I’m signing about to sign the contract for, by far, te biggest job of my life. It is a whole house remodel with an additiion. Much of the work is a hard bid (about 60%). The rest falls under “allowances”, whichh are for tings such as fixtures and finishes, but also some things where complete decisions ave not been made by the homeowner. My queston is how to layout the payment schedule?
The job total inclluding allowances is $300,000. I’m getting approx $15,000 up front. MY second to last payment will be the what ever is left , less a small withholding for the final punchlist. Thhe job should take about 5 months.
Any recomendatons for whats in between?? How many draws should I take? How to schedule the allowance payments?
Replies
Yes. Pay attention to the amounts you need and ALWAYS STAY AHEAD. Even if you can only stay ahead one penny, you will never have a cashflow problem if you do it that way.
Don't be afraid to use Mike's line "I ain't no bank."
If you do the math, your 15k deposit bought one weeks worth of work. Get 15k each week and after 5 months, you will have ran through 300k. But....15k per week might not give you positive cash flow, which is critical for you to operate.
Don't forget to pay yourself your project management fee and get paid as a sub for each part of the work you do. Yes, you get paid twice on the same job...
Bob's next test date: 12/10/07
I'm considering setting up a schedule for thhe fixed cost items, then making a provision were I can bill every two weeks for "allowance" items as expenses occur. Does ths sound reasonable?
Edited 6/24/2008 11:59 pm ET by badarse
Edited 6/25/2008 12:02 am ET by badarse
Here's a couple of pages from a project of ours (it was about 236k). We normally get a 20% deposit with progress payments.I hope with a project of this size you are using a very detailed/specific contract...I would think at least 8-12 pages long to cover everything.Good luck and ALWAYS c.y.a.Jay
And as far as allowances go, I would consider executing a change order as each allowance item is decided on with payment due at that time (before YOU purchase the allowance items).Jay
Also, if you don't have a good contract in place already (not a good thing with any project, much less a 300k one) I would highly recommend this book:http://www.amazon.com/Contractors-Legal-Kit-User-Friendly-Remodelers/dp/1928580130/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1214400303&sr=8-1Great contract templates to get you started, written by a construction attorney...just have your attorney give it a going over for any specifics regarding your project/state.Jay
Thanks. Actually, I do have a solid contract that I've spent a good deal of time on and a detailed Job Description. I just wasn't quite sure how to deal with the payments. Your's looks like a straight forward way of dealng with it.
Edited 6/25/2008 11:10 am ET by badarse
I think think the most important part is the payment being due PRIOR to the start of any phase...that way if there are any small items needing to be finished on a current phase they don't hold up the next scheduled payment.Jay
Good point, Thanks
Thanks for that offering jjf1. I like your style. Was that from a fixed bid or cost plus fixed fee or cost plus? I've been wrestling with the allowances issue. Your terms would force us to spell out an overhead and profit factor which we never talk about. In fact, if we got to that spot in the contract, the natural question would be "how much do you mark up the extras?". Our standard markup right now is 67% so that probably would go over like a lead balloon at that point in the negotiations.Currently, we are giving away the extras at actual cost with no markups and refunding markups at actual cost. That formula "should" theoretically result in a neutral entry over the long haul. My thinking along those lines is that the allowance is close enough to the real deal so we are normally talking small amounts. Furthermore, we've already marked up the allowance by 67% so if some spend $100 more and other spend $100 less, it all comes out in the wash. Bob's next test date: 12/10/07
Congrats on getting that nice contract.I always set up a 'Schedule of Values' similar to an AIA contract. Each item has provisions for stored materiels, percentage of work completed, work to be completed, etc.When I was doing institutional and comercial work, 10% retainage was held on each progress payment. It was always nice to get that final 10% when the project was signed off on.Think about keeping a log or daily report. Note the weather, what subs showed up and what was completed. You can match this with your master schedule and update revolving 2 week schedules. Make sure the subs get a copy of each update. Consider holding weekly or bi-weekly meetingss with all of the subs attending. This can iron out some conflicts before they arise.Chuck Slive, work, build, ...better with wood
Edited 6/25/2008 3:00 pm ET by stevent1
That was for a fixed price contract Jim. And I know what you mean regarding putting our markup on "display" so to speak.I tend to be pretty vague on the markup and when I've actually put a specific amount in the contract regarding allowances I always put a 15-20% markup in for allowance overages. Of course this is NOT our usual markup, but like you were saying I don't want to get to the contract stage and have the sh-- hit the fan because we have to put the actual cost of doing business out on full display...ignorance is bliss, so to speakWe will only have a small amount of the contract contingent on allowances so it's never been an issue to the bottom line and keeps everyone happy (and yes, unaware).It seems the only people able to understand what kind of markup you need to survive/thrive in this business are the ones running/trying to run a real business...and as we all know it can be brutal.I don't expect a lot of clients to understand, but a lot of our fellow business owners have a tough time as well. This was from jlc the other day (I'm Jay123 over there)...http://forums.jlconline.com/forums/showthread.php?t=43391Oh well, what you do. If things don't get turned around here soon enough, I may have to go the "will work for $20 an hour route" or practice..."do you want fries with that?"...lol...I think.Jay
when we have to be transparent ( like in T&M )
we use 15 OH & 10 Profitthat is fairly standard and generally accepted in insurance work but i much prefer no transparency and lump sum bidsthe 15 & 10 comes into play a lot on Change ORDERS
BUT EVEN ON CO we wtill like to give them a lump sum if it is something we can get a handle onMike Smith Rhode Island : Design / Build / Repair / Restore
Edited 6/25/2008 8:27 pm ET by MikeSmith
I agree with you Mike, we also prefer to do lump sum co's. The only time we don't is if it's an allowance figure...then it's the old song and dance routine.If we have a $4.00 sq.ft. tile allowance and they choose a $6.00 tile, they'll get a co for $2.40 a sq.ft. (2.00 + 20% for the overage).Seems to keep everyone happy...so far.Jay
Thanks for all the suggestions. I think have this one pegged for now. Next time I'll be better prepared going in.
Lets see if I have this right. You are signing a contract for $300k and $120k is to be determined? And you are gonna lock it in for a deposit of $15K? The reality is you think much of the work (60%) is hard bid leaving 40% for material choices. Since the $180k hard bid also contains material at an average of 1/3'd... $60k of it would also be material. Sooooo.....You have a job with $180k in materials and $120k in labor and profit.
Good luck.... you are gonna need it.
Just my quick two cents having not read the other replies.
Go for as many draws as you can. Maybe even 12 or 15 along the way. Reason being is the client likes them as each payment is smaller and you are always receiving money. Bandks might not like that many but who cares about them as they are probably just happy to have someone borrowing money!
I tied all mine to the local inspections as it made a milestone that the client felt happy about paying since a third party "approved" the work. And there were about that many inspections from start to finish.
Mike
Doing a lump-sum fixed price proposal for a client, on a scope for which there will be material choices made after job award, and those material costs will be significant, as in your case, means you gotta do a lot of shopping and pricing to do the proforma cost.
It sounds as if you have somewhere around $120K in yet-to-be-specified stuff, the cost of which, whatever it comes to, will carry with it an OH&P figure you have already baked into your bottom line.
The way I like to work it is to get the whole list gone over by the client before the proposal, so that we have a reasonable idea of what level of price and quality is to be expected in everything. All the plumbingware, all the fixtures, all the lighting, floor coverings, stone, tile, everything. We agree that what we are doing is setting the standards, so that the price for all these goodies is a reasonable reflection of what the job will carry.
For a job with that kind of "goodies content," I would want to see 35 to 65 percent of the $120K right up front, no later than the day of the start. The $15K would just be the earnest money, gotten at the time the deal is inked. That means about $40K to $80K in your account when the tearing out and setting up begins.
From that point on, I would look for twice-monthly payments based on scheduled value for agreed-upon milestones of work, and be sure to consider "prep" as important a milestone as "completed."
As the material and equipment choices get checked off, anything chosen in a pay period should be at least one-third billed in that pay period. And anything delivered should be mostly billed for in that period, i.e., the SubZero gets chosen in pay period #2, $2500 is billed then, and when it comes in period 6, you will bill the other $5000 then.
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"A stripe is just as real as a dadgummed flower."
Gene Davis 1920-1985
You make it sound easy. Good points Gene. Bob's next test date: 12/10/07