All,
We’re currently interviewing general contractors for the new house and have run into two situations I hope someone can help us with. Please note that i want to be fair to the GC but also not get ripped off. I’m all for people making a living but I want to be treated fairly.
question one
All of the GCs i’ve talked to do cost + (the + amount varied a lot more that i would have thought leaving me wondering what I’m missing, but that is another question). However, some of the GCs say they charge the + on the bids and they’re willing to show me all the bids, others charge the + based on the actual receipts and that they are willing to show me the receipts and another seemed somewhat offended that i asked about seeing the receipts and not just the bids. Finally, one GC (the most expensive) said that the game some GCs play is to show & charge you based on the bids, but then they actually beat up the subs to get a better price and keep the difference for themselves. Anyone out there deal with this situation and if so what did you do? Again, i want to be fair and am willing to pay for the GCs experience and knowledge but i don’t want to be ripped off
question two
if the GC or his/her subs mis-bid a job who should be reasonable for the overrun. I’m not talking about a 1% difference between actual cost and the bid, I’m talking about 5% or more. My friend just had the GC tell him he screwed up on the siding bid and that the actually cost is another $10K and he expected my friend to pay up!! An unexpected $10K on just one item would really screw up my budget so how do i protect myself from getting hosed? I don’t want to end up hiring a GC that has purposely underbid so how do i avoid that (other than not hiring the lowest bidder?)?
Thank you to all for your help.
Replies
Well, that's the rub. Cost Plus. Define cost, and you're there. The problem is to define the cost. In my opinion, if you're the payer, and the job is cost plus, and the siding cost $10,000 more than the GC expected, that's your problem. If not, then it isn't cost plus, is it? If you expect the GC to cover it, then it's hardly cost plus, is it?
Edited to add:
Definitions of Cost Plus Contract on the Web:
Edited 5/7/2004 11:18 am ET by TenPenny
An unexpected $10K on just one item would really screw up my budget so how do i protect myself from getting hosed
Fixed price contract.
Which may be hard to get today with supply costs roller coastering.
Cost plus means you have to right and responsibilty to audit all reciepts and time cards. Except, those subs who bid fixed price, audit their contracts.
Labor rates can have OH built in. Get a hard definition and breakdown of labor rates.
Best to tell your prospective GC exactly what your budget is and work with him/her to get as much as you can for that amount. Nothing stops you from having a fixed budget. If you can't trust the GC, and you're gut will know after a few hours talking your money with them, DON'T LET THEM BUILD FOR YOU.
How to hire a GC:
Be honest, be forthright, tell him everything you want, listen to him,
ask penetrating questions about the propased contract.
If any one of the following say "no", DON'T HIRE.
Your gut.
Your wife's intuition.
Your child's feelings.
Your banker, accountant, lawyer, local builders assoc, BBB.
Your friend or neighbor.
Your dog. Very effective.
The lumber yard clerk or owner.
The Inspector. (They can't tell you anything,
but you can ask specific questions
and watch their faces.)
The aggregate of their past clients.
Go look at their work in progress. Is it neat? Do the workers seem ok? Is there very visible progress a week later?
Prove the GC's License, workers comp ins, and liability ins papers.
SamT
"How to hire a GC: Be honest, be forthright, tell him everything you want, listen to him, ask penetrating questions about the proposed contract. If any one of the following say "no", DON'T HIRE............
...........The Inspector. (They can't tell you anything, but you can ask specific questions and watch their faces.)"
Sam,
You are dead right on that one. Don't know why more people view the building inspector as a valuable resource, and instead view him as an adversary.
Jon
Edited 5/8/2004 10:02 am ET by WorkshopJon
"Don't know why more people view the building inspector as a valuable resource, and instead view him as an adversary.
I know of some very good inspectors who are always happy to be of help. the answer to your question is the majority of them are unqualified for their own jobs. Too bad.
Around here, you can find GC's that will give you a contract with cost plus 15%, everything specified as in a regular bid (and that they will provide you with a release of lien at each payment) and a cap on it you both agree on.
Remember that any change order will be figured over the cap.
They will present you the bills as they get them from their subcontractors for you to pay as every sub is done, go pay the subs and get a "release of lien" from them that they then will give you.
Some new GC, on his first house or two, may do it for 12%. If you feel confident that they know what they are doing, you can save some there. Check any builder out good and ask if they have partners. Some builders are affiliated with real estate agents, especially the new ones to building on their own that may not have the finances for building yet and won't tell you if you don't ask. That may cause trouble later.
When you go cost plus, you are assuming many risks for whatever you think you may be saving and the contractor knows that your house will be one where he knows that he WILL make a nice profit.
Since prices are raising every day now, not many subs will give you a firm bid, it will be more build as you go. At cost plus, you will have to absorb that, as you may gain if prices go lower.
As mentioned above, first define what COST represents. Then define what the + represents - profit, overhead, both, compensation for time and suffering, etc?
Now assign whatever misc. stuff you hadn't thought of earlier to either of these groups.
Then find a GC that agrees with your definitions. What could be simpler? LOL!
Keep one more thing in mind. With cost +, the higher the cost the higher the +. Where is the insentive for the GC to shop for the best price? If the GC does get low prices isn't he/ she cutting their pay (+)? Not in their self interest, is it?
If I am doing Cost + and the job runs over budget - not my problem. You may not WANT it to be yours, but I KNOW it's not mine. If you want the benifits of the savings or control of the budget, you get the honor of having the liability associated with it.
With Cost + GC's don't have to play games and "beat up their subs" to make more money (Like they wouldn't do that is it was a fixed sum contract.). They just need to submit receipts, spend less time shopping around and collect checks from you. Ain't life grand!
Think about this some more. If you don't want to "get ripped off" find a GC you trust AND can get along with. You will be spending quite a bit of time with him/ her, at your best and worst. They will know things about you only your spouse knows. It's more about relationships than dollars - a close second.
Good luck.
F
thanks to all that have responded!
OK, now that i'm sure i'd rather not do cost plus what options do i have? I've heard how lumber prices are all over the place so i wonder if a fixed price contract is even possible? as i see it i have two options (please tell me if i'm missing something)
fixed price: but i'm not sure there are many GCs williing to do this. assuming i find one, what are the hidden pit falls that i need to be concerned with? what is a resonable profit margin for the GC (FYI, we're in the pacific northwest)
cost plus with a cap: what is a resonable cap? do you define caps to specific parts of the job (eg. framing, foundation, etc) or for the job overall? what are the pit falls with this type of contract?
are there anyother alternatives?: again, i'm not looking to screw the GC, I'm perfectly happy to pay them a reasonable price for the services but i feel i have to protect myself from someone (be it the GC or one of their subs) from low balling the bid just to get the business and i get screwed in the end.
thank you once again!! your thoughts are greatly appreciated!
Finding a contractor you can deal with is like finding a wife you can live with.
It takes time and several trys usually. You got to find a GC you trust. That is first and of foremost importance.
>>what is a resonable cap?
After you trust him/her, TELL THEM YOUR BUDGET.
That is the CAP.
Trust your GC to get the best and most for that budget. Don't try to pennypinch to get under the budget.
>>what is a resonable profit margin for the GC
None of your business. But if you spend some time reading the business section here you can get a very good idea.
>>are there any other alternatives?:
Don't think that you are buying a standard contract from a GC. All building contracts are unique.
Think like you are designing a contract and the GC is your partner in this. Talk to the GC you decide you can live with and work something out. Do part of the work yourself AFTER the GCis signed off.
The best way to save money, I think, is to do all your homework before you contact a GC, I mean, pick out everyting that is going into to project. Have a list of manufacturers, part numbers, colors, styles, sizes, rough openings, quantities, etc.
In other words, leave no style decisions to the GC, just give him a list. Note that I did not mention price, the GC will probably beat your price and must be allowed to mark them up. The final bottom line will reflect this Markup, which covers a lot of territory, like callbacks, returns,missing parts, labor garuntee, etc, etc, etc.
SamT
SamT
another way to see it..
IF I give you a fixed price..I HAVE to CMA..Cover MY Azz
therefore you ain't getting the BEST deal..
What about TIF factor ( things I forgot) that comes up when I am writeing your contract and guesstimating what the prices will be..and gets added to CMA...
cost plus? you WILL do better ( with me) because I am not making a guess as to how bad the situ. might get..you get me and good work and mats. and you pay me a percentage for my skill in ssaving you bucks..simple
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Spheramid Enterprises Architectural Woodworks
Repairs, Remodeling, Restorations.
---"fixed price: but i'm not sure there are many GCs williing to do this. assuming i find one, what are the hidden pit falls that i need to be concerned with? what is a resonable profit margin for the GC (FYI, we're in the pacific northwest) "--
On the contrary, fixed price, "bids", is what 99% of the houses around here are built under.
The HO takes bids on a plan, preferably drawn by a designer or architect, with plenty of specifications and several builders bid on those specifications.
Be sure all are bidding on the same tight specifications, so you can compare apples to apples.
Then, once the bids come in, you have to see if the builder you like best is close to what you can spend. If several seem similarly well recommended, the price may make a difference.
Chose one and try to be happy with the results.
The few houses around here that are built cost plus are the ones where the specifications are hard to pin down, where the design is changing as they are built.
For those, cost plus is the best way to protect the architect/builder and give both more leeway with what will go in the house, cutting on some parts and adding as it seems best.
I know someone who is building like that and up to now parts have come in below expectations, so they are under budget and may splurge in other areas they were not considering before but, once the house is going up, they are wanting to add.
If you want a regular house and know what you want, a regular bidding process and letting the GC make whatever profit it is used to seems logical.
As long as it meets your budget, what profit a GC makes is proprietary information you don't need. Since you had comparable bids, you know it is on the ballpark of what is customary in your area.
Are there any other alternatives...?
Yes, you can GC the job yourself. That will save you the +, and you'll be in complete control of the costs. But you will work for it, no joke.
This is not as far fetched as it may seem. You might not get the kind of service and respect out of all the subs that a professional GC whom they know would get, but if you are square with everybody and let them know up front what you expect, it can work out pretty well. Depends on your personality, your experience in managing big projects, and how much of your personal time you've got available to invest in having your house built.
The two hardest parts are (1) finding subs you can work with that the other subs can also work with (ask for referrals from subs you trust); and (2) scheduling the flow of subs so that nobody winds up having to wait on anybody else (write into your contract that time is of the essence and that there will be penalties for no-shows without specified advance warning; then recognize that Mother Nature can screw you at certain stages by messing up the weather--so build in some slack).
FWIW....
Dinosaur
'Y-a-tu de la justice dans ce maudit monde?
math.... you are getting the wrong impression from some of these posters... who are not, in fact, general contractors.....or
thye have not been in business long enough to have really learned the business..
most general contractors that i know will be happy to give you a fixed price contract.. with all of the terms and conditions spelled out..
the problem is ... you may not like the price... so then you start dealing with those who cannot accurately estimate the job.. so they want a "cost-plus" contract
since they can't accurately estimate it.. they will be wrong.. either under or over.. since most builders ( not contractors, but "builders") are optimists, they will usually underestimate the job... usually in the labor end..
contractors are really playing "bet the ranch".. ie: when i bid a job, i am responsible for delivering it as specified for my price... if i'm under in my estimate, i put my bank account at risk, my personal assets at risk... maybe my own home at risk..
i'm very careful in how i bid.. so careful that i will not do a bid unless i get paid for the bid...
anyways... there are lots of contractors who will give you a fixed -price bid.. but they won't do it if they think they are playing a sucker's game.. (" i'm soliciting 3 bids for my new house"...... great, what do you know about the other bidders?.. nothing , huh ? sorry, i'm not interested)..
want a bid?.. look for a General Contractor... you know.. a businessman with a solid reputationMike Smith Rhode Island : Design / Build / Repair / Restore
"Think about this some more. If you don't want to "get ripped off" find a GC you trust AND can get along with. You will be spending quite a bit of time with him/ her, at your best and worst. They will know things about you only your spouse knows. It's more about relationships than dollars"
Frankie,
Excellent words of advice.......
Jon
Knowledge is power..
there have been countless discusions here about home costs and the one universal answer is there is no answer..
Let me try to give you a little help though..
Each state is differant so take this with a great big grain of salt.. for actual numbers there are several impartial people to go to. First is your local building inspector..
Ask him in a general way what it costs to build in your community..
for example the state average here in Minnesota was.. .. was.... $85 a sq.ft.
While my community came closer to $175 a sq.ft. do the math and allow for material swings and you should have a fair number.
The other source would be the local insurance adjuster.. He should see enough homes being built in your community to make a fair judgement about actual costs..
Are your drawings and specs final?
Is the design site-specific? In other words, does the house fit the lot, its topo, and is there a site plan as part of the drawings?
Did you go through and choose all the stuff that will go into the house yet? Floor finishes, wall finishes, trim, paint schemes, cabinetry, built-ins, lighting, hardware, plumbingware, colors, etc.?
If you have all this stuff pinned down, you should be able to get a fixed-price bid. If you try hard enough.
If it all is one big open end, you have no choice but to go with one of the guys talking cost plus. If you are on this end of things, get out your wallet, hang on, and try to have fun.
All custom-home construction (new houses) falls somewhere between the sketch-on-a-napkin version, and the one where everything is in writing and on drawings. Your cost-plus builder guys like to work with you best if you are closer to the sketch end, and least if you are on the everything's decided end.
Why is it that a high-end new restaurant, with all the stuff that goes into it, can get built by a GC on a fixed-price bid, and you cannot do the same for your new 4-BR house? The difference is that the restaurant has plans and specs that are site-specific, and your house probably doesn't.
Try as best you can to get to that end of things, and you will have the best idea of what your costs will be.
Good luck!
I have worked for the same contractor for 15 years, and been in the business for 26 (am I that old) We almost never take cost plus jobs. When we do it is usually for a past client who has a small job they want done. We bid it all. It can take longer to get the job underway, because more detailed specs. must be prepared. Subs must prepare acurate bids as well, because they are going to be held to their bids. We have given bids back to contractors to re-bid because their bids are too low to cover the scope of work required. We have found that customers are stressed enough during the remodeling process without having to worry about unexpected costs or cost overruns; costs often incurred because of the contractors mistakes, but at the homeowners expense.
Cost plus jobs led to homeowners who watch our carpenters like a hawk and complain when their lunch break is 5 minutes too long or they come to work 5 min. late. (They never seem to notice when they stay 20 min. late though)
Woody