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Question from lawyer trying to help contractor

12K views 52 replies 39 participants last post by  rallen 
#1 ·
:party: Hi, everyone:

I'm not a contractor; I'm a lawyer who stumbled across your site while researching a question for a contractor client. I'm not as familiar with contracting practices as I'd like to be, so I hope you'll help me help him.
Here's the question:

Is it standard practice for a general contractor doing custom home work to markup the hourly rate for laborers in addition to charging a flat percentage for profit and overhead?

Thanks in advance for for any help you can give.
 
#2 ·
In my experience with doing hourly work. My hourly charge would include any workers I have. If the job required more workers at any given point the contractor should have that stipulated with an extra charge per hour. Always you will have a percentage for overhead and profit. So it should be STIPULATED in the beginning not just show up in the middle of the job. If we need help as far as sub-contractors that is a whole other story than charging for individual laborers.
 
#3 · (Edited)
The word standard is a loose term as best. But the answer is yes. That is the way I do it. my hourly fees are marked up to cover overhead and a percentage is used to cover my overhead and profit.

This is an easy explanation but what he did in my eyes is standard

Are you with HOWEY,DEWEY and CHEETUM?? :laughing:
 
#10 ·
SCP regarding your question:

Is it standard practice for a general contractor doing custom home work to markup the hourly rate for laborers in addition to charging a flat percentage for profit and overhead?
...it isn't entirely clear just what you are asking.

The tricky phrase in there for me is "hourly rate for laborers".

If you really meant to say "hourly wage" instead of "hourly rate" I would then say yes it is typical to markup the hourly wage for laborers to account for Labor Burden costs related to the individual laborer. Burden includes employer taxes, insurance, benefits, vacation time and any other un-productive time that needs to be accounted for as a function of labor. Burden does not include employee withholding, since they are deducted from the employees gross wages.

That marked up hourly wage (which is often referred to as the "employee's cost") then gets marked up again to account for the company's operational Fixed Overhead costs and Net Profit.

However as I alluded to in the overhead and profit discussion here in post #43 there are some contractors get confused in their understanding of how markup and profit works and is applied in a business and sometimes markup costs twice for the same purpose...

[...]

The reason I ask that is because I have seen contractors in other forums develop a Capacity Based markup Loaded Labor rate (which is a labor rate that takes into consideration, an is thereby "loaded with" all the Variable Overhead and Fixed Overhead costs and Net Profit associated with a unit of labor. I.e. wage/salary + benefits + overhead costs + profit margin) and then multiply that figure by 1.5 Uniform Markup multiplier they're read about in Michael Stones book which essentially has them double dipping for their overhead and profit and they come up with a ridiculously high figure which of course would be rejected.

[...]
Hope that helps.
 
#11 ·
Absolutely, the hourly cost of labor to a contractor includes items that are not standard overhead and profit.

Start with workers compensation insurance - which is paid for every hour of labor associated with a job. A $15 per hour guy actually costs a cotnractor about $25 per hour.

I know I charge it in my work.

Customers have no idea of the true cost of putting a crew of men on a job site, trained, insured, providing a safe environment, working according to OSHA, etc...
 
#13 ·
SCP,

As one who would like to see you benefit your client to his best result, I feel that a bit more detail would be needed for a variety of responses that could be more pin-pointed directly at your particular case and situation.

Now, please pay attention:
Be more specific regarding the question you need comments on.

Also, you will be able to weed out the genuine versus the disengenuous responses on your own, but Jerrold Hayes has a substantial background in the nuances of this type of discussion.

For further easy to access information, I recommend you visit this site and seek out information from Bob Kovacs at: http://forums.jlconline.com/forums/index.php
in the Estimating and Markup Subforum.



Now, in my own free humble opinion, which is all it's is worth, the contract should have specified a precise amount for the hourly rate to be charged in one respect, or on the other hand, it could have been the hourly rate Plus a certain percentage for GC Markup, or simetimes properly or improperly called GC Overhead and Profit.



I also strongly recommend making contact with Michael Stone at his site:
http://www.markupandprofit.com/books_mark.html



Since these terms and the definitions you are seeking clarification on are common to the industry, would this project per chance have anything to do with an insurance restoration or remediation project?

I sincerely hope that we can at least point you in the right direction, but to do that in a more accurate manner, you might like to offer up which State you are litigating this case in, as some have peculiar differences from others.


Ed
 
#17 ·
scp
Registered User
Trade: contruction lawyer

Join Date: Dec 2008
Posts: 1

...A Construction Lawyer that can't even spell Construction asking strangers for info that can be found in almost ANY "Contracting for Beginners" book.

in a word, "Jackleg".
 
#18 ·
i've always heard lawyers refer to themselves as "attornies" as well.

in addition, wouldn't somone who specializes in construction law ALREADY be quite well-knowledgeable in the practice of contractors?

hmm, it is beginning to smell like a HO.


(no - not that kinda ho:laughing:)
 
#27 ·
Watching this is like dropping a wounded baby antelope into the hyena cage at the zoo...
 
#32 ·
He's legit. I found his web site. I encourage him to offer more detail and his regional status, because it will help us help him to help his client.

This appears to be a simple case of contract law.

And the consensus I'm reading is exactly how we do our contracts: everything should be spelled out clearly up front in the contract to avoid this sort of confusion in the first place. We clearly communicate that any sub gets marked up a very specific percentage for OH&P. One thing I would also add is that we have a client sign-off sheet at the end of the contract where they indicate agreement to terms & conditions with their signature.

However, every company is different. The GC could mark up subs AND charge a flat fee for his own OH&P on the project. But that sounds more like an agent construction manager arrangement, not a traditional general contractor arrangement. It really depends on his practice, and how he spells it out in his contract. I have also been party to contracts where the (commercial) owner or owner's construction manager wants change order rates limited to very narrow structures (hourly wage marked up 10+8 for OH&P, etc). Which I have to say is nuts, and we always strike that clause. We give our in-house hourly billing rates (project managers included), and we spell out that the materials, rentals and subs' invoices get marked up a specific percentage. If they don't like it, don't hire us. But everyone in our market does it this way.
 
#34 · (Edited)
He's legit. I found his web site. I encourage him to offer more detail and his regional status, because it will help us help him to help his client.

This appears to be a simple case of contract law.
...snip...
Although I definitely appreciate the input that members like you and SCP have posted in this thread, I'm still not buying that this thread was started by a lawyer.


  1. With all due respect, you saw *a* lawyer's website. That doesn't mean much. I could show you three corporate law firms and pretend to be attorneys in each one because I either know what they do or I've worked with them.
  2. Any paralegal or college intern could've found the answer to that markup question with a quick trip to LexisNexus, Westlaw, a Law Library, a local university library or even at a book store. As great as this website is, it can't be considered a "substantiated source".
  3. When it comes to cases, lawyers generally don't trust *any* outside advice from unsubstantiated sources -- they can't. To do so would open themselves and their practice up to all sorts of liabilities. This is one of the reasons why they spend the money to be members of state level (and national) organizations where they get access to hundreds of other attorneys with similar focuses, research sources, expert lists, and tons of other books and information.

I could be wrong but... well.. <shrug>..
 
#36 ·
You guys are right, there is a chance the OP is not the lawyer I found. Could be someone using his name to get answers.

And I also agree that coming here is a little weird for a lawyer. I have my stable of lawyers (personal lawyer, labor lawyer, contract lawyer, insurance lawyer, collections lawyer), and whenever I've given them a task that they didn't know how to handle, they said "I specialize in X, and this is Y, so let me go down the hall and talk to Jack, who specializes in Y, and I'll have him give you a call." I'm not so sure how I'd feel if he told me, "you know, I went on this contractor's forum, and it looks like this is how GC contracts usually work."
 
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