Might be tackling a real biggie . . . 12,000 sf total all told, including decks, porches, garage, lofts, and done with a huge round log timberframe central hall.
Owners are from a long ways from here, and it is a vacation home for them.
How does this look for out of town clients:
Terms of contract: Cost plus 10% overhead plus 10% profit
Cost is defined as:
Invoiced cost of all materials, including taxes and delivery
Invoiced cost of all subcontract work
Fully-burdened cost of all direct labor
Hourly costs for all builder time at jobsite and in office
Payment method:
Before start of work, a fully-detailed workbook of cost will be developed, identifying all material pricing, subcontract amounts, and office and jobsite labor. It is understood that some of the costs may be estimates, to be firmed up as information is developed. The workbook model will be time-phased, with each line item of cost placed into the expected period or periods of cash flow needed. The model will be a living document, continuously refined with more exact figures as specifications are refined, changes added, and subcontract amounts firmed. Monthly totals will include the overhead and profit margins stated above.
The owner will establish a checking account in a local bank, and enable the builder to write checks on the account for payment of all invoices related to the job, builder supervision and office time, payroll costs, insurance premiums, and professional fees.
At the beginning of each month, the owner will fund the account with the full amount of cost, overhead, and profit, allocated for that month per the job cost workbook, for the purpose of the builder releasing payments as required in the time period.
At the end of the first month of activity, and for each subsequent month of construction until finish and acceptance, the builder will provide to the owner a complete accounting of all costs and payments made that month, and these accountings may increase or decrease the amount of funding needed in the account for the next month.
Replies
This seems like a fair deal though the overhead markup seems to be a tad on the low side. Only you can make that determination based on your own actual overhead. Most of our overhead is in our labor burden and that would be fully covered. A project that size can keep you busy for a long time which can be both a good and a bad thing. You won't have to be looking for work and if you do a good job on this there will be more to come. On the other hand if you have problems with the architect, the owners or their accountant, you are trapped for a long time.
Spend plenty of time working on and updating the cost book. From the sounds of the deal, this is the key to the success of the project. Your familiarity with the ongoing costs of the project should give you a large measure of control if you master it.
The banking details is more like what I do when acting as a project manager rather than as a GC on a cost plus job.
The bank will want your SS# on that bank act if you have singal signature check writing priviledges. That means the IRS might look at the money in there as yours as of time of deposit. That couild impact your 1040, depending on time of year and blah, blah, blah.
I want the money in my own acount. I take a deposit and then invoice twice a month. Size of the deposit is based on anticipated monthly expense and deposit outlays and it is called capital working funds. I need their money on hand for all those thigs like deposits on special order items, custom cabnetry, progress payments to subs, etc. If you are used to smaller stuff and are suddenly geariung up for a mega job, then your insurance is going to take a hike.
There are legal/liability/cost advantages to doing the contract to define you as project manager instead of contractor depending on the laws in your state.
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where ...
Excellence is its own reward!
Will this be the only job you have? Then the full cost of ins will/ must be applied to the job. Cha-Ching! 10% overhead will not be enough.
Using the accounting system you propose, all of your books will be open to the client. Keep in mind this will also expose you to the client's evaluation of your business acumen. Be prepared for that. Kinda exposing yourself, warts and all, to others - makes me uncomfortable. We ALL screw-up now and then. Will they ask you to absorb any of the screw-up costs? This is normally built into any/ most jobs, but since it's not a line item clients don't think they are paying for it. In this situation they'll know what, where, when and how much. Then they'll ask WHY........ you aren't picking up the cost?
You might want to consider having the client set up accounts at all the supply houses. The bill still comes to the site. You confirm the invoices and forward the bill to the client. This way they may feel greater control by releasing funds AFTER they are spent and aren't liable if the deal goes south.
Discuss with the client regarding issuing you a debit card. Funds are still in the bank but you can make purchases online or over the phone.
This type of arrangement requires a great deal of trust. How well do you know the client/ the referel person?
A point you should state to the client: Using Cost Plus, they get charged what the actual cost of the job is plus a lower O&P. This could work to their benifit or against. You are taking a smaller P&O because you are sharing the risk involved. If they ask what risk you are taking since everything is either paid for in advance (your model) and/ or most thing are billed directly to them (my model) tell them your risk is that you are commiting your company to them not just yourself as their employee.
One last (for now) thing. Your presentation is key with Cost Plus proposals. You don't want to look like you are asking for Carte Blanch. Come up with a proposal as though it was a bidded job, then go the extra mile by giving a schedule/ sequence of construction guide. This guide should ALSO include where the payments will be weighted. This way they won't misinterpret your leaning towards C+ to mean you just don't know what the project will truely cost or you don't have very good financial skills to take on such a large project. Instead, it's just a way to share the burden and benifits with the end user.
I am sure others will chime in, as will I when the muse guides me.
F.