I just bid a job for new construction of a pretty elaborate 2500 SF custom home (21 jogs in the foundation, 14 elevations on parapet walls, etc…) Now the architect, who calls himself a Project Manager, is trying to beat me up on my price. I bid the job at cost plus 16%, which I feel is reasonable. I also know that the current plans are highly likely to change, and in fact, have in just the last 2 days. He tells me that “standard percentage in his county is about 10%, and besides, the risk is very limited to a builder in this situation.” I’m not buying it. I still carry the liability for construction, and his disclaimers, verify in field, etc… Any input on these figures?
I’d appreciate your input.
Edited 8/8/2002 10:23:38 PM ET by JUDDFINEHOME
Replies
Judd, I now only build cost plus and have heard and seen all types of responses from, I'm not giving you an open checkbook , to sounds great. Prior to building cost plus, I would bid jobs and many times get burned. My decision to become a cost plus builder has been bitter sweet. We build QUALITY custom homes, most of them being log, and my number one most irritating situation in dealing with an owner intending to build a custom home and wanting a bid was the fact that they did'nt know what they wanted. How do you bid the unknown? You don't , accurately. We would give allowances which always seemed to be over in the end, and we would receive heat for that. It seemed we could'nt win. So we went to cost plus and have'nt looked back. Our success as a cost plus builder has been due to our reputation, which means everything. Trust both ways is paramount. You trust your customer to pay, and he trusts you to deliver. If there is distrust at the start, you may wish to reconsider taking the job. If this architect is trying to tell you what you need to generate as far as a %, he is off base. You know your worth as well as what it takes, financially, to stay in business, he does'nt. If you build a quality product worth what you charge, who cares what thje going rate is, you can always find some hack warming a barstool to do it for less, not better. If your price is too high, suggest he look elswhere, if he would rather not, there is a reason he is after you. If he is a true architect, he is also working for a %. You may want to ask him to adjust his % to get the job signed. Our % will vary from job to job from !0% to our high of 20%. Depending on different factors such as distance to the site, complexity of the structure, time on the job, etc. The bad thing about cost plus is you will lose jobs over it. We lose jobs to bidders who low ball and bidders who end up costing more than if we would have built the project cost plus. In this day and age, with the drop in qualified new construction personel every year, a solid site builders worth is priceless. Just my veiw.
I find myself a little confused by some terms you used.
BID if you bid on the job you are not working cost plus or time and materials, you gave a firm price for specificly defined work. Perhaps you meant to say that you provided an ESTIMATE for proposed work.
How do you define COST? This becomes very important. If you exclude contractors liability insurance and office overhead from your definition of cost, you will loose money at only 15% but if you include all overhead and even sales burden as costs, then 15% might seem a little generous.
Overall, I would tell him that I don't do "standard" work so I don't settle for "standard" markup, whatever that means. I get a little extra and give a little extra value.
I think he is probably yanking your chain and testing you. As a project manager, it is his job to bring the costs down as much as possible for the client.
BTW are you to be working for him or for the owner? If he is trying a power play here - watch your butt!
Thanks for the input and questions. You are right, I did prepare an ESTIMATE for the clients. I am also working for the clients, not the architect. Although, I will certainly re-visit this topic with them both.
As far as overhead as a percentage, I do not add things to the estimate such as liability insurance and office overhead. However, I'm basically a one man show at this time with subs doing 95% of the labor. The way I see it, my job is basically management of the process.
Frankly, I would have probably gone 18%, but I knew that the architect had over designed the house, considering the client's budget. Probably too much of a softie, I suppose. Also, I 'm pretty sure they have not shopped this job to any other builders.
This sounds like an architect with a public works background. They have trouble relating to the real world sometimes. You must be the lowest quality bid for him to try to skahe you down....that's not a mistake, it's rustic
I'm paying my contractor cost plus, I beleive 15%. He provided me a fixed price estimate with plenty of margin and was up front about it. Said "I can do it for this or do the work at cost plus and probably cost you less." He knows the budget and knows what "not to exceed". He's good and I trust him and the subs he is using. Others were less expensive, but not good enough. If you do good work, charge a reasonable price for it. We do, but we get priced out of a lot of jobs.
I do a lot of work for architects and they are usually the project management. Sometimes they will come back and say "so&so is cheaper by $$$$, but we want you to do this job". Depending on the backlog, sometimes my response is "maybe I can thin it out a little" or sometimes my reponse "you get what you pay for, you have my price".
I agree with what everyone else has hit on here, my only point would be.... If he's trying to sell you on the idea that cost plus 10% is standard in the county then I think my position would be, "That's great, change the design to a "standard" design and I'll consider the "standard" rate". Since you mentioned that the house was anything but standard with all the jogs etc. I don't really understand why he feels you should be compensated like it is a builders plan or something.
SJ
Your markup is not a problem. The architect has probably exceed the budget with her design but still wants the entire project built. Even if you kicked back 6%, the project would still be overbudget. Don't take it personally, just hold your ground. If the architect keeps pushing, suggest a few major cuts in the design in order to bring the costs down. This will constructively put him on the defensive and off your back. This is all part of the same game we have seen played over and over since the Pyramids were built. Don't sweat it.
AMEN!!!!!!Excellence is its own reward!
I agree Schelingm,
The architect's response will be that you are hard to work with.
Been there.
Who in the hell would want to take on the heartache of building any project to make 10%?Tom
Very simple reply......10% is standard...I'm not standard......I'm special!
Special costs more.
My price is my price........sorry if you can't afford special, no hard feelings, business is business.
Jeff.......Sometimes on the toll road of life.....a handful of change is good.......
if ALL your costs are included , then 10% ain't bad..... but i've never seen a contractor who could get a contract approved that included ALL the costs...
office overhead
labor burden
management & supervision
labor downtime
employee benefits
supervision
estimating
shop drawings
material over orders
tool maintenance
expendable supplies
yada. yada, yada....they are all part of the cost of doing ( and staying ) in business..
over and above that , the company is entitiled to profit.....
so ...rather than trying to get a chinese menu list of costs approved... list the obvious and ask for 15% for overhead & 10% for profit...Mike Smith Rhode Island : Design / Build / Repair / Restore
Mike
As you know, in any business the costs will ultimately be passed on to the consumer. To that extent, I agree that it is unnecessary to directly list all costs incurred. The property owner is not really concerned over whether secretaries and other office personnel are employed or whether computers and other office equipment are used in the conduct of business. These costs are not directly applicable to the owner's property.
However, those costs will ultimately be be paid for just like the materials and labor. In a simple example, suppose a carpentry contractor is employed by the property owner. The carpentry contractor emloys a lumber yard to furnish lumber, millwork, et cetera. As a materialman, the lumber yard sells its products with their costs already factored in. Salesmen and secretaries, buildings to house their inventory, office equipment, and numerous other things are factored into the selling price of the lumber, millwork, et cetera.
The carpentry cntractor must also engage carpenters to perform the labor. Suppose a group of carpenters form a partnership or corporation. It is of little importance to the property owner if such partnership or corporation employs a secretary or office manager. All the revenue of the partnership or corporation will be derived from the carpenters who perform the labor. Those costs and others will be factored into the price they charge to perform the labor. If the carpentry contractor awards such partnership or corporation a contract, the secretary and other non-carpenter personnel will be paid for from the billings submitted by such partnership or corporation.
Always be prepared to walk away.
Do it in few words, tell them you would love to do it and stop (and I mean walk away). If they come after you then you know were you stand, if they don't then maybe you are saving yourself one big headach.