I’ve been approached and asked to manage a construction project for some clients (2 partners). I rehabbed a 26-unit complex from apt’s to townhomes for them, and have a good relationship.
They approached me about building 23 more units from the ground up, right next door to the complex I’m nearing completion on. They have a site plan, and are proceeding with construction drawings. What they’re asking is more like a Project Management situation than just bidding to build. They live on site, and want to be involved in picking subs and suppliers, managing costs, etc. But they want me to supervise the whole shebang, and list me as the contractor of record.
OK, I know I need to see a construction attorney. But other than that, anyone have any experience or advice with a situation like this? I’m thinking of just a flat 10% fee, with payments due periodically. Since they want to pay themselves out of the construction loan, would I ask 10% of their cost also?
“…an open mind is a powerful thing. The ability to listen to others is invaluable.”
Jim Blodgett
Replies
I couldn't give too much advice about the fee you will ask, but I do have a word of caution.
You mention that the "clients" are living on site and want to be active in the project. I think that can work out fine as long as you all have your roles clearly defined. If they start "managing" subs and doing other "active" things that will interfere with your job, you could be in for a large-scale headache.
You say that you already have a good relationship, so hopefully this is a moot point.
Jon Blakemore
RappahannockINC.com Fredericksburg, VA
Yeah, pretty much. But there are issues that arise from time to time, for sure. For the most part they will accede if I push, which obviously I sometimes have to do. When I can, I let them have their way. Good points, any suggestions on how to put that in a contract? I've sent for the JLC legal kit book, hopefully they'll be some good ideas in there.
"...an open mind is a powerful thing. The ability to listen to others is invaluable."
Jim Blodgett
I would plan to have weekly or bi-weekly status report type meetings where you present to them what has taken place in the last meeting period and what will take place in the future period.If you have a formal system set up, you may be able to deflect minor issues long enough to keep your sanity. So when they want to ask you whether a running bond or herringbone tile pattern in unit #2 will look better at the exact same moment as you're supervising the installation of 64' hip truss on unit #22, you can politely but firmly remind them that you can discuss the matter next Thursday at 10 AM, as you do every Thursday.
Jon Blakemore RappahannockINC.com Fredericksburg, VA
Yer wannabee bosses want you to manage them?
heh heh heh, yeah roight.
SamT
Not exactly. They want me to manage the construction, while they merely 'stay involved'. Can't blame them - the first contractor they had took them to the cleaners, and left with their project in a shambles (they ran him off). I took over, cleaned up the job, and it is now on schedule, below budget, and near completion.
However, as a result of his shenanigans, and before I took over, they moved on site - so now here they are. They're realtors/investors/developers, and are acting as their own salesmen for the complex. And they apparently enjoy being involved. They pick the tile selections, the plumbing fixtures, the bathroom mirrors and towel bars. They'll run errands for me from time to time, if I need them to. So I'm OK with that.
Just looking for suggestions on structuring a contract, and payment schedule, that will be fair for everyone."...an open mind is a powerful thing. The ability to listen to others is invaluable."
Jim Blodgett
Straight Employment contract, either with you or 1099 your company.Your pay should be monthly around $5K to $10K, depending on your locale and who pays Labor Burden.I think you will need a file clerk because a project that size will generate a lot of paper.When you figure your pay rate, add a premium if it's your license and permit, maybe a grand a month.SamT
Edited 7/26/2007 9:26 am by SamT
Sam - thanks for the response. OK, so you see this as a "monthly salary" type job? I'm OK with that. You say monthly, the other poster says hourly. So nobody sees this as a percentage type job?
5k a month seems a little low to me, but I guess it depends if you're running other jobs at the same time. 10k seems more reasonable, but like I say, if you're able to do other jobs concurrently, then maybe not.
I'm guessing this will end up being full-time plus for most of the job, with some slack time, but not always predictable slack time that you could schedule other work during.
They want to build in "stages" - 5 buildings, with 5 units per building on 3 of them, 4 units per building on the other 2. Build one, set up model home and sales office, then build more as they sell."...an open mind is a powerful thing. The ability to listen to others is invaluable."
Jim Blodgett
I think the question should be "Why do you (or anyone) think it should be a percentage job?". Almost nothing should be a percentage (except finance), though I'm sure many people do things that way, probably because it is easy.There are many reasons for this. Just a few are:1. The incentive for the payer is backwards. The more the jobs costs the more money you get. They don't want this. They will want to pay you more for making the job cost LESS.2. Percentages have nearly nothing to do with the amount of work. Work is what you are being paid for.
From Monster.com The median expected salary for a typical Project Manager - Construction in the United States is $79,966.
Base Salary
Base pay only 1 2 3 4
$68,061 $79,966 $91,326
HR Reported data as of July 2007
Project Manager - Construction
25th Percentile Median 75th Percentile $68,061 $79,966 $91,326 Base Salary+bonus+Benefits
Total compensation (base + bonuses + benefits) 1 2 3 4
Benefit Median Amount % of Total
Base salary $79,966 71%
Bonuses $840 1%
Social Security $6,182 5%
401k/403b $5,010 4%
Disability $1,293 1%
Healthcare $5,328 5%
Pension $3,394 3%
Time off $10,567 9%
Total $112,579 100%From indeed.comAverage Salary of Jobs Matching Your Search
In USD as of Jul 26, 2007 Construction Manager in Bakersfield, CA
$59,000 High Confidence (more than 250 sources) Average Construction Manager salaries for job postings in Bakersfield, CA are 15% lower than average Construction Manager salaries for job postings nationwide.Average Salary of Jobs with Related Titles
In USD as of Jul 26, 2007
Construction Manager in Bakersfield, CA
$63,000
Construction Project Manager in Bakersfield, CA
$63,000
Commercial Construction Project Manager in Bakersfield, CA
$71,000 SamT
Bryan, Warren, Rob and Sam - thanks for taking the time to respond! I always learn a boatload here on BT, because of guys like you. I'll meditate on your responses, and proceed accordingly. Thanks again. - Huck"...an open mind is a powerful thing. The ability to listen to others is invaluable."
Jim Blodgett
Let us know what you decide to do & if you take this project keep us posted on progress.
OK - I go to see a lawyer next week, then meet with clients to present a verbal proposal, to see if we're on the same page. I'm thinking 12%, with progress draws, and 15% on all changes after work has commenced. 12% will be of the total cost based on all the bids. I can add a budget incentive similar to the one we used on phase 1: every dollar under budget, we split.
For phase 1, I let them control the paperwork and report to me - I think that's giving them a little too much trust, so although I'm pretty happy with the way its all gone down, I'm planning on controlling all the paperwork on phase 2, then I report to them.
Percentage is what they're used to, and what they prefer, which is OK with me. I'll have to bill hourly for my work until the bids are all in, and we have a total budget to work with, 'tho."...an open mind is a powerful thing. The ability to listen to others is invaluable."
Jim Blodgett
I think you've covered everything. Except you might want to preview how you would split paperwork responsibilities if they bring that up.SamT
I have a thought on the percentage, what if for example, the job takes 2 years instead of 1 year. I am thinking that if the project slows down because of sales or construction delays your actual hourly rate will decrease as the time to complete the project increases. Unless you are able to fill in slack time with side jobs.
good points! So the percentage rate needs to be high enough to provide a little cushion, and I need to continue to advertise even if I'm too busy at the time - just in case work slows down and I end up needing some other jobs."...an open mind is a powerful thing. The ability to listen to others is invaluable."
Jim Blodgett
Another thought would be to have a timeline built into the contract. This would give you a way out if the project stalls.
The attorney I spoke with today suggested percentage plus weekly or monthly fee, as an incentive to them not to drag it out."...an open mind is a powerful thing. The ability to listen to others is invaluable."
Jim Blodgett
We met once, and discussed it. They said they want to pay me 5% on (what they estimate to be) a $3 million 18 mo. project. Then they said they want me to write a contract for 10%, and pay them back 5% as "consultants". Smells fishy to me. "...an open mind is a powerful thing. The ability to listen to others is invaluable."
Jim Blodgett
Run forrest run. Run fast run far. block their phone #. Run away run away. Unless you like getting screwed like that. IF you still want to do this run that idea past your attorney & see what they say.
Yeah, the whole thing's turning hinky - smells a little stinky. Just trying to wrap up phase 1 without getting screw#d too bad, pretending like I'm just panting to get to phase 2, until I get my final check!"...an open mind is a powerful thing. The ability to listen to others is invaluable."
Jim Blodgett
I will do this once or twice a year. Nornally it's when some one gets caught by the building department running without permits and or drawings. You do need to see an attorney to make sure all your ducks are in a row before they sign.
This is how I set these up:
A nonrefundable deposit to set the job up. this gets the client to the point of having a permit. NOthing else. The minimum I charge for this is $2500.00 It can has been larger depending upon the job.
The permit is mine, not the clients.
NO lein waivers untill every one is paid.
One and only one contact person that I deal with on a daily basis.
I have final approval on subcontractor selection. They all have to give me their insurance certs/workmans comp the same as any other job. I just don't pay them or collect 1099's
Tell the building department what you are doing & why you are running the job. If the job is part finished schedule a meeting with the inspectors to make sure you are on the same page. It's amazinzg how much they will work with you if you do this. Also for this meeting I find it best to not have the owners present.
Bill hourly & bill weekly. I charge in half hour increments. IF I don't get my check or it isn't any good I shut the job down (remember , it's my permit).
make sure all paries involved are paid. This will go a long way for your reputation with subs & the building department
If they don't comply with any of this I walk or run depending on the scenario
Great response - thanks!
Bill hourly & bill weekly. I charge in half hour increments. IF I don't get my check or it isn't any good I shut the job down (remember , it's my permit). what do you mean by "shut down the job"?
Also - (out of curiosity) why did you choose hourly as a billing yardstick - and what are the advantages/disadvantages of an hourly billing system? It seems to me that a percentage would pay better, with less of the clients' scrutinizing your on-site time every day.
make sure all paries involved are paid - How do you do this -do you pay the subs, or the clients?"...an open mind is a powerful thing. The ability to listen to others is invaluable."
Jim Blodgett
what do you mean by "shut down the job"?
I call the subs and tell them not to show up there isw a problem with money. Remember, it's my permit.
I do hourly billing because it's the only reliable way to know I'm being paid for my time. My standard rate is $65.00 an hour. This is on top of the initial fee I charged up front.
The Clinets pay the subs and suppliers but the bills go through me. I follow up to make sure the bills have been paid. IF they haven't I find out why. I will again resort to shutting the job down if the bills aren't paid for a good reason.
ONe last thing I forgot in my original post that is very very important ( I was taking calls from subs) Document the hell out of it. record your time, convversations, what you see in your inspections or building department inspections. IN short everything pertaining to the job.
Huck,
A fixed cost for the permit fees should be agreed upon and then it is not unusual for a fee of 8 to 10 percent of the estimated cost of the job for a smaller job such as this to be charged for project management.
Frequently, in my past life, I collected other fees as well such as a fixed sum at closing when a unit sold (encouraged me to not just be part of constructio but part of sales effort also) and a small percentage of any agreed upon savings over what was budgeted in the original estimate.
Also, a fee was negioated for any extensions of time by the owners due to "financing issues" or "sales slowdowns" THis only came into play if the owners caused the job to be substantially delayed.
The basic problem with a percentage as a fee is that you are imediately at cross purpose with the owner(s), the more cost in the project the more you make and the more costs the owners have. Basically this, I suspect, is what they are trying to avoid and are suggesting a team approach. If that is what their intent is, a fee based contract is best with well defined duties for you and them and specific exclusions of same. Additionally, an explicit way for mutual termination with defined costs/penalities and reasonable time given for the termination notice to take effect. As you noted a construction attorney, preferably one with CM experience, is essential. But first, a friendly in depth exploratory meeting to feel out their actual intent and expectations is in order. Good luck with this.
Edited 7/26/2007 9:58 pm ET by xcontractor
I would say 10% is borderline OK for management. Watch these developers. The 10% is for management only, for liability, I would charge as much as 40%. You won't walk away with it all probably but at least you still have your behind. To insure the job is properly done you have to have reserves in case errors are made, and it comes down to no fault of the sub. He is going to want a change order, and that's going to come out of your pocket. Pretty soon the guy sweeping the floor is making more than you. Just a word of precaution from one builder to the next.
Thanks, I hear you. My initial offer was 10% and 800/wk, or, 1500/wk salary as an employee. I feel both were fair offers. They balked, and came back with their proposal. All I said was I'd think about it. My plan is to play along and just stall, until I get final payment on phase 1, which I'm just a little more than a few weeks away from. Next time we talked, I told them to put their proposal in writing (just a brief description), and I could look it over so I understood exactly where they're coming from."...an open mind is a powerful thing. The ability to listen to others is invaluable."
Jim Blodgett