customer a "fee" of 50-75% including overhead and profit, or 10% for profit, which looks better to the customer because you included your overhead in your costs?Blue, General idea of what going rates are? Our Uncle Sam pays his carpenters the "going rate" for an area. He publishes them somewhere on the web, I believe. Are they real?? Don't believe these are the rates he uses when he lets construction contracts.

11. 
    Richard_Morrison | Oct 18, 2000 06:56am | #15

    *Bobl:>Richard, > Cost doesn't include overhead? I think it would. These are costs that need to be recovered, before you make a profit. You charge a customer a "fee" of 50-75% including overhead and profit, or 10% for profit, which looks better to the customer because you included your overhead in your costs? Cost would include overhead items that are directly attributable to the project, like tool rental, porta-potty, supervision, etc.Fee would include an allocation of non-attributable overhead like rent, insurance, secretary, etc. PLUS your profit.The fee here is NOT a percentage -- that's the whole idea. You're just saying to the customer, I want $XXXXX dollars to manage the project, everything else I will bill you at MY cost. Which looks better to the customer: Seeing that you're billing your carpenter out at, say, $35/hr. (actual wages plus labor burden), OR seeing that you're billing them out at $60/hr. (like the competition does) to "bury" your overhead/profit in their charges?Richard

12. 
    bobl_ | Oct 18, 2000 02:10pm | #16

    *found the sitehttp://www.cpms.osd.mil/wage/scheds/afusa.htmanother inersting site on the topichttp://stats.bls.gov/ocohome.htm

13. 
    bobl_ | Oct 18, 2000 02:18pm | #17

    *Hear what you are saying. Guess the important thing is knowing how you keep your books and what you mean by your catagories and be able to explain them so others understand and how you present them, when necessary, so the customer doesn't feel "overcharged" and believes they're getting good value for the money.

14. 
    Ryan_C | Oct 18, 2000 02:29pm | #18

    *I think I'll just keep giving a single, simple price. Easier for me to manage during the job and easy for the customer to understand with no worries of suprises.b simplify, simplify, simplify.

15. 
    blue_eyed_devil_ | Oct 19, 2000 04:00am | #19

    *bobl, early in my career, I was subbing for a Gc that was doing a project with Federal grant money. At the end of the job, I had to submit a form that detailed my employee's wages. It turns out that I wasn't paying them enough and the federal government sent each one a check for the difference, that they would have earned, if I payed them the "prevailing" rate.No one sent me any checks however.blue

16. 
    Peggy_Wright | Oct 21, 2000 10:12pm | #20

    *Interesting discussion going on here. I have just started viewing your site, and I have been participating in similar discussions on JLC site.Here's questions for those of you who use cost plus or a fixed contract but you expose your costs to customers.1. If you use cost plus, and say that you have an excavator who gives you a quote + $xxx.xx for hauling or $xxx.xx for additional per load. In residential, our excavators do not guarantee cut/fill in their quote. The owner comes back to you and says, you should have known what it would be, I'm not paying for extra dirt. How do you handle that?2. How do any of you handle the client who wants 10 scenarios of the same projects with different materials? Do you charge for the time, what do you charge?3. A couple of comments up it was recommended that bids are charged for. What are people charging for new homes/renovation, and how do you verbally justify this to the client without putting them off? In this area, free quotes are expected, but I'd like to get away from detailed quotes that take me 8 hours without recouping the cost. Recommendations?

17. 
    Mike_Smith | Oct 21, 2000 11:06pm | #21

    *peggy.... if you calculate cut and fill, then both you and the excavator will have a real number to bid on.. and a number to list as an allowance....if the owner doesn't like the finished grades.. or the finished loam.. and the allowance has been used... then they can pay for more....if you are using amorphous terms like"finish landscaping" without quantities or finish topo grades shown.. then the contract is too open ended...quantities protect everyone..((In this area, free quotes are expected, but I'd like to get away from detailed quotes that take me 8 hours without recouping the cost. Recommendations? ))where is this area.... mars ? every area expects free estimates... change their expectations...your 8 hours is worth something..nothing is free and read some of the other threads in this business section

18. 
    Schelling_McKinley | Oct 22, 2000 01:20am | #22

    *If I am using a cost-plus contract and the client balks at paying a cost because it should have been included in the estimate, I immediately explain that they do not understand the nature of a cost-plus contract which boils down to one very simple principle. We do the work and they pay for it. If they wish to argue about the bills then this is not the contract for them. They need a fixed price contract where every contigency and expectation is well spelled out in advance and any deviation in the contract is accompanied by a change order agreement in advance of the deviation.Naturally not every cost-plus contract is completely conflict free and both sides must be prepared to give a little but it is a contract that is largely based on trust. The refusal of the client to pay for services already rendered is a serious breakdown of this trust.I personally am leery of the client who does not value my time and seems to be shopping around on my time. If nothing else, it raises my price. The estimate is still free but it is worth less and costs more.

19. 
    B_Novick | Oct 22, 2000 04:03am | #23

    *Peggy You should have been in Detroit this weekend for the Remodelers' show. The biggest roundtable discussions were cost plus vs. fixed price. Anyway, the questions you asked regarding fill and hualing would not be an issue in cost plus since there should be trust between you and the client, and the job was cost plus from the begining. Why would the client be upset with a subs' invoice after a job has started and you present all invoices to the client?Next, you if write your contract well, you should be charging an hourly fee for your job site meetings and extra time spent "looking into" what ifs. As soon as the client knows your on the clock, you will be amazed at how quick meetings can be! (you can be sure the clients do not call thier lawyers and waste thier billable time.)Hope this helps.Barry

20. 
    Richard_Morrison | Oct 22, 2000 04:27am | #24

    *Folks:Could we please be more precise in our terms? "Cost-plus" is getting used frequently, but I have no idea what the "plus" is. Are you talking about "plus a percentage" or about "plus a fixed fee"? The two concepts are WORLDS apart in my mind.Richard

21. 
    bobl_ | Oct 22, 2000 04:53am | #25

    *Most people don't know what a Cost plus contract is. Most people don't know what it takes to to build a house, do a remodel, or put on an addition. They look to their builder/GC/architect/designer to help them. How is the customer suppose to know how much fill is neccessary or better yet how much an excavation will cost. Do you have fixed prices from your excavating subs that cover unknown ledges? I doubt that, the contract covers certain assumptions, and excludes the unknown. Your fixed price renovations include the cost of replacing rotten sills and joists that you can't see, right?What's my point on all this? Communications. You and your customer should have a complete understanding what the contract means. This most likely means educating the customer, which takes time. Which is paid for how? Catch 22. Personal belief, Ask the customer if they really understand what a cost plus is, if they don't, walk away or teach them. Only you can decide how much overhead you can stand. Even in a cost plus job, what the unknowns are, there may be ledge, the sill could be rotted, etc should be known to a fair degree, and explained before hand. When the customer loses confidence in you because of what they perceive to be something you should know, even if it is "common practice", in your area to cover this as you go, and even more when it is going to cost them more money, you can expect them to get upset. Communicate, communicate, communicate. Maybe you can put together a brochure that explains the way things work with your company, explain where the unknowns are likely to be, where the soft spots are in the estimates, etc. This way you can deal with the majority of the potential problems one time, and them deal with the specific unknowns with the job at hand.

22. 
    Mark_Herrera | Oct 22, 2000 11:10am | #26

    *Which brings to mind comprehensive contracts for contractors.I started this thread a year ago, think I'll try again.I found some degree of success in my area due to the help of a speaker at a CA contractors seminar, whom had to cancel this seminar on contracts due to low turn out. He led me to a source, however I would like to shop and compare before buying.Richard,I would like to get in touch with you, respect what you have to offer.I have just such an agreement with current home owner in Mt. View.If you were to see the project, I'm sure you would be impressed with the results. Bottom line, everyone needs to be on the same page. Looking someone straight in the eyes and each understanding one and other.

23. 
    Dan_Dear | Oct 23, 2000 12:01am | #27

    *Stephen, perhaps I didn't clarify myself enough.1. I don't haggle with clients. My price is "the price", and it's a "fixed only" price. If they push the price issue (rarely, but it happens), I simply say "I'm not running a flea market." I also don't take the job because I know what will happen.2. I rarely take jobs where the client will provide any material, or supply and subs.3. Concerning #2, like most business people, I'm flexible. So, if they do decide to provide a faucet, sink, or what ever, I make sure I make a profit on it, I profit I would have made if I had furnished it, I let them know , per my contract, that there is no guarantee on their materials, it may cost them money should it be defective, not at the site when I'm ready to install it, or delay a subsequent application, or effect a related application, I have to charge them for time wasted.4. I install clients materials maybe one of every 20 jobs.5. Keep in mind, part of what we all do is to "accomodate" our clients. If we do that, and do it in a manner where we lose no anticipated profits, I see no problem. On the flip side of this "client material supplied" issue, I make a profit on material I don't have to guarantee or service should it become a problem later. For that reason, I'll take the profits on non-supplied materials every day.

2. 
   Rich_Thompson | Oct 23, 2000 12:02am | #28

   *
   I'm getting tired of dealing with clients or potential clients who want to cut me out of part of my business which is buying material. I don't like the idea of clients buying material for two reasons. One, it takes money out of my pocket. Two, I know I will have to coordinate and work with the client and offer my expertise in one way or another in their process of buying the material and I'm not even getting paid for it. So both of my reasons are really about costing me money. Example: telling them what size window , make sure it has this and comes with that. Does anyone have any remedies on this situation?