Hi All —
I’m currently talking to a guy who is willing to GC my house with an unusual twist (at my request). I have time to be on the job site to manage many of the day-to-day details of building, and have extensive building experience myself, but he has the license, the continuous contacts with subs, and experience in some places I don’t. He has other projects going on but will be involved in mine when I need him.
I have gotten the plans together, obtained permits, etc, and am ready to go. I will take care of the payments to subs, etc. We are currently talking about how to work compensation between us. He is willing to work on an hourly basis (depending on how much I need him), with a lump sum paid (some at the beginning as a retainer, and a final payment at end of project). So, here are my questions:
– What is the general going rate in your area for GC work? (it seems to vary here).
– We both want to get a short contract written up that protects us both but gives us flexibility as the project proceeds. Any ideas as to what’s absolutely essential in a contract like this to protect both parties?
– Any other suggestions?
Thanks!
Replies
It sounds to me like you are hiring a part time project manager for his advice and his license. If he is willing to rent out his license, I would begin to question what his advice is worth.
But be that as it may, I would suggest that his value should be linked to his responsibilities and the amt of liability you expect him to accept. In a case like this, I would accept none. That would make me worth not much more than a lead carpenter at the rate common in your area.
Asking what the going rate in the rest of the country is has absolutely no bearing on your situation. There are a multitude of reasons why rates vary across the country.
Excellence is its own reward!
That arrangement sounds like a "cost plus" and that goes for 10 to 13% here to the GC.
From that, both of you can figure x% off for your "on site management help" from that initial GC %.
This way, he is still the one responsible, since he has the license and insurance and you get compensated for the part of his work you are assuming.
Remember that, even if he is not there all the time, he will spend more time than you realize thinking, rearranging subs to have some for your job and worrying about everything, even if you are the "man on the spot" most of the time.
That on the place overseeing a GC brings to a job is not half of what his job is, as far as his expertise and time. He covers much of that by hiring good subs.
Be sure that his expertise and your peace of mind from his backing are sufficiently rewarded.
Your savings under those circumstances will seem a little like taking advantage of that GC, if not done carefully.
Better get everything in writing and signed by both, so all are on the same page.
Edited 10/5/2003 8:10:23 AM ET by Ruby
Ruby, The way I read this, he wil " be on the job site to manage many of the day-to-day details of building" and he has already pulled permits and done plans himself.
What else is there for the GC to do other than offer advice. If the GC hires the subs and runs that money through his books, thewn there ios someting to basee that "plus" on in a cost plus relationship.
I'm confused about who is doing what and who will be responsible for what. As I see it now, the GC might hire the subs, but the HO would direct them onsite. So who is going to be responsible for the mistakes and miscommunications?.
Excellence is its own reward!
---"What else is there for the GC to do"---
First a disclaimer. I never heard of a GC until last May, when, going to build a house I found in Loewe's a "How to be your own GC".
What a GC brings to the building, for what I have learned, is to have the connections that without them a HO would be lost and the knowledge to schedule the work and who to use that will be the best for that particular job in your area and who to stay away from.
I question how much experience that HO poster really has building if he thinks that drawings, the time on permits and occasionally overseeing the subs work is that much of what a GC may bring to the process as to save money doing such.
I have been watching and asking around and the GC's don't even come by that much, as far as their time being spent on direct every day supervision. That is what they pay the sub's firms to do.
I am on the opposite side of that Ho's in that I have the plans and permits but am still looking for a GC. Had to get the electric service, prepare the site, tear the old pad and contract for the dirt work and have it tested myself while looking for a GC because we are tight of time. Would never think of trying to do what a GC will do of getting bids and so on.
Now we are ready to do the concrete work and the now three GC's that I have been talking to didn't come thru. The last two were playing a game of getting things started and not getting a price and contract until the last minute and then being way overpriced with a total bid.
I think that I know now enough to understand that a GC earns his money (when a reasonable amount if a firm bid) and that a little overseeing on the spot is a very small part of that. This is what I was commenting on.
Who is responsible for that in your case, especially if and when serious trouble develop, will be an important point to consider.
There is a builder here now in a dispute because the first floor of a house he built two years ago is cracking and falling into the basement. Things happen sometimes, better be sure you know who has to stand behind what.
Take all this advice as comments of someone still trying to learn.:-)
Arrangements like this do occur, but they are no terribly common.
I don't see it as Piffin does, in that you should suspect the capabilities of anyone who is willing to act in a role such as the one you describe.
The GC should accept no responsibility or liability. His insurance and licensing...unless homeowners in your area aren't allowed to build their own houses...should not come into play. If they do, then I really don;t know of any builder who would enter into an agreement like this.
The GC should have no interaction with the subs. The GC deals only with you, and you deal with the subs. You are the builder. He is your advisor. He gives you a laundry list of things to watch out for. He gives you a laundry list of subs for you to choose from. He could use leverage to get the subs to give your project more attention than they would otherwise give a "one-shot" builder...but that's another venue you'd have to discuss with him.
Around here (CT) a retainer of about 2-4% of the project is typical, with an hourly rate to be determined by the two of you going against that retainer. The more difficult the project, the higher the retainer.
Here is where the liability comes in,
if I am the GC, I am repsonsible for seeing that things are done right. My liability ins covers me for errors that cause problems. It is based on a percentage of the cost billed through. If this is a $250,000 job, I am being asked to assume a liability for that much but I might only be getting paid for a few hours a week? My insurance would surely question that if i weree to make a claim. Too many problems crop up when there is shared responsibility on jobs. Suppose the HO requires wqork to happen in too crowded aroom space, the carpent knocks ove a work lifght belonging to the general contractor that was wired in by the electrician and it falls into some of the painting subcontractors cleaning fluids, igniting a fire.
Here's another one, Suppose the HO gets the GC to hire all the subs for him but then the HO is the oine directing traffic on site. He fails to notice that the plumber cutt out too much meat in the floor joists and to correct the problem before SR goes up. The tile setter doen't know there is structural trouble beneath him and proceeds to set a mud base. Six months later, who is responsible for correcting the cracks in the tile?
If general is responsible for all this, he should have rewards for the risks involved. If he is not going to be rewarded, he should not be asked to assume the risks and the contract should delineate this fact, transfering the liability to the HO who wants to be the onsite overseer.
From a practical side of things, if a general hired me as a sub and then told me that I would be working under the direction of the HO acting as project manager, i would be cionfused who i was working for and would possibly have to increase my rates to cover the confusion and probable delays connected with that fact. I get paid extra for my time to educate my supervisors, so to speak..
Excellence is its own reward!
I think the problem in this thread is that the term general contractor, is being applied too loosely.
Either he is contracting the job or not. Th edescription given shows that he is not contracting but is providing an advisory service.
Ruby's comment was insightfull - the one about advising who NOT to hire. That one statement said a world about this industry..
Excellence is its own reward!
i think you're right ... there are GC's who own a briefcase & a phone and a computer...
and then there are GC's who are on the job with tools and carpenters..
we run our show on the model of the 2d one..
lots of others use the first model...
frankly... it sounds like a can of worms... ir the GC in question is any good, he's got some other projects going that will command his first priority... this job will get 2d priority..
if the Homeowner is the builder, most states do not require a license... the HO pulls the permits and assumes all liability.. in that case the "GC" would operate as an information source and a consultant..
i would take this job as a consultant... but i certainly wouldn't want any more liability or expectations than that.. i either want control and reward.. or no liability Mike Smith Rhode Island : Design / Build / Repair / Restore
Mike,
I think you are describing us both:
This "GC" has the briefcase, the phone and the tools.
I, also, have the briefcase, the phone and the tools. I have the expertise to do most of the masonry and framing work on the house, but I'm just one person. My full time job is no longer in the construction industry (even though I still love the work). And, I know (I think!) my limitations.
But, ultimately, one of us has to be the boss. And at least, one of us (probably me!) has to be a better listener and be willing to take advice and direction (probably also me).
Maybe it is a can of worms. Basically it's going to come down to how well we can work together, how well we can communicate, are we reasonable people, etc.
Dan.
right on , dan... might be a marriage made in heaven..
with your background , that should make it easierMike Smith Rhode Island : Design / Build / Repair / Restore
I agree. You're saying tomato, I'm saying tomaaahhhto.
The "Professional GC" should only be acting as an advisor to the homeowner.
The Homeowner should be acting as the GC.
Any REAL GC who dilute his responsibilities by bringing the homeowner into a lead role in the construction of a house is asking for trouble.
I'm not dissing homeowners. I'm just saying that there WILL be communication problems, and when the money nut starts getting tightened toward the end of the project, most "homeowners acting as builders" will likely start looking to the "GC as advisor" with a crooked eye, possibly looking for the Professional GC to open his wallet to make thing right.
Why will there be communication problems and trouble dealing with a thinning wallet? Not just because the homeowner is involved. Because that occurs in one form or another on most construction jobs. However, a good GC, acting solely as GC, can use his experience/connections/favors owed to make things right without anyone getting beat up too badly.
In this case, the homeowner claims experience in construction, that may help things along. Still, without a proper understanding up front, the process can be a potential timebomb.
That said...I've seen it done, and I've seen it work well.
If I was the GC in question I would, as you point out, get a contract drawn up. I would also not refer to myself as a GC for this project, but as a consultant on an hourly as needed basis. Also as a consultant I would invoice the HO every 2 weeks and expect payment in 7 days. If a conflict arose over hours/pay it would limit my exposure to 3 weeks.
Thanks for the comments -- I thought this thread was a non-starter, so I hadn't checked it lately.
Owner-builders are allowed in this part of the country. The bank is the party that differentiates. If I want to take out my construction loan as an owner-builder, I have to pay a fee of 1/2 point on my loan. If, instead, I include in my loan papers, a contractor with a GC license, who takes responsibility for the job (e.g., co-signs checks with me to pay the subs, and promises to see the project completed within a certain period of time, e.g., 12 months), then I don't pay that 1/2 point and the loan process is easier to get through. To me, it makes sense to get the GC's expertise, and pay him the 1/2 and more.
My question is currently about how to establish what is fair between the 2 of us, assuming I use him as a GC, but more on a consulting basis. I am purchasing the materials for this house (e.g., the windows, doors, cabinets, and wall materials (it's an adobe block house, not framed), and handling the money (but I'm willing to have him on the checking account as a co-signer of checks). He is also an accomplished framer (for the roof and interior walls), and so may get involved almost as a sub at certain points in the project. But this is separate from the GC part of the job.
So, I see my role in the project as:
- I get the house designed and building permits (done)
- I get the lot swabbed out and dirt work done (currently in process)
- I arrange for septic installation and well-hookup (in process)
- I will be there day-to-day to address subs' concerns/problems, do clean-up, order materials, etc.
- I am working to get elect service
- I will get involved in some of the masonry and framing (as needed and as time allows).
- I currently have a list of subs (from a friend who just successfully finished building a similar house with this same guy as a consultant/GC (but they are friends (even after the project!), so I can't really take their arrangement as a benchmark))
His role:
- Be at job site at critical times (e.g., before pour of slab to make sure it's a go)
- Have his laborers there when needed (and when available) to take care of the odd jobs, etc
- Provide advice when/where necessary
- To save me money when and where it makes sense (given his superior experience)
- Fill out the list of good subs and help me with the cost take-off. Call subs when needed and help line them up (they know, afterall, that they will be working for him in the future -- that may not be the case for me!).
- He has the license and the insurance (although I also have to carry "course of construction" insurance)
- He may or may not warranty the job (up for discussion)
To me, his license, insurance, and warranty (maybe) and his reputation and relationships with his subs are his big "value-add" for me. But I may not clearly understand everything he brings to the table. He is an experienced builder, but also free-lances in other areas, and has his hands on a number of projects (but seems to know his limits).
And, bottom line, I want this guy to feel like he has been fairly compensated for the risk and effort he is assuming. We have already talked about the fact that some of this may be "by the hour" given the "as needed" basis of the work (e.g., framing). And, although I want flexibility in the contract, I do believe a written contract will ensure a meeting of the minds that is so important at the inception of a project like this.
So, I'm not even sure about how GC's make all their money. Is it on materials in addition to a built-in fee? Is it on . . . [(total contract price - all costs) = his take]? Or what? What is fair? What is "standard" (it appears that there is no standard)? And how do I know that the deal is also fair for me? My ignorance of some of this is what leads to my (perhaps, ill-formed) questions!
Piffin's question regarding "who is responsible for mistakes?" is a good one! Ultimately, I think, it is me. But I would hope that he would work with me to get done, the things that need doin'! And I think you make a good point about "risks and rewards". And the distinction between "advisor" and "contractor" is a good one that I'll have to think more about.
Any other insights are appreciated!
Dan.
That post of yours defines the situation much better.
I can only add that, from where I am, in a somewhat similar if opposite situation, if he goes for the cost plus, that here is from 10 to 13%, half of the total % may be fair.
For a total bid on a price, that would seem too hard to figure other than by the hour as a consultant.
If I get someone as a total bid, they will have to consider that I have already done some of the work, like getting electricity, water and septic system there and prepared the site to pour.
If I get someone as cost plus, I will give them the 10% on the total project from the initial cost, even if I did the start of it already. A very honest person may not take that initial 10% but then, they may, or a part of it. It will be offered, as it is really hard to say which % of all is the more important, where they are making the most out of a job, to come up with a decent total return for the GC.
My problem is that I had total bids from 112T to 225T on the same plans! And no, the last one was not using gold faucets.:-(
From the little I know seems that, since your friend had already worked with that GC in a non-traditional way, you may be able to find a way that will work to the satisfaction of both.
Dan, it sounds like you have a good handle on things and I can even imagine working with you in this sort of situation possibly.
The bank requirement sadds a dimension I hadn't thought of. When you mention that he must put up the license and "promise" to see it completed within a year, that implies to me that there is a financial penalty to not finishing in time. If I were under that kind of constraint, I would want full control or you would bear the penalty for failure to execute in time. I have had too many HOs delay the process by "helping"
Back to rates - supposing that You paid me the 1/2% on a $250,000 loan, I get 12,500 for the risk - something I would have to measure. Then there is the hourly advisor rate and the possible framing subcontract.
rates asa percent of cost can range from 2% to 40% depending. new work is less and boutique renovation is more. The less risk involved, the lower the percentage of markup.
For instance, If I have to finish the whole job before getting paid, my risk goes up and the cost does too because I am paying the monthly interest to carry it.
Since my liability insurance is based on about 2% of gross, if you buy the materials, my financial risk and overhead are both lower.
But if that window you bought fails it is repaired next year on your nickle because in reducing your cost, you bought the risk. If the window you selected but that I bought and passed on to you with a markup fails next year, all you do is call me and go back to watching the football game.
I don't believe he would want to warrantee things without being fully involved and compensated. I think you can see now how many variables are involved in this negotiation. For me or anyone here to quote a figure of 5% or 10% or 40% would not be fair to either you ar to him without knowing specifically all that is involved. With his experience, he should be able to say, "This is what I need to get to give this level of service."
Same for hourly rates. Arkansas builders make a lot less than the guys in NYC or San fran..
Excellence is its own reward!
That's and excellent post, it clears the muddied waters.
Tell you what, though...if this is a $400K house and you're financing $300k, a half-point to the bank is $1500. If I were your "GC/Advisor" assuming the liability by co-signing the deal, I'd charge you a heckuva lot more in fees than just $1500.
Financially, you'd likely do better paying the half-point and simply using the GC as an advisor, picking his brain and using his connections.
Here's the rub, though...the person acting as your advisor, since they are using their name on the job, may work just a little bit harder for you than someone just acting as an advisor with no liability.
It sounds like you have a handle on things.
Oops, looks like I had the decimal in the wrong place..
Excellence is its own reward!
And I noticed it was in your favor.
Good man!<g>
I have been involved in a deal such as yours but as the GC.
In my case, the HO was the gc in all but the papers that the bank wanted to see. We did a little bit of work and offered advice freely.
I would not do this for anyone but I knew this guy well and knew a lot about his business dealings. Simply, I trusted him and knew that he was capable of completing the project.
Could any of a number of things gone wrong and left me holding a bag of grief. Yes, but that was my choice.
If your gc is willing to do what you want and has done it in the past, ask him what is fair and agree to it. Otherwise, pay the points.