Bidding Cost Plus

llpcas

For a 4500 sf addition, we want to bid it cost plus. Several items are still undecided and we think the project will probably undergo many changes.

Have you worked with a cost-plus contract and why did your customers decide to go with it?

We like the openess and the protection of this type of contract, but will a homeowner be able to see advantages too?

swantucky

We do alot of work this way, normally those tough jobs that are hard to put a solid number on or as you stated when there are unknowns. We generally call it cost not to exceed. We figure the job on the high side so there is normally some $$$ to give back. Most of the customers we bid this way to we have had a longstanding relationship with. The value to the customer is they get charged for what you do, not what you "might" have to do. To me it is a win-win, I would have done at my own home this way.

llpcas

thanks. this is very helpful. We are currently getting our bids together. How much over the cost we estimate from the current bids would you add to arrive at your "maximum cost"?
Also we are planning to ask for a fixed fee as the General. Do you think this is the best way to go?

swantucky

It would depend on how many variables you have as to what your maximum cost would be. A fixed fee for your management services based on your cost per day would be o.k. I can't type quick enough to be of much help, pm me and I'll send you my cell and we can talk.

Tscarborough

Personally, I would never sign a cost + contract as an owner, and it would have to be pretty lucrative or long term for me to set one up as a bidder.

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scottsanders250

As a homeowner, would you sign a cost plus contract with a fixed fee? The fixed fee would of course be up to a certain maximum dollar amount with an additional percentage added to change orders outside of the original scope.

As a homeowner, I have the advantage of paying what it actually costs for the work, and as a contractor I have the advantage of getting paid for all of the work I do. Seems like a win win to me.

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Scott Sanders
www.mybrightleafhome.com

wireless

What happens when the maximum price is reached?

finehomes

I've been doing cost plus custom homes for 10 years. Never done it any other way and I NEVER will. Its fair to both parties. They ONLY pay for what actually gets put into the job and you get paid for what you do. They also see every single invoice....at least the way I do it they do.


Sam

swantucky

The idea is to have your bases covered so this does not happen. A fairly detailed scope of work is needed. Generally with it being an open book job you can can juggle the budget with the customer. If they want better windows that figured maybe you could spend a little less on wood trim to offset that cost. There is alot of give and take.

Brock

No.

Customer wants to know the total price before they hire you. Plus you have to remember they are probably getting other estimates, and some or all of those wil lbe a fixed price. Think of it this way. You are walking out of a csino in LasVegas and you need a cab back to the hotel. There are two cabs waiting for customers at the front door. The blue cab has a fixed price of 10 bucks for a ride. The white cab uses a meter and starts the meter when you get in the cab. You have no idea what the meter will say when you get to your hotel. How many folks will get in the blue cab, and how manywill gamble and get in the white cab?

Now, I will say that I have offered a cost plus scenario to potential customers before but to this day (20 plus years in busines) no customer has ever accepted it. The problem is wages. The customer knows that all I have to do is fudge the manhours or price for manhours to get whatever profit I want. They get invoices for materials, but they have no earthly idea how many man hours were actually worked.

EXCEPTION TO THE RULE;

If you are one those GC's that just rides around in your truck and never performs a single drop of physical labor then it might work. I have met a couple GC's like this and they sub every single aspect of the job out.
A guy like that could get a customer to gamble with him. He would have to have millions of dollars of work going on at all times though to maKe any money. Imagine going through 6 months of hell building a new home for someone and all you get for your trouble is 15K. But, if you have 6 homes going at a time and all of them take 6 months to complete (very doable) then you pocket 90K for an average $150,000.00 home every 6 months, and all you have to do is eat donuts and talk on the phone.

Tscarborough

If I as the Owner get to define costs, I am all over it. If the GC gets to define those costs, never in a million years. If the Plus is contract limited, and is reasonable, I might sign as Owner, but I would never offer as bidder. So it boils down to who writes the contract.

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JumboJack

I have found one way for it to work for both GC and HO is when there are unkowns involved.Like repairing termite/water damage where you don't know the scope of the work to be done till it is opened up.

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in texas with framing and cornish people will do it for 3.00 a foot. What do yall think about that? Just laber

Tscarborough

Sure that is the only practical way for that to work. For a 4500 SqFt addition, though, it is another kettle of fish.

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It ain't Rocket Science unless you are building rockets.

JumboJack

I totaly agree.

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in texas with framing and cornish people will do it for 3.00 a foot. What do yall think about that? Just laber

scottsanders250

I guess I should have clarified what else I think needs to be included in a cost plus situtaion.

1. A relationship. Cost plus will not work if the H/O thinks they are going to get screwed. Basically this means working with the archie and H/O from the beginning and not in a competitive bid situation.

2. Understanding. If there are no final specs, there is no set price. On a 4,500 SF addition I would hope that there would be some kind of detailed specs if it is being put out to bid, but according to the OP, it sounds like the H/O

3. A capable contractor. Find a client, sell a relationship, get a design services/consulting contract, get an approved scope of work, put together the numbers to come up with a GMP, present to H/O with a separate cost plus contract.

The costs are material, labor, and expenses directly related to the project. Those expenses are explained and discussed with the H/O. I agree that some contractors can still screw the H/O here, but that doesn't mean that there is not a time and place for both cost plus and fixed bids.

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Scott Sanders
www.mybrightleafhome.com

Tscarborough

If there are detailed specifications and plans, why would there need to be a cost plus contract? There is specific language in most remod contracts (I have only seen commercial, not resi), that handles unforeseen conditions.

Again, what is the compelling reason for an owner to accept a cost plus project? I can detail the reasons why I would want one as a contractor, but none as an owner.

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It ain't Rocket Science unless you are building rockets.

Snow Man

iT'S JUST A NICE WAY TO SAY '' TIME & MATERIAL'' ISNT IT?

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G&S23

It never ceases to amaze me how some of the catch words have become standard practice in our industry. A cost (fee) based contract typically is based on some bottom line value and you move forward defining what is included with your starting number. T&M is without a doubt the best bang for the buck as long as the work involved is not part of the contracted work.

As for the addition the OP spoke of, the customer needs to know how much they're in for which in turn gives you the contractor fee. With no mention of drawings for the addition it would seem that the customer is looking for budget numbers which is critical to get this right. Anyone can give out a number with no accountabilty, but HOLD to it is another animal. Seen it over and over, the GC/CM give bad numbers upfront and, at the end when the project ran way over, there's nothing but extremely p****d off people left holding the bag. Worse thing yet, they (customer) could have the most beautifully crafted structure possible and you (contractor) will NEVER get any credit for the work...

d-rez

I have yet to enter a Cost Plus contract, but the arch I do a bit of work for has suggested it to me. The arch showed my a budget worksheet from a past job he managed and he charged 20%. I charge 37% on top of direct costs, but I think HOs would flip if I tried to do a Cost Plus at that. For all of you who work Cost Post; how are your clients reactions when they see what % you are asking for? -Chris

Bob Kovacs

You wouldn't show a 37% markup- you'd apply some of that cost as part of the "cost of work". For example, if your 37% includes burden on labor costs, you'd incorporate that $$ into the labor costs and use the higher rates. If it includes your salary for time you spend supervising the job, you'd include your time as "job supervision". If it includes the cost for insurance, you'd itemize the insurance separately. I can't imagine that you need a 37% markup to cover only non-job-specific overhead and profit- once you get the job-specific costs applied as "cost of work" your "plus" percentage will be much lower.