Replies

1. 
   xMikeSmith | Dec 16, 2003 07:50am | #1

   dogman.... you've got to review your historical "cost " records...

   if you're truely recovering ALL of your costs... then the percentage can be lower and represent only PROFIT..

    most cost-plus contracts do  not adequately define cost..

    for example.. do you know your true labor costs and ALL overhead associated with your labor...

    here's  a  hint.... are you a corporation ?

   if so... are YOU an employee of that corporation ?   ok... suppose it takes one 12 month period to build the house....

   then the house must pay for ALL of the costs  of running the corporation that builds the house.. including it's most valuable employee .... you..

    just for giggles  ... what is your labor burden ?..

    what does it include ?  what is excluded ?

   a few defined parameters will help to give you advice as to what is an honest  cost -PLUS  contract..

   Mike Smith   Rhode Island : Design / Build / Repair / Restore

   
   

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   Edited 12/15/2003 11:56:37 PM ET by Mike Smith

2. 
   BobKovacs | Dec 16, 2003 02:52pm | #2

   I agree with Mike.  The more you can put into the "cost" portion of "Cost plus", the lower the "plus" can be.   "Costs" should include any cost directly associated with the project- supervision, accounting, insurance, etc.  If you're going to be personally supervising, ordering, etc., your salary should be a "cost".  The "plus" should cover those items not directly attributable to the job- office rent, office equipment, etc.

   You'll need to know what the approximate schedule is, how much time you'll be investing in this project (50%, 75%, 100%), and what your non-reimbursable costs, plus profit, will be for that period.  You can then figure a percentage (based on the low side of the probable cost of construction) that will cover those costs and profit.

   Bob

3. 
   jsvenson | Dec 16, 2003 03:15pm | #3

   I have only done a couple of cost plus jobs. The ones I did, my production time, the time I spent with tools in hand, working on the structure itself, were charged on the "cost" side. The time spent "managing" i.e. cordinating subs, procuring bids, ordering materials, etc. was covered on the "plus" side. I charged 15%.

   They were commercial jobs. I only bid one home at cost plus, it was to be completely subbed out (no production time on my part). I offered to do it for 10%. ( I would have been very happy with that fee BTW) The homeowner decided that was too steep. He decided to be his own contractor. I don't know how it turned out, but I am certain he gained an appreciation for contractors after that.

   John Svenson, Builder, Remodeler, NE Ohio (Formerly posted as JRS)
1. 
   JohnNYCT | Dec 16, 2003 08:16pm | #7

   My partner and I are sort of new to this since weve only been in business a little over a year but I got to wondering if its sort of well known, at least in the insurance restoration business, that 10% plus 10% is the "industry standard" for overhead and profit why would you charge only 15% and leave 5% on the table?

1. 
   xMikeSmith | Dec 16, 2003 09:02pm | #8

   i haven't done insuurance work in quite a while.. but when i was doing it.. the "industry standard " that i was quoted was 15% overhead &  10% profit...

   i found it very difficult to make money with those markups... mainly because i was not accounting for all of our costs... nor was i charging enough for our in-house labor..

   bottom line.... i now account for ALL costs.... my labor burden is accurate... our  labor  rate  includes overhead & profit..

    so our invoice would be   [  labor + ( subs & materials x 1.25 ) ]  if we were doing T&M  or Cost  Plus... but we try to do bid work  and avoid Cost PlusMike Smith   Rhode Island : Design / Build / Repair / Restore

1. 
   JohnNYCT | Dec 16, 2003 09:16pm | #9

   I agree with you Mike. From everything I read here and in books 10 plus 10 isn't enough but my point was if the public thinks 10 plus 10 or 15 plus 10 is the standard only charging 15% is giving back money and doesn't make any sense to me.

1. 
   xMikeSmith | Dec 16, 2003 10:11pm | #10

   exactly.... our  invoices also seperately STATE the two percentages   "15% overhead plus 10% Profit "....

   lot's of Public Bid jobs are based on much lower percentages.. but the companies thta bid those count paperclips and fax machine ink when they're adding in the cost...

   the think to keep in mind is to  define the terms in a manner that allows your business to actually make a profitMike Smith   Rhode Island : Design / Build / Repair / Restore

2. 
   jsvenson | Dec 17, 2003 02:55am | #11

   Sorry guys, I don't know what residential new construction is going for in your area, but around here, there is NO WAY to get a 25% mark-up. NO WAY. (Most guys shoot for 15% and if they end up with 10%, that's not bad) That means that if your hard costs are $200,000.00 to build a house, you would charge $250,000.00. Around here it ain't gonna happen, unless of course, your name is Frenchy and you work that salesman's magic on an unsuspecting customer ;- )

   Insurance jobs do get top dollar, and that formula is accepted by them.

   That commercial job I did was quite profitable for me. I left nothing on the table, it was take it or leave it, and I took it. And I was very happy with the arrangement, and I would take it again in a minute. It's not often I get to take a risk free job.

   John Svenson, Builder, Remodeler, NE Ohio (Formerly posted as JRS)

   Edited 12/16/2003 6:58:21 PM ET by Svenny

1. 
   JerraldHayes | Dec 17, 2003 03:46am | #12

   Svenny you might be correct to a degree regarding different attitudes regarding prices for different regions but I (along with many others) think it totally unrealistic to think you can get along on a 10% figure for overhead figure and if you can't get 10% for for Profit which is essentially your Return on Investment (your startup costs, capital equipment, education, training, and experience) what the point of doing it?

   Wouldn't all that time and money have been better spent on bonds or some other kind of investment? Or another business with a better return?

   No offense but if I couldn't get at the very least 10 and 10 I would get into another line of work. If your not getting at least that it coming out of somewhere else and that somewhere else would be the wages you pay yourself so no matter how your looking at it your giving away at least part of your work.

   I always say people are paying me good money to do stuff that I would probably do for free since I love this work so much but I'm saying that toungue in cheek. If you're not getting the right return you not running a business, you're just keeping yourself working with a job.

   "Insurance jobs do get top dollar, and that formula is accepted by them" If that's true that only insurance work get that fee where you are I would get out of other lines of work and specialize in insurance work only.

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2. 
   JerraldHayes | Dec 17, 2003 03:57am | #13

   Hey Svenny I just read this topic from the beginning and saw where you wrote "I have only done a couple of cost plus jobs..." so I guess that help mitigate that problem. We don't do any Cost Plus work (only 2 CPFF jobs in 13 years) so our enormous markup (I wont even say what it is) never gets mentioned so its never subject of negotiation or debate.

   I know you can make the a 10 and 10 CPFF markup work if you recover enough of your overhead by making certain tasks Direct Job Costs rather than overhead so I'm thinking with enough manipulation and shifting of the costs someone could make 15% work or even 0% work in theory too.

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1. 
   jsvenson | Dec 17, 2003 04:30am | #14

   Correct. I don't have a business based on cost plus although I have done some. I also don't have a business based on residential new construction, although I do some.

   New home construction, I guarandamntee you, is not based on 25% or even 20% profit. That's why it is so hard for a little operation like mine to compete in that market. Truth is, it's not just hard to compete, it's impossible. I have to find a customer who does not want to deal with a big homebuilding operation.

   Remodeling , as you know, is a totally different animal. That kind of markup and profit percentage is not only possible, it is necessary.

   John Svenson, Builder, Remodeler, NE Ohio (Formerly posted as JRS)

4. 
   ian | Dec 16, 2003 03:41pm | #4

   Dogman, the organisation I work for has a cost plus clause in all their majaor contracts.  Last time I managed one of these contracts, Cost Plus was defined as materials plus the labour directly engaged on the job plus equipment and haulage PLUS 27%

   In other contexts the project management (which is what you would be doing) is typically costed at 4-7% of the total project cost though I've seen it as high as 11%.   At 5% for the size of project you're describing I calculate your "fee" to be about $50,000 or about $15 per sq. ft.  If you were working for me this fee would cover all your expenses including professional idemnity insurance.  Insuring the building would be the client's responsibility and each of the subs would carry their own insurance. 

   FWIW don't do the interior trim yourself, sub it out.  I don't doubt that you would do an excellent job, but by doing the work yourself you cease to be the project manager and become part of the project labour compromising your role and really complicating the calculation of the appropriate remuneration rate.  For example, the client says "but you're onsite doing the trim so why are you also charging to be onsite as the project manager?  The one fee should cover both tasks."  Do you really need this complication ?  Where you add value for the client is by delivering a house that would have cost $325 per sq ft for $315 (including your fee) a saving of to the client of $70,000.

1. 
   davidmeiland | Dec 16, 2003 08:02pm | #6

   Ian's information is very close to my experience. Last three companies I worked for did tons of T&M work--residential remodeling, high end, lots of hand holding, primadonna architect, the works. All three charged 25% profit and overhead. Labor rates were generally $40/50/60 per hour for laborer/midlevel/journeyman. Subs and materials were charged as invoiced to us. Supervision/management, material ordering, sub management, planning, meetings, there was a line item for everything--that talking time was NOT included in the plus, it was an hourly cost. Profit and overhead was added to everything so that yes, the $60 journeyman actually cost $75 total. Hourly wage for that indidividual would be $28-35/hr, then add vacation/medical/holidays, etc. etc. Office was included in the plus.

   When we did estimates we looked to get supervision/management costs at about 10-12% of total. 6-7% was not enough and 15% won't fly.

5. 
   Ruby | Dec 16, 2003 04:04pm | #5

   Here, cost plus means that any and all work and materials will be itemized and paid by the HO as they are incurred.

   I have been quoted amounts from 10% to 15% for the GC above that.

   If the GC or his crew do any work, it is paid at that time like that of any other sub.

   One contractor told me that he bids most work by the job, one figure and hopes to make 15 - 20% on any job but sometimes is glad to clear 8% and at times he has come out with even less, so he is very happy to be assured 12% on a cost plus job when it is on a plain, regular house, not a complicated project.

6. 
   JerraldHayes | Dec 17, 2003 04:33am | #15

   Dogman I don't think you found a straight answer because what fee is correct is all a matter of intrepretation and how the particular contractor chooses to define what is a Cost and what constitutes Overhead. I've posted this before but it worth mentioning again here regarding what is a cost and what is overhead:

   Personally I think those AGC AIA agreements may be legal overkill for a contractor and owner building a small simple addition but even looking at the Cost plus Fixed fee Agreement that appears in Gary Ransone's The Contractor's Legal Kit : The Complete User-Friendly Legal Guide for Home Builders and Remodelers he has a section entitled Costs To Be Reimbursed that includes stuff like:

   • Labor Costs: The rate schedule for what is defined as COST for the GC-CMs own company personnel working on the project. In Ransone's agreement template he spells out that this is clearly "the gross amount to be charged for each worker (any and all applicable labor burden, medical and retirement benefits, bonuses, etc. Have been factored into these rates)" Workers Comp is recovered here as part of a Labor Cost Burden factored into the rate schedule. While Ransone doesn't say so I think General Liability depending on whether your insurance company figures it based on payroll or total sales may or may not be figured in and recovered here. That all depends and needs to be figured out what works best for the GC-CM. If it based on total sales then it might be better recovered for as part of the FEE. And also in Ransone's agreement he smartly recommends including a rate for the "clerical time spent preparing payment applications."
   • Contractor's Supervisory Personnel: To explain how supervisory personnel will be compensated for for both on-site and off site activities.
   • Cost of Time Spent Picking Up Materials And Mobilizing Job: This is often an area not even considered by homeowner customers and sometimes they may be reluctant to pay for it (especially if they see excessive trips out to get materials and supplies).
   • Subcontract Costs: Sort of obvious but still should be clearly described and included.
   • Cost of Materials Incorporated Into The Project: The cost of materials and equipment and the applicable sales tax, freight, or delivery charges plus how unused material is going to be credited or accounted for.
   • Costs of Other Materials, Equipment, Temporary Equipment, Taxes, Security, And Related Items: Monthly utility fees, port a-potty, scaffolding, refuse removal etc.
   • Emergency Repairs And Precautions: Things like temporary fencing to protect the public or workers and stuff like work to protect the project from the hurricane or a blizzard that might come through.

   Then his agreement goes on to explain the Costs Not To Be Reimbursed which can be assumed to be covered by the FEE. Things like:

   • "Any general insurance costs and state and federal taxes of contractor (e.g., Worker's compensation, comprehensive general liability insurance, auto insurance, health insurance, or labor burden expenses, such as state and federal employer taxes, etc.). Contractor has factored these costs into the rate schedule for contractor's personnel in the Labor Cost section above, or these costs will be paid out of contractor's profit and overhead percentage."
   • Travel time to and from the job site for contractor and his employees.
   • Costs to purchase, repair, and maintain contractor's tools, vehicles, and equipment.
   • Cellular phone charges (unless specifically agreed to in writing by owner and contractor).
   • And while Ransone doesn't mention it in his agreement it's also a good idea to spell out that the salaries of your general office personnel are not reimbursable since they can be applied to all the projects the GM-GC has going and generally not specifically by any single project except perhaps in the preparation of the work records mentioned above.
   • And as an extension of that your office or shop rent or costs of office equipment is generally not reimbursable since it can't be specifically allocated to specific projects. It's recovered and paid for as part of that FEE. For instance a contractor doing Allent's project would not be giving him a bill for the monthly lease payment on a computer or the monthly phone & electric bill.

   That's what I meant by "define". All that said the FEE is used recover an appropriate portion of the GC-CM company's Fixed Overhead and perhaps most importantly account for a Profit.

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1. 
   brownbagg | Dec 17, 2003 04:45am | #16

   On the cost plus that we do, It total cost plus 10%. Now thats TOTAL cost, thats truck, fuel, secertary, postage, supplies, labor. Everything.. But most big company want you to make a profit, so by listing cost they make sure you will finish the job on time, that labor will get paid. They do not want lien, supplier get paid.

   The best employee you can have but you wouldn't want him as a neighbor " He the shifty type"

1. 
   Alliealb | Jul 08, 2014 06:44pm | #17

   What can my builder charge me his percentage on?

   I am building a home now and my builder is charging 13%.  Although I don't have a problem with that, I think I may have a problem with the things he adds his 13% to.

   He adds his 13% to  the countless copies he has to make. I understand I have to pay for the copies, but should I have to pay the 13%?

   I am also wondering if there is a list of things that he can't tag on his percentage. 

   Can anyone help? 

   Thanks.

1. 
   DanH | Jul 08, 2014 06:59pm | #18

   What does your contract say?

2. 
   calvin | Jul 08, 2014 08:42pm | #19

   Allie

   As was previously mentioned by Dan, the contract should spell it out.

   or

   the answer most probably lies with the builder.  These questions should have been discussed prior to the start of the project.

   if you required or he offered to include copies of all rcpts., then I think you should expect the charge and markup.

1. 
   coonass | Jul 11, 2014 06:13pm | #20

   Allie,

   13% is cheap so count your blessings. If Calvin was doing your job it would be 40%. But he is worth every penny though.

   KK