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Started By
Message
Cost plus building
Posted on 12/18/22 at 8:08 am
Posted on 12/18/22 at 8:08 am
I’m considering hiring a contractor who wants to do the job on a cost plus basis. I never did it that way. I like to know my cost, sign the contract and hold them to it
I’d imagine that it could be hard to keep up with labor expense and maybe some things being bought that go in used.
What are some drawbacks to a Cost Plus deal?
What are benefits?
I’d imagine that it could be hard to keep up with labor expense and maybe some things being bought that go in used.
What are some drawbacks to a Cost Plus deal?
What are benefits?
10
Posted on 12/18/22 at 8:12 am to SlidellCajun
No benefits but you won’t find anyone that won’t do one. Costs are fluctuating too much. I would get all the draws they need for each item and what they spent. That’s about the only way you can do it.
I would add that they cannot hire that job if they go over 10% of the original cost without your permission.
I would add that they cannot hire that job if they go over 10% of the original cost without your permission.
Posted on 12/18/22 at 9:37 am to trident
Make sure you get lien waivers from all of the subs with their invoices to the gc attached.
Builders are still doing lump sum but they are either putting in painful contingency money or carrying allowances for materials and adjusting monthly.
Builders are still doing lump sum but they are either putting in painful contingency money or carrying allowances for materials and adjusting monthly.
Posted on 12/18/22 at 11:44 am to SlidellCajun
The main thing is that you are now assuming the risk of inflation - material costs go up - that's on you; labor costs go up - that's on you. In the current state of things, I can understand a contractor wanting to do it this way, but I'm not sure there are any benefits to you.
Posted on 12/18/22 at 12:35 pm to SlidellCajun
Do you have to pay him 10% of whatever you buy for the house? When we built, we shopped for a year buying stuff we needed and shopped deals. I guess this could limit that and give your builder zero initiative to buy on the cheap
Posted on 12/18/22 at 2:22 pm to SlidellCajun
There was a contractor on the Northshore who would have his subs submitt invoices that were higher than they actually were. By having higher sub invoices the contractor made more money.
This post was edited on 12/18/22 at 2:23 pm
Posted on 12/18/22 at 3:12 pm to SlidellCajun
Cost plus is not uncommon, but theoretically adds money to the pocket of the contractor as labor and material prices increase (obviously).
My contractor took only a slightly different approach, which I liked.
He estimated the entire labor and material, then came up with a "fee" of 10% of that estimate. The fee didn't change after that. Why should he make less if you get a good deal on lighting? Why should he make more if you get screwed by the granite guy?
No matter what, you should be comfortable with your contractor and contract before the build starts, because after that, There Will Be Friction.
My contractor took only a slightly different approach, which I liked.
He estimated the entire labor and material, then came up with a "fee" of 10% of that estimate. The fee didn't change after that. Why should he make less if you get a good deal on lighting? Why should he make more if you get screwed by the granite guy?
No matter what, you should be comfortable with your contractor and contract before the build starts, because after that, There Will Be Friction.
Posted on 12/18/22 at 3:48 pm to Major Dutch Schaefer
quote:
There was a contractor on the Northshore who would have his subs submitt invoices that were higher than they actually were. By having higher sub invoices the contractor made more money.
Ouch
I can see how this could be a common racket.
The guy I’m dealing with said he’d just submit to me the hours worked for skilled and unskilled labor and I pay as we go.
I said how do I know if the guys work the hours you say they worked? He said that he’d keep their hours.
Mmm.
Nah.
For materials, he said I said that he would submit the invoices to me and I’ll pay them as we go. That sounds okay to me.
Gotta figure out how to work this labor part of it though.
Posted on 12/18/22 at 4:57 pm to SlidellCajun
Check out Cretin Townsend Homes. If it's normal construction it would be hard bid except for site related items like dirt, well/water, sewer, etc etc. By normal I mean 200k-500k and what you would find 90% of people doing.
Costs are actually going down right now. Lumber is down. Sheetrock and shingles are not up and if you shop ypu can get for less than 4-5 months ago.
Costs are actually going down right now. Lumber is down. Sheetrock and shingles are not up and if you shop ypu can get for less than 4-5 months ago.
Posted on 12/18/22 at 5:27 pm to Libertariantiger
quote:
Costs are actually going down right now. Lumber is down. Sheetrock and shingles are not up and if you shop ypu can get for less than 4-5 months ago.
Yeah, costs have been good. Windows, doors, molding, lumber, sheet rock, countertops all priced okay and available. Still waiting a long time for kitchen appliances but that’s okay.
Contractor will give me receipts for all the materials to back up the costs so I’m fine with that.
The labor is where I see problems.
They could play a lot of games there and I want to know how to put some accountability on that
Posted on 12/18/22 at 5:56 pm to SlidellCajun
quote:
can see how this could be a common racket. The guy I’m dealing with said he’d just submit to me the hours worked for skilled and unskilled labor and I pay as we go.
We built a custom upper end home (for Covington) in 2020. It was cost plus. I saw all the invoices and can’t think of any sub who worked by the hour.
Posted on 12/18/22 at 8:39 pm to SlidellCajun
Yes, but the issue is there is no incentive for the contractor to get you the best prices. They have 3 different prices..... retail customer, cost plus guy who get small discount, and hard bids who play hard ball.
The biggest issue with cost plus is allowances that do not work out. The plan the other poster said would be a fair resolution. Ask the contractor to agree to cap anything that is on allowance at the allowance amount. Ita not harder or cost any more to put in a $500 faucet than a $200 one.
The biggest issue with cost plus is allowances that do not work out. The plan the other poster said would be a fair resolution. Ask the contractor to agree to cap anything that is on allowance at the allowance amount. Ita not harder or cost any more to put in a $500 faucet than a $200 one.
Posted on 12/19/22 at 8:07 am to SlidellCajun
How many bids have you gotten?
I got 4 bids. Not only did I want to see the price/profit variation, but how each one quoted, and which I felt comfortable with.
Everyone of them quoted it in a different manner. Two of those 4 I'd wouldn't have used (with the knowledge of the other 2)
And since you're discussing "labor", the contractor that I used got a bid from each craft. The framers quoted $x, the plumber $x, etc. Let them estimate their hours and provide a bid. If they can't do that, I don't think you want them building your house.
I really think you need to get more bids.
I got 4 bids. Not only did I want to see the price/profit variation, but how each one quoted, and which I felt comfortable with.
Everyone of them quoted it in a different manner. Two of those 4 I'd wouldn't have used (with the knowledge of the other 2)
And since you're discussing "labor", the contractor that I used got a bid from each craft. The framers quoted $x, the plumber $x, etc. Let them estimate their hours and provide a bid. If they can't do that, I don't think you want them building your house.
I really think you need to get more bids.
Posted on 12/19/22 at 9:24 am to SlidellCajun
quote:
There was a contractor on the Northshore who would have his subs submitt invoices that were higher than they actually were. By having higher sub invoices the contractor made more money.
This is what I would be afraid of. After building in 2021, I wouldn’t trust a contractor as far as I could throw them. Tried to hide all profits in the total cost and would buy cheap shite and try to sneak it in to maximize his profit. Only thing shadier is the stone countertop racket. I would be much more comfortable with a contractor just telling me It costs X amount to build, my cost is 75k.
Posted on 12/19/22 at 9:43 am to SlidellCajun
quote:
I’m considering hiring a contractor who wants to do the job on a cost plus basis.
Why are you stuck on this contractor? Do you trust him more than others? Just like him?
Based on the amount of responses in this thread and the level of detail involved to try to “keep him honest”, you may be better off with a flat-fee contractor, a consultant, or self-contracting.
A flat-fee builder is similar to what one poster suggested, you effectively pay him a single lump sum based on projected cost. His fee won’t change, but you still pay invoices on materials and labor.
A consultant is similar, except he doesn’t handle any of the material or labor or hiring. He simply serves as an “inside” contact to help you line up subs, estimate costs, and evaluate bids. All the decisions and hiring are on you.
Self-contracting is a good option if you have the time and contacts to get the subs. Your direct pricing will not be as good, but your not paying the overhead of a GC.
Posted on 12/20/22 at 9:39 am to Grassy1
quote:
How many bids have you gotten?
It’s a remodel job and I interviewed 2 contractors
The fist was wishy washy and salesman -like.
I didn’t trust him.
The second was earnest as anyone I ever met. Boy Scout type but young. He worked for a fairly reputable GC and I got good recommendations but they’re as good as the person recommending…
Anyway, I have now decided to go with 2nd guy.
He said they wanted to do cost plus because costs were hard to peg these days.
We didn’t get into the details much. He said he would submit invoices weekly with receipts for materials attached.
I began wondering about the labor costs.
I just don’t have the time to monitor this stuff. Wondering if there’s a better way
This post was edited on 12/20/22 at 9:41 am
Posted on 12/20/22 at 11:39 am to SlidellCajun
lump sum = risk to the builder
cost plus = risk to you
cost plus = risk to you
Posted on 12/20/22 at 12:56 pm to Major Dutch Schaefer
quote:
There was a contractor on the Northshore who would have his subs submitt invoices that were higher than they actually were. By having higher sub invoices the contractor made more money.
This is practically normal, especially for smaller jobs. I met with contractors on some smaller jobs ($8-15k) for rental properties and every single one told me something like 3 days of drywall at $800/ day. I know they weren't paying $800/ day for that as some of the work was just 2-3 hours for one or 2 days.
So unless you are seeing invoices from subs, and a ton of smaller contractors aren't using subs that are set up to even invoice all they do is labor for larger contractors on set daily or project dates, then your contractor is building in extra.
So the only thing you can really do is get multiple quotes and pick the one that is most reasonable with the most reasonable contractor.
This post was edited on 12/20/22 at 1:03 pm
Posted on 12/21/22 at 8:00 pm to Grassy1
quote:
My contractor took only a slightly different approach, which I liked. He estimated the entire labor and material, then came up with a "fee" of 10% of that estimate. The fee didn't change after that. Why should he make less if you get a good deal on lighting? Why should he make more if you get screwed by the granite guy?
This is exactly what my builder did and said. Except his fee was less than 10%. One of the big reasons why I chose him.
Posted on 12/22/22 at 7:31 am to SlidellCajun
A remodel job is certainly a different animal than a new build.
Sounds like you're thinking it through the best you can, trust being the biggest factor.
Maybe emphasize that you desire good communication through the project, so that he expects to report progress almost daily so that he knows it will be harder to hide discrepancies.
Good luck
Sounds like you're thinking it through the best you can, trust being the biggest factor.
Maybe emphasize that you desire good communication through the project, so that he expects to report progress almost daily so that he knows it will be harder to hide discrepancies.
Good luck
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