Replies

1. 
   DavidThomas | Dec 03, 2003 08:42am | #1

   I'll let others who do cost+ work comment on the main thrust of your question. My only cost+ work has been for engineering services for the federal government. And then there are a lot of rules and laws to obey.

   But I'll add the additional variable of list price versus a contractor's discount. Heck, as an owner builder, they happily gave me 10% off everything. GC's ought to get 15-30% off list prices (lumber, fasteners, siding, sheetrock, etc). Plumbing can run 50-80% off list price. But they give you two invoices. One showing list and the other discounted one that they expect the contractor to pay from. So which invoice will your brother pay 120% of?

   In some ways it is fair, certainly if the time spent calling out, specifying, ordering, running to get materials, and going back for the odd bits isn't billed to the job.

   David Thomas   Overlooking Cook Inlet in Kenai, Alaska
1. 
   kbrod7 | Dec 03, 2003 12:31pm | #2

   Below is a link to a simplified but typical cost plus contract.  Be careful though, many G.C.'s have long standing relationships with subcontractors.  This can lead to two invoices, one for the GC and one for the owner.  You would be wise to get multiple references from past customers he has worked with on this basis.  Unless of course the GC is willing to give you a guaranteed maximum price which is a totally differnt contract.  Chances are your brother has received an estimated total price which can be easily inflated during the process.  However, if the contractor is reputable it can be a fair contract for both parties.

   http://www.elsiecom.com/webforms/COST%20PLUS%20P15.DOC

2. 
   calvin | Dec 03, 2003 03:29pm | #4

   David,  

   "GC's ought to get 15-30% off list prices (lumber, fasteners, siding, sheetrock, etc). Plumbing can run 50-80% off list price. But they give you two invoices." 

    Perhaps this is the case in Alaska.  Admittedly being a one man operation, volume could dictate my discounts.  However, I have never gotten more than 10% off lumber, usually the 2% for pmt by the 10th.  Plumbing and electrical-25%.  These discounts are off the price the regular consumer would expect to pay. 

   Most folks think our discounts are more like you describe and it gets aggravating trying to defend any upcharge to material costs.

   To the original poster.  I use a cost plus billing almost totally.  I will give an estimate of the total cost of the job from X to Y.  It's a from / to estimate.  The total job will fall in a price range.   We then proceed on a time/material basis plus 10% of the total job cost.  I take all labor, material, subcontractors and add 10% to reach the total.  The customer benefits on the material side by getting plumbing / electrical at a 15% savings from the list price.  I use no double invoicing.  Trust is a big thing in this type of arrangement and my business thrives on it.Remodeling Contractor just outside the Glass City.

   Quittin' Time

1. 
   davidmeiland | Dec 03, 2003 06:58pm | #6

   "To the original poster.  I use a cost plus billing almost totally.  I will give an estimate of the total cost of the job from X to Y.  It's a from / to estimate.  The total job will fall in a price range.   We then proceed on a time/material basis plus 10% of the total job cost.  I take all labor, material, subcontractors and add 10% to reach the total.  The customer benefits on the material side by getting plumbing / electrical at a 15% savings from the list price.  I use no double invoicing.  Trust is a big thing in this type of arrangement and my business thrives on it."

   Calvin, when you say labor plus 10% what is the labor rate? Is there already a profit built into that, or are you charging labor at actual cost (wage + taxes + comp + sick / vacation etc.)? Just curious. Also, 10% is very low for the industry, in my experience.

   The last two companies I worked for charged a labor rate for each man, usually about 200% of the hourly wage figure, and when invoicing T&M jobs, the profit and overhead (usually 25%) was added to that too. Actual cost of labor was about 150% of wage, so there were 'two profits' being made on labor, one in the rate and one in the markup. We invoiced directly from the actual sub or material invoices--never seen or heard of double invoicing. Our invoice would list all of the labor, subs, and materials, and the 25% added at the bottom. On many occasions I invited clients to the office to review all of the invoices for their job. No one ever took me up on it, but it was a major trust-building thing.

   I can't imagine being involved in double-invoicing--someone somewhere will let it slip and the client will drag you behind their Mercedes when they find out. It's fraud unless the contract states that 'cost' is what a typical consumer would pay, not what the contractor is actually paying. A client who was being billed that way and found out could probably win a claim for fraud once they forced the contractor to open his books for the court.

   I'd like to hear how others out there who do T&M handle labor. Is there a markup on labor too or do you just stick with an hourly rate for labor and then add markup to subs/materials only?

1. 
   buckethead | Dec 03, 2003 08:01pm | #7

   I know I am not the norm but this is how my contract works....

   I build high end homes($300-750/sf) that usually have no interior details developed when we are starting the project. It is virtually impossible to hard bid these projects.I develop a budget with allowances based on historical data I have from past similar projects, and a wild #### guess. I include liability insurance as a line item, because I am in California and we might as well treat the lawyers like the expense they are.

   I then add 15-20%as my profit and overhead, on this budget figure. This becomes a fixed amount in my T&M contract with the client. I divide this figure by the months of duration of the project and bill it each month.

   I charge actual invoices for all my subs, material and labor. Labor is hourly, plus burden(taxes, insurance, vacation) My supervision time as well as my project managers time are also charged to the job, on an hourly basis, I charge the same rate for both of us, no need to gouge folks. My system does not penalize the owner for the decisions they are to make. My budget is a guideline for them to make those choices and choose items free from a penalty. The reality is it costs me the same to manage my subs and suppliers and any difficult installations my guys go through, or changes made by the owners are paid for by the owners.

   I have had to compete on projects against others that charge a lower %fee, but charge as they go, on everything. The jobs I have lost in this circumstance were probably lost to the false sense of economy this lower % rate appeared to be. Most of my new work comes from referrals from Architects in the area that know my business practices and happy past clients

1. 
   Piffin | Dec 03, 2003 09:12pm | #9

   I would be one of those with a lower percentage of mark up, but I find your approach interesting as a way to fix that part of the cost. I do remo rather than new work and it is not uncommon for a customer to grow another addition or change an additional room adding to the number of months involvement for me. I add my percentage on every invoice.

   BTW, I think we all agree that labor is a cost item - in ref to the original poster's situation. But it surprises me that the builder would be this far into the job without a clarifying contract stipulating all those details or haviong requested a progress payment and invoice of some sort.

   Of course, it could be that he will be one posting here in four months asking, "Why can't I get my customer to pay me?"

   LOL.

   Excellence is its own reward!

2. 
   brownbagg | Dec 04, 2003 12:43am | #10

   alot of companies that we work is cost plus. Thats total cost- material, labor, secertary, mailing, truck, etc plus 15%. The only problem we must summit reciept for each dollar spent. Time card, gas receptd, postal meter, copy meters etc,

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

3. 
   davidmeiland | Dec 04, 2003 01:23am | #11

   Why not include secretary, truck, mailing, etc., in the percentage as overhead? Having to document all of that stuff is really time consuming. They expect you to log every stamp and envelope?

4. 
   HeavyDuty | Dec 04, 2003 01:32am | #12

   >>The only problem we must summit reciept for each dollar spent. Time card, gas receptd, postal meter, copy meters etc,

   That would be a pain in the ...

   Seems like you're the only one who brought up the overhead issue, I am sure the rest would have put it into the contract somewhere. Without going into details like you were running a law office, how do you think we can realistically address the issue.

2. 
   calvin | Dec 04, 2003 02:09am | #13

   David, the labor rate is 35/hr.  The most I think is possible here in this area, eventho I have heard of others charging more (you know the story, a bunch charging less, a few charging more).  That rate includes the cost of doing business.  The 10% is profit only, tho I do call it overhead/profit.  Hope I'm not guilty of fraud in that case.

   I also receive 99% of my work from direct former customer referral so competitive bidding is not usual.  They only ask a "how much" so they can see if it's affordable.  Rarely, oh too rarely, do they not ask.  To be the recipient of clients with more than enough..................man, that would be heaven.

   Boy, good thing sonny or jerold haven't read my business practices yet.  Jeesh, I don't think I could take the criticism.  My problem is I'm thinking too much of the consumer and not enough about me, the provider. 

   Crap.Remodeling Contractor just outside the Glass City.

   Quittin' Time

2. 
   DavidThomas | Dec 03, 2003 09:06pm | #8

   "Perhaps this is the case in Alaska. Admittedly being a one man operation, volume could dictate my discounts. However, I have never gotten more than 10% off lumber, usually the 2% for pmt by the 10th. Plumbing and electrical-25%. These discounts are off the price the regular consumer would expect to pay.

   Most folks think our discounts are more like you describe and it gets aggravating trying to defend any upcharge to material costs."

   Not trying to aggravate you, but . . . . I've gotten 30% off Grainger's prices in San Francisco (which is hardly the Great White North). 50-80% off plumbing is what I saw in Western Massachusetts (several different supply houses). But we really cranked and plumbed a house a day, almost every day so the volume was good.

   I'm glad to read that other posters here are using a % over their actual costs. But all the suppliers I noted above generate double invoices with different prices. My (cynical?) assumption has been that some other contractors make use of the inflated one.David Thomas   Overlooking Cook Inlet in Kenai, Alaska

1. 
   calvin | Dec 04, 2003 02:23am | #14

   Thanks david for explaining the volume and please don't misunderstand my agravation.  How was the lumber disco if you're familiar with it?  I would think a builder using alot of wood would certainly get a bigger break than this lowly remodeler.Remodeling Contractor just outside the Glass City.

   Quittin' Time

1. 
   DavidThomas | Dec 04, 2003 05:08am | #15

   "How was the lumber disco if you're familiar with it?  I would think a builder using alot of wood would certainly get a bigger break than this lowly remodeler."

   I was speaking of the moderate sized GC who starts 2 new houses a month.  Maybe keeping 12-15 guys busy.   A house-a-year solo spec builder would get 10% off like I do.

   That said, nothing prevents you from asking for a better discount.  Best timing would be when you got a big order to place.  Figure out who makes the decision and, in the guise of teetering between two suppliers, ask what discount rate they'll give you.

   We've had two outlets in town for a long time.  Keeps things competetive.  Home Depot opens in 15 days.  That will be interesting.  Hopefully it will get the clueless DIYers out of the local supplier's aisles and get them over where they belong - talking to clueless people in orange aprons while dodging forklifts.David Thomas   Overlooking Cook Inlet in Kenai, Alaska

2. 
   brownbagg | Dec 04, 2003 05:45am | #16

   the best yard we have around here is open 6am to 4pm monday thru friday. Closed on sat and sun and 4:01 during the week. 6am every morning delievery truck pull out of yard loaded. They sell wood, wood and more wood. No plumbing, no electrical no fancy door, no appliance. They are a true contractor yard. If a DIYer walk in, they eat his lunch. I know, it was me. But they have best prices and best wood. They cull their own wood while they load your truck. Culled wood get cut into stakes.

   What I like is, by the time you get outside with your ticket, somebody already waiting by the wood stack (radios) HD and Lowes cannot compete with these people. family owned

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

2. 
   BobKovacs | Dec 03, 2003 02:22pm | #3

   Sounds like your brother in law should have gotten some more clarification of what is and what isn't included in the "plus".  Personally, I'd say you are closer to reality- cost of materials, labor and subs "plus" 20%.  You're BIL is assuming that the contractor's labor is part of the "plus"- I've never seen it done that way, but hopefully it's shown in his contract one way or the other. 

   Also, if they've been working since Sept. 1, I'm assuming your BIL has received a partial invoice- the breakdown on that invoice for work completed so far should clear things up.

   Bob

1. 
   alwaysoverbudget | Dec 03, 2003 04:32pm | #5

   thats another scary thing about this,the gc has asked for no payments yet. he has to have 35-45k invested in materials plus maybe 600 hours,that alone would scare me,not having a clue what has been spent! thanks