Need Advice- Cost plus bid / cost +

[Swampy]

Hello- I just wanted to ask about any pros/cons or things to look out for with a cost + type bid. A local contractor has offered to build at cost + 9%, and I was looking for some feedback. I am guessing materials at near 60K, so I guess he will build it for $5400? Seems to good to be true. I know I need to communicate with my contractor and he will surely answer all my questions, just trying to gain some insight.

Thanks.

 

[danski0224]

If it seems too good to be true...

 

[CraigFL]

Will the contactor be charging you list price for the materials and/or getting a kickback on them?

What happens if there is a change?

What happens if he uses gold-plated studs and you don't feel they're necessary?

What about cost overruns/errors? (Sub pours slab and needs to fix?)

Who pays if code problems?

Just a few questions...

 

[Dawgfan]

Better ask, my bill for cost plus also had labor added to materials, then 10% on top of that. The 10% is about standard in our area. I prefer this over a package bid.

 

[GarageEnvy]

I am working something similar with my framer. I am paying lumberyard direct for materials he orders with whatever price break he gets. If there are deals on the side then I really can't do anything about that. Frankly the lumber bill was so cheap I can't believe there's anything extra in it anywhere.

 

[Red05GT]

Cost plus to me has always meant, Material + Labor= x +10% or whatever markup
that is agreed to in a contract. This would be all subs,all materials, supervision, permits,
etc. Most jobs will be about an equal amount labor (including sub labor) and materials.
Now if the $ 60K is $ 35K for materials, $ 25K labor and $ 5400. for markup, I can see
that making sense.

 

[billspit]

Cost plus to me has always meant, Material + Labor= x +10% or whatever markup
that is agreed to in a contract. This would be all subs,all materials, supervision, permits,
etc. Most jobs will be about an equal amount labor (including sub labor) and materials.
Now if the $ 60K is $ 35K for materials, $ 25K labor and $ 5400. for markup, I can see
that making sense.

That's the way I understand it too.

 

[usa#1]

Usually cost + is (Material + Labor) x markup %. Usually the contractor also bill his work hours at what ever rate he wants to charge you for "overseeing" the project and then slaps the markup % on top of that also. I think I would rather have a fixed price or a price per ft2, etc. At least you will know going in how much the final cost will be. Also with cost + there is no incentive for the contractor to get discounts on materials and labor; ie the more "it" costs, the more he makes.

 

[alberto]

His bid will include his labor, at some fixed rate (there's almost certainly profit in that rate too BTW, he won't charge you the rate he pays his guys). So, 10% plus is ok, provided the labor rate is reasonable. The thing is, you also need to be careful about materials costs. He's got no incentive to save on that. Plus if he has some sort of kickback arrangement with a given supplier, he's making some off of that too.

This all is not saying this is not a good arrangement, just that you need to ask questions and keep your eye on it. You need to reserve the right to source supplies or seek alternative suppliers.

 

[Red05GT]

Yes in the perfect world fixed price is definately the best deal for the customer. With
unforeseen problems it can be financially devastating for the contractor. I think this
is where many contractors ruin their reputations by cutting corners they know they
shouldn't to try to salvage a profit or at least not go in the hole on a job. With all of
the home improvement shows and big box retailers, most home owners feel they know
more than the professionals they look to hire to build their projects. Many times lack
of timely decision making on the part of the homeowner can lead to slow downs on the
part of the contractor. I just had a person request a quote on an addition to a home
he had bought. He wanted the addition quoted as a 1 bedroom and 1 bath and as a
2 bedroom and 1 bath, and some miscellaneous existing house remodeling and updating.
Oh, and by the way give me a quote on a bath and kitchenette in the detached garage,
and how could we add on boat storage to the detached garage. After two weeks of
pulling together numbers on materials and subs, checking into electrical panel issues,
hvac upgrades, planning for limited site access, he calls for a price. When I said I could
meet with him the next day he said just give him the numbers over the phone. He already
had a preconceived idea of what the project should run. $ 100. per s.f.

A couple of days later I was talking with another builder and shop talk led to what
projects we each were working on. I have done excavating site work and utility work
for this other builder so we are pretty open with one another in business dealings.
I was complaining about putting together a bid and the customer only being focused
on their number, not what is really involved in a comprehensive job. Come to find out
this guy has had the job quoted 6 different ways to Sunday by the other builder too.

Yes, a less than honest contractor could pad a time and material cost plus quote a
couple of percent. After nearly thirty years in business the "Red Flag" gut feeling
usually tells me who is a compatable customer and who is just out to see how low they
can beat you on your price. The really good customers will get more from an honest
contractor that they entrust their project to on a cost plus basis. Just my 2 cents.

 

[NUTTSGT]

I would think you need to take into consideration what you're building. Wheter it be a new garage, a new home, or an addition to a hundred year old farm house, I would think it have it's own necessities of bidding.