Building and Construction - Cost plus, builders risk and other questions

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Cost plus, builders risk and other questions

jmcclendon@castonecorp.com

2005-10-26, 12:21 pm

I have a builder who wants to give me a cost plus price ,with cap, on
building my house. Is this a sensible approach if a lock and key price
would be, IMO, too hard to arrive at by either of us?

Also, he wants me to pay for the builder's risk insurance. How common
is this? Should I say no?

I assume the "plus" part of cost plus is negotiable as well. Does
anyone have a clue as to what that should be in the rural deep south?
He threw out 11 percent as a wild guess for a house this size.

Phil Scott

2005-10-27, 7:21 pm

<jmcclendon@castonecorp.com> wrote in message
news:1130336489.508750.195710@g49g2000cwa.googlegroups.com...
>I have a builder who wants to give me a cost plus price ,with
>cap, on
> building my house. Is this a sensible approach if a lock
> and key price
> would be, IMO, too hard to arrive at by either of us?
>
> Also, he wants me to pay for the builder's risk insurance.
> How common
> is this? Should I say no?

So far he sounds like a straight shooter to me.. no smoke and
mirrors here. But thats no guarantee. His reputation is your
guarantee. talk to more than a few of his past clients.

>
> I assume the "plus" part of cost plus is negotiable as well.

Its actually not negotiable. He needs so much to make the job
worthwhile to him... if you cut into that you will drive him
to cut corners... a good man will only go so far along that
line.

Better to over pay a good man slightly than to underpay him or
a lesser man... its never smart long term. It is smart only
in the very low end, and usually unethical markets... cheap
construction etc with bad quality.

>Does
> anyone have a clue as to what that should be in the rural
> deep south?

rates are the lowest in the nation there... this guy sounds
like a decent good old boy to me... he will not be flexible on
the money and will most likely not take advantage of you on
the job even if you think later that he is.... check his
reputation..if its good its gold. Not much else matters. You
do not have the experience or insight to second guess in this
range of issues..if you do it will just get you in trouble.

the very instant someone starts leaning on or trying to
chizzle me on a job the price goes up..sometimes massively...
the guy never knows it. I just morph the plan so that it
turns out that way. Why do I do that? Because it heartburn
ruins my day, its stressful and its often a precursor to more
crap from the customer or outright refusal to pay in the
end...so its a risk for me...risk costs money. I make real
sure that Im paid for that risk...regardless what the customer
might say later...once they tip their hand...the ball game is
*over... but they dont know it.

but it is over. And their net costs just went up.

Treat a good man like a king, feed him on the job site... hand
him a beer at the end of the day... ask if he wants his truck
waxed...find out what his political views are and then support
them.. fix his daugher up with a stud.. that works.

'Negotiating' doesnt work real well. Its you against one of
the sharpest men in the world when it comes that business.
You dont have a prayer... if he is a good guy he will take
care of you...if you treat him right.

> He threw out 11 percent as a wild guess for a house this
> size.

thats way more than reasonable.

This guy has failed to raise a single red flag that Ive been
able to detect.

Phil Scott

>

Steven

2005-10-27, 8:21 pm

Cost plus is the only fair way to go unless EVERYTHING in the house is
spec'd before the price is given by the contractor. Certain houses that I
build are only done in this manner (I have a size and price range that I
use to quailfy whether it is a fixed price or not.... and I also factor in
my gut feeling about the client. If my first impression gives me certain
"clues", then it is a cost plus for sure). If there are a lot of unknowns
before the project starts, cost plus regulates both the owner and the
contractor. You, as the owner, don't pay for WAGS (wild XXX guesses) and
contingencies that the contractor estimates up front in a fixed price, and
the Contractor doesn't eat the overages caused by changes, over-runs, etc.
(which doesn't happen in perfect "change order world", but often happens in
real life).
For a cost plus, a good contractor will give you an estimated cost that
should be close, using reasonable allowances for the unknown, and factor in
a generous contingency for the inevitable. And yes, builders risk would be
paid for by you on a cost plus, as well as any workers comp and GLI charges
for uninsured subs that he pays on your behalf (* see note below). Be sure
that he has Wcomp and GLI.
There are many charges during the construction of a house that are over and
above materials and labor. Porta Potty, temp electric service, permits,
fees, erosion control, etc., that are considered direct project costs and
are paid by the owner on a cost plus. General overhead ( the overhead it
takes to open his doors every morning) is part of the "plus" fee, and is not
considered a cost of construction.
The only caveat I have to you as the owner is to be sure that he keeps
accurate records, and request a copy of all invoices for each pay request
that he submits. Also, request a monthly (or bi-weekly if the project is
small) budget report to make sure that you are still on your $$ schedule.
I have built quite a few that had owners who were unconcerned with the cost
of upgrades during construction (That's going to add $$$$$ more, mr. Owner.
Don't worry, if that's what she wants, do it), only to be shocked, mad,
........ fill in the blank..... at the end when the project was over budget.
Good luck with it.
S.

*Before everyone jumps in and screams about using un-insured subs, let me
clarify that in my state, subs are not required to carry wcomp or GLI, so
there are two prices for every trade. A "with insurance" price, and an
"uninsured" price. the unisured price is less than the with insurance
price, so we carry the uninsured on our policies. The cost of their
insurance to us is slightly lower than the difference in the two prices, so
in the end, we pay almost the same amount, and we are slightly compensated
for the trouble of adding them to our policy. Needless to say, the
insurance is considered a project expense, because if they had it, they
would be paid more.
S.
<jmcclendon@castonecorp.com> wrote in message
news:1130336489.508750.195710@g49g2000cwa.googlegroups.com...
>I have a builder who wants to give me a cost plus price ,with cap, on
> building my house. Is this a sensible approach if a lock and key price
> would be, IMO, too hard to arrive at by either of us?
>
> Also, he wants me to pay for the builder's risk insurance. How common
> is this? Should I say no?
>
> I assume the "plus" part of cost plus is negotiable as well. Does
> anyone have a clue as to what that should be in the rural deep south?
> He threw out 11 percent as a wild guess for a house this size.
>

jam6444@yahoo.com

2005-10-28, 1:21 pm

he did show me how he does his monthly billing with all (I suppose) of
the invoices included with a cover sheet showing what is owed and why.

he's finishing an addition for a fat cat who could buy and sell all of
us, so I'm going to try to speak to him about how it went, If he'll
give me an audience. he's also 2 months from comleting a "difficult"
project and the owners say they are pleased so far.

bambam@nospam.tnx

2005-10-28, 4:21 pm

On 26 Oct 2005 07:21:29 -0700, jmcclendon@castonecorp.com wrote:

>I have a builder who wants to give me a cost plus price ,with cap, on
>building my house. Is this a sensible approach if a lock and key price
>would be, IMO, too hard to arrive at by either of us?

If you cannot work out a lock and key price, how can you establish a
cap that is fair to both of you?

Generally, I fall back on cost plus when a project is so complex and
unpredictable that it is not worth anyone's time to try to figure out
a fixed price.

Cost plus works best either between parties with equal knowledge or
parties with a history of trust. If his current clients and a couple
of his previous clients were happy on a cost plus basis, perhaps you
can consider it.

>Also, he wants me to pay for the builder's risk insurance. How common
>is this? Should I say no?

It's common. Your project, your risk. You should expect to pay a
marked up price for everything directly associated with the project,
but not for anything that is normal operating overhead -- truck, cell
phone, business insurance, office overhead and so on. That is
included in his mark up.

>I assume the "plus" part of cost plus is negotiable as well. Does
>anyone have a clue as to what that should be in the rural deep south?
>He threw out 11 percent as a wild guess for a house this size.

Not enough info here -- There is not twice as much work for a
builder in a 500 thousand dollar home as in a 250 thousand dollar
home. Eleven percent of a l00 thousand dollar project would be very
low -- eleven percent of a two million dollar house would work just
fine, thanks.

Builders here look for fifteen percent or so on a two hundred thousand
dollar home ... your mileage may vary so ask around.

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