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I agree with Matt. Going cost-plus is a bad bet. The contractor has no incentive to move quickly or control costs.
Try to find a “template” of a bid package and try to emulate it for your project. It will help you compare apples with apples. You will do best if you assemble a bid sheet with listings of the various project elements (i.e., Kitchen Floor, etc.). Next to each listing should be columns for the quantities and total costs. You should provide a detailed scope of work for each project element listed on the bid form. You may also want to include provisions for project schedule, etc. The bid package should also include your drawings, specifications, permit requirements, contract terms, etc. In short, the more information you provide, the better feedback you should receive.
I typically tell friends it may be worth the cost to have a qualified lawyer or contractor help you with putting these documents together. If you’d like to discuss further, feel free to e-mail me.
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I agree with Matt. Going cost-plus is a bad bet. The contractor has no incentive to move quickly or control costs.
Try to find a "template" of a bid package and try to emulate it for your project. It will help you compare apples with apples. You will do best if you assemble a bid sheet with listings of the various project elements (i.e., Kitchen Floor, etc.). Next to each listing should be columns for the quantities and total costs. You should provide a detailed scope of work for each project element listed on the bid form. You may also want to include provisions for project schedule, etc. The bid package should also include your drawings, specifications, permit requirements, contract terms, etc. In short, the more information you provide, the better feedback you should receive.
I typically tell friends it may be worth the cost to have a qualified lawyer or contractor help you with putting these documents together. If you'd like to discuss further, feel free to e-mail me.
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Matt,
Does this margin go up for smaller jobs? A few months ago I had several area contractors bid on a job for a room addition. The prices seemed high so I ended up finding my own subs and contracting for myself. The project bid is nearly completed and I've saved more than 30% over the bids (38% for the highest bid). This is for the exact same job as originally bid. I would have preferred if the headache had been somebody else's, but I'm not willing to pay that much of a premium. Is this type of markup common around the country? Or could it be because I am female?
Amy
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Amy:
Congratulations on your nearly completed building project! Many women tend to be very thorough on such things as they have an eye for detail. Post a before and after picture when it's complete.
I'm not involved with remodeling so I can't give a definitive answer, about remodeling margins however, when figuring the cost/profit, don't forget to include your time. People who build for a living call it putting food on the table. Then there's taxes, insurance, overhead, etc, etc. If you didn't include those things, I'd say the 30% may even be a little low.
Further, part of what you would have been paying for was to have the project overseen by a building professional. For example, someone who would have known what slump the footer concrete was, just by watching it roll out of the truck.
Have a good one,
Matt
*Hi Steve,NOTHING beats a complete set of drawings and specifications for contractors to bid on.The quality of your plans and specs will send a clear message that you expect them to be as professional as you.Call at least 5 contractors for prices, this will give you a good cross section to choose from.Gabe
*Thanks for the info. I am working with my architect to make a complete and detailed set of plans. If anyone has an example of a good bid sheet or list of specifications that will help me in preparing my quote e-mail me at [email protected]
*Amy:I only do remodeling and I would say that 30% is probably a small amount of money for your contractor to take on a job. Especially considering all the time involved in a room addition even if it's all subb'ed out.With liability insurance, workmans comp, office expenses, taxes (self employed pay twice the rate everyone else pays), vehicle, tools, etc, etc, most of that 30% is gone before he starts digging the first footing.Good for you for doing it yourself successfully. It's alot of work to juggle subs and get the job done right. Nearly impossible for a first timer. Congratulations.
*I have two rates here..10% profit on new construction and 15-20% on additions and remodels. This is after insurance, workmens comp, etc is factored in. 30% is not high amy if your subs did not carry workmens comp and the general contractor would have to absorb this cost. I bid profit a little higher on remodels because you never no what to expect on a tie in and the job is usually a smaller square footage....On new construction rates are pretty much cut and dry and you know what to expect from the ground up...I have made as high as 50% on a remodel bid job and as low as -5% on new construction lol....As to cost plus....my clients have always come out ahead when i bid cost plus and let them pay the subs direct so there is no workmens comp.....I usually give a "turnkey" price and do the job cost plus and we always come in under budget unless the owner adds things..My cost plus rates are 10% on new const and 20% on remodel/addition. Plus the homeowner saves on doing the things there selves like painting or such....and i dont lose money on a cost plus...If you have a set budget though cost plus may not be the way to go...some contractors will milk you dry if they know how much you have...Amy being female has nothing to do with the 38%......if you look good you may have gotten by cheap lol.......I have lowered my bids for select females just to get the job lol.......ooops im confessing now....hope wife doesnt see this...lol
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The only real test of whether contracting for myself was such a hot idea will be in the next 10 years if the thing lasts OK. My Maalox and aspirin costs have certainly gone up! There were definitely problems that would not have occurred with a professional and about which I feel too stupid to relate.
Steve, good luck with your project. For myself, it was easy to get recommendations on subs, but hard to find them for residental contractors in the area. Personally, I pay more for someone who comes well-recommended. The guy who bids at 10% may need your business badly for a reason.
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Not many contractors here will bid "hard dollar" on new residential construction. Most like to bid "cost plus" with the plus being 6%-8% of the total final cost. Hardly any run a full crew -- they sub everything out to avoid workmans' comp and payroll taxes. Framing crews are small too -- you have to have more than 4 employees here before workmans comp is required.
As for paying "twice the tax" this only applies to social security and medicare tax, currently 7.65%.
I am subbing out my own new house and everyone I've dealt with has been very helpful. I learned from you guys to treat folks with respect and defer to their knowledge. Finding subs and coordinating the work is not too bad.... what is hard is dealing with the constant uncertainty and making sure the communication is good. My new motto is: "Verbal communication doesn't!" Write everything down, including instructions as to when and where material deliveries are to be made.
*Steve, follow Gabe's advise. Good specs. help to ensure (but don't guarantee) that all are bidding the same thing. As a owner you don't have the clout a contractor has with a sub., this is the only job they will do for you. Do your homework on contractors first. Better Buisness Bureau, past customers, the lumber yard they deal with, sub-contractors they use etc. all can be sources of info. to get a picture of a builder. Then decide who you want to solicit bids from. I'm still leary of cost-plus, the up-side for you in such a relationship is small compared to the down-side. If you do decide on cost plus I would only do so after etting an exhaustive past client list, and asking them about estimates vs. final costs, and be sure to ask about change orders.Regarding subs and workmans comp. If they don't carry it (because they don't "legally" have to) whose insurance are they going to go after, if they are seriously injured, to pay their medical bills? Yours. You might want to think about increasing your liability insurance if you are hiring subs who don't carry work comp. ins.
*SteveFrom personal experience, I've gone the way of cost plus for custom homes and remodels. I will meet with a prospective customer, ask them questions (budget, size, features wanted, etc). Once I have these, I can usually tell if they are just dreaming or are serious (if you have done any building, you will know if what they want can be done within their budget). If they are not realistic, I will let them know. If they are dreaming within a realistic budget, I tell them at that time that I charge for my estimates with the estimate fee refunded if I get the job. On new homes, once I have received that fee, I give them a list of items they will need to do to get started. This list covers everything from getting the lot surveyed to having an abstract done to recommeded construction/mortgage lenders. I then start to ask lots and lots of questions from floor finish to cabinets to plumbing fixtures. When I have all the questions answered, I put together an estimate that has normally been within 5% of the finished cost. The estimate included everything from site prep to final clean-up. I don't try to hide a lot of costs in my mark-up. Instead, I list them on the estimate: liability insurance, workers comp, port-a-potty rental, permits, fees, specifications for framing, etc. If I plan on doing any of the physical work, I estimate it just as if I had to sub that out (just incase I have to). Only after I have done the estimate, I do a basic time line from start to finish, figure in travel time, etc, do I then figure a percentage for the plus part of the cost plus (can vary from a low of 8% to a high of 30%. It's worked for me and it is the only way I do business now.vince
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Building a house in Grimsby, Canada and about to quote a few custom home builders to do all but the finish trim, flooring and kitchen. What do you guys prefer a. bottom line quote or b. cost plus. What does a builder try to make on a job like this 10% 15% 20% ????. Any advice on putting a quote together so all builders are bidding apples to apples? Any advice on dealing with a builder so he can make a reasonable amount and I can save some money.
*Steve:Your margin estimate is realistic. To level the playing field when soliciting bids and to avoid later surprises, have a detailed set of plans and specifications. The more detail, the more apples to apples your quotes will be. Make these spec documents part of the contract agreement. I like your attitude so I will tell you this - going cost plus isn't the best way to control expenses.