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Our GC firm has been awarded a large multi-million dollar project. As part of that bid process we had to provide a breakdown of base bid pricing . We will pick up possibly a large amount of buy out money from subcontractor negotiations. We have worked with this owner on several projects and they require with each progress payment billing to supply a listing of the subcontractor utilized along with the amount due and unconditional partial lien releases through the previous month. This can create an issue if I have picked up a large sum of buy out money as they will be able to see through that affidavit and lien release what they are actually receiving. For example say flooring was bid at $750K, but we negotiate to $725K. Should I push that pick up to another line item? I guess what I'm trying to establish is it just a fact that owners expect sometimes to see GC's picking up large amounts on buyout?
 

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If it's a bid project then it's a bid project. If you make an extra million that's not their concern. I would never sign an open book contract unless it was a T&M project.
 

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Your internal finances aren't anyone else's business but your own. If the customer is demanding to 'see your books' and tells you what you can and cannot do with your subs and their prices, you're not longer a contractor but an employee,
 

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No big deal, whatever isn't supported by the subs price covers your companies time, effort, overhead, profit, etc.


Shopping out subs after bid day to improve your margin is a really good way to give your company a poor reputation. Pretty soon the good subs won't be giving you quotes to bid with, as you can't be trusted. If you win the job with a particular sub or suppliers number punched in, it is only honest and ethical to do the job with that sub / supplier.

Nothing wrong with coming up with cost saving ideas or methods to get numbers down with your sub team, but putting their numbers up for auction after bid day is low down.
 

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Discussion Starter · #5 ·
Your internal finances aren't anyone else's business but your own. If the customer is demanding to 'see your books' and tells you what you can and cannot do with your subs and their prices, you're not longer a contractor but an employee,
No big deal, whatever isn't supported by the subs price covers your companies time, effort, overhead, profit, etc.


Shopping out subs after bid day to improve your margin is a really good way to give your company a poor reputation. Pretty soon the good subs won't be giving you quotes to bid with, as you can't be trusted. If you win the job with a particular sub or suppliers number punched in, it is only honest and ethical to do the job with that sub / supplier.

Nothing wrong with coming up with cost saving ideas or methods to get numbers down with your sub team, but putting their numbers up for auction after bid day is low down.
That's not what we are doing. We go to the subs who we used at bid time and negotiate with them directly.
 

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I’m on the other side, i represent the owner in projects just like this. We require bid books from the gc to show they have solicited multiple bids for each sub, and if they don’t use the low bidder we want to know why. Might be a good reason. Unless there is a cost saving sharing clause in the contract, once the contract amount is accepted then any savings belong to the gc. After all the bills are paid it would be nice if the gc offered to reduce their final invoice, but it’s not required. But on the next project with that gc, we are going to look much more closely at the numbers up front.

The dollar amount on the lien waiver is to protect the gc and the owner. Suppose the bid amount from the gc to the owner was $100k for plumbing, but the gc negotiated it down to $90k. The waiver is only going to be for $90 which covers the subs amount due, so no lien can be filed.
 

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Your negotiations between you and your subs is NO BUSINESS OF YOUR CUSTOMERS'.

Do you go into a grocery store and TELL THEM they need to DEMAND the warehouse lower their prices on bread and milk?
 

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I’m on the other side, i represent the owner in projects just like this. We require bid books from the gc to show they have solicited multiple bids for each sub, and if they don’t use the low bidder we want to know why. Might be a good reason. Unless there is a cost saving sharing clause in the contract, once the contract amount is accepted then any savings belong to the gc. After all the bills are paid it would be nice if the gc offered to reduce their final invoice, but it’s not required. But on the next project with that gc, we are going to look much more closely at the numbers up front.

The dollar amount on the lien waiver is to protect the gc and the owner. Suppose the bid amount from the gc to the owner was $100k for plumbing, but the gc negotiated it down to $90k. The waiver is only going to be for $90 which covers the subs amount due, so no lien can be filed.
The GC can file a labor lien and for its mark up on Materials, and if a sub sub exists, a double mark up unless forbidden.
 

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If everything is done per the AIA system like normal. You aren't sending sub lien wavers to the owner. The subs send them to you and you send one to the Owner that covers the amount due to the Contractor.
 

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It's called Value Engineering and happens on every larger scale commercial project and every contractor and every sub knows the game.
Not in California. When you're awarded the contract you use the listed subs. If you want to change subs it has to be approved, and you have to have a reason. The sub you're replacing can challenge the action as well.

Edit: Obviously this only applies to government contracting.
 

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Not in California. When you're awarded the contract you use the listed subs. If you want to change subs it has to be approved, and you have to have a reason. The sub you're replacing can challenge the action as well.

Edit: Obviously this only applies to government contracting.
In most case the same here in Virginia, we need to notify the Owner of any change of subcontractors approved by the owner. However we can change the amount of the subcontract for any reason and don't need to notify the Owner. The Owner doesn't know the terms of the agreement between the contractor and subcontractor.
 
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