Custom Homebuilding - Lump Sum Or Cost Plus?

 
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Old 09-16-2014, 09:46 PM   #1
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Custom Homebuilding - Lump Sum Or Cost Plus?


What do some of you builders out there do and what area of the country are you in? I'm in the Southeast. I'm bidding a job right now that I'm estimating my costs to be around $150k, simple single story 1600sf 3br house. I'm getting the impression that I'm the only bidder, but since I'm new it's very important to me to not scare them with a price that will have them give someone else a shot at the bid. So I'm contemplating offering a cost plus deal.

Those who do cost plus, what are your experiences with it (as far as customers' initial reaction, having to sell them on it, and final product/bottom line)? What % do you add for jobs that size? I don't have an office or a staff. Just me and my insurance.
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Old 09-16-2014, 11:07 PM   #2
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Re: Custom Homebuilding - Lump Sum Or Cost Plus?


For large jobs, you can't go wrong with T & M plus a 15% markup on top of everything. Right now, we are doing a large underground utility job and we are doing several extras on T & M plus a 15% markup. We pay our laborers $15 to $18 per hour and our foreman $35 per hour. We are billing at $45 for the helpers and $65 for the foreman. On top of that we mark up the labor, materials and equipment 15%. With 5 employees on the job we are profiting about $1200 to $1800 per day. When you multiply that times 5 to 6 days per week that is more money than many people make when bidding. Unlike bidding a job, there is virtually no way to lose money. Every day, we send the owner an updated invoice that shows his total cost. It is actually very good money. Our equipment bill for the month will be $10,000 and we make $1500 just for renting the equipment. This job is going to take another 4 months and we will make $6,000 total on the equipment. That is more than we would have marked up the equipment had we bid the job for a flat rate.

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Old 09-16-2014, 11:10 PM   #3
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Re: Custom Homebuilding - Lump Sum Or Cost Plus?


With new construction it should be bid, with the exception of excavating. Everything is known. I'm in ny and your price sounds about right. Maybe a little low depending on finishes.
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Old 09-16-2014, 11:53 PM   #4
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Re: Custom Homebuilding - Lump Sum Or Cost Plus?


Absolutely no reason to do cost plus on the job you mention.

I did cost plus/ T&M on the exotic customs and remodels.
Only way to fly....

But, as I have said before, Cost Plus/ T&M is not for everybody, Contractor or client....

Good Luck...
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Old 09-17-2014, 01:01 AM   #5
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Re: Custom Homebuilding - Lump Sum Or Cost Plus?


Quote:
Originally Posted by pcplumber View Post
For large jobs, you can't go wrong with T & M plus a 15% markup on top of everything. Right now, we are doing a large underground utility job and we are doing several extras on T & M plus a 15% markup. We pay our laborers $15 to $18 per hour and our foreman $35 per hour. We are billing at $45 for the helpers and $65 for the foreman. On top of that we mark up the labor, materials and equipment 15%. With 5 employees on the job we are profiting about $1200 to $1800 per day. When you multiply that times 5 to 6 days per week that is more money than many people make when bidding. Unlike bidding a job, there is virtually no way to lose money. Every day, we send the owner an updated invoice that shows his total cost. It is actually very good money. Our equipment bill for the month will be $10,000 and we make $1500 just for renting the equipment. This job is going to take another 4 months and we will make $6,000 total on the equipment. That is more than we would have marked up the equipment had we bid the job for a flat rate.
If that's a home improvement job for the HO you are breaking California license law. It's illegal to Work for a Home owner on a home improvement project in California for T&M

http://www.cslb.ca.gov/newsletter/2010-summer/page9.htm
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Old 09-17-2014, 06:41 AM   #6
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Re: Custom Homebuilding - Lump Sum Or Cost Plus?


Quote:
Originally Posted by pcplumber View Post
For large jobs, you can't go wrong with T & M plus a 15% markup on top of everything. Right now, we are doing a large underground utility job and we are doing several extras on T & M plus a 15% markup. We pay our laborers $15 to $18 per hour and our foreman $35 per hour. We are billing at $45 for the helpers and $65 for the foreman. On top of that we mark up the labor, materials and equipment 15%. With 5 employees on the job we are profiting about $1200 to $1800 per day. When you multiply that times 5 to 6 days per week that is more money than many people make when bidding. Unlike bidding a job, there is virtually no way to lose money. Every day, we send the owner an updated invoice that shows his total cost. It is actually very good money. Our equipment bill for the month will be $10,000 and we make $1500 just for renting the equipment. This job is going to take another 4 months and we will make $6,000 total on the equipment. That is more than we would have marked up the equipment had we bid the job for a flat rate.
This guy pretty well nailed it, cost plus here is typically 15-20%
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Old 09-17-2014, 07:46 AM   #7
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Re: Custom Homebuilding - Lump Sum Or Cost Plus?


How good of an estimator are you? I'd rather do lump sum contracts any day that ends in "y".

Typically in my line of work, if you do cost plus they still want a guaranteed maximum price (GMP). The only benefit to cost plus is that it might help you sell the job if they don't trust you. But if that's the case, I don't want to work for them anyway.
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Old 03-05-2018, 09:19 PM   #8
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Re: Custom Homebuilding - Lump Sum Or Cost Plus?


I know this is an old thread but I tried to PM you but with new account wasn't able to. Are you still contracting job on lump sum? Are you building new or remodeling? I'd like to know more. Do you set allowances? contingencies? etc. Ive done nothing but set pricing and 90% of jobs my customers picked me because of style/design/quality and let me pick everything out and are super happy. On the others after in contract they are asking for budgets on every single item when I had not planned for.
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Old 03-11-2018, 07:47 PM   #9
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Re: Custom Homebuilding - Lump Sum Or Cost Plus?


Quote:
Originally Posted by pcplumber View Post
For large jobs, you can't go wrong with T & M plus a 15% markup on top of everything. Right now, we are doing a large underground utility job and we are doing several extras on T & M plus a 15% markup. We pay our laborers $15 to $18 per hour and our foreman $35 per hour. We are billing at $45 for the helpers and $65 for the foreman. On top of that we mark up the labor, materials and equipment 15%. With 5 employees on the job we are profiting about $1200 to $1800 per day. When you multiply that times 5 to 6 days per week that is more money than many people make when bidding. Unlike bidding a job, there is virtually no way to lose money. Every day, we send the owner an updated invoice that shows his total cost. It is actually very good money. Our equipment bill for the month will be $10,000 and we make $1500 just for renting the equipment. This job is going to take another 4 months and we will make $6,000 total on the equipment. That is more than we would have marked up the equipment had we bid the job for a flat rate.

15%.... how the heck do you run a company on that low of a margin!? I need to learn from you! I target 10% MARGIN on net, which almost equals the 15% markup. How does overhead get paid?!
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Old 03-11-2018, 08:25 PM   #10
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Re: Custom Homebuilding - Lump Sum Or Cost Plus?


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Originally Posted by pegcity View Post
15%.... how the heck do you run a company on that low of a margin!? I need to learn from you! I target 10% MARGIN on net, which almost equals the 15% markup. How does overhead get paid?!


Isn't that the cost part of cost plus?


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Old 03-12-2018, 08:52 AM   #11
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Re: Custom Homebuilding - Lump Sum Or Cost Plus?


So personally I am confused when books or people say a 15-20% gross profit(not markup) isnít sustainable.

My question is this- if you are billing for general conditions(on a fixed price or cost plus) OR hide markup within hourly rates on T&M, is that not enough to cover overhead??

Before I actually was in business, I read markup and profit, and have read here and there you need at least 35-52% markup(something like that) to stay in business, but Is that assuming you are not billing general conditions(supervisor, pm, etc)??

What we do is bill general conditions on a monthly basis, covering project management and job site supervision, have all our line items (will not be breaking down in as much detail in the future). And at bottom , overhead, profit, insurance burden and warranty(those four are a percentage of total project).

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