Cost Plus Home Building

[jedens]

I'm looking into building a home on our 35 acres in southern Colorado. I've found a builder/general contractor that I like. He does his work on a cost plus basis. He basically charges a 15% margin on all materials and labor as his contractor fee. He has crews that do the finish carpentry and painting and he subcontracts everything else. He has indicated that I can do some of the work myself if we can agree on items that won't hold up the progress or delay any crews. That's ok with me since I'm not experienced and will essentially be a laborer on the job. What things should I watch out for in signing a cost plus contract? Is 15% margin reasonable? What requirements should I place on him, such as insurance, being bonded?? What is customary as a holdback payment to finish punch-list items at the end of the project? Any advice or experiences are welcomed!
Joe

 

[RobS]

We're close to being finished building our house using a cost plus arrangement. Ours is slightly different though. The builders take (10%) was based on the original quote. Any deviations from that (there have been a few but less than 5% so far) we pay or get credit. No change to the builders commission. We've been very happy with the arrangement but I think your comfort with the builder is more important than anything else. We would have been equally happy with a conventional program with this builder /w3tcompact/icons/smile.gif

 

[wroughtn_harv]

I agree with Rob. Your comfort level with the builder is of prime importance.

I'm doing a large project based upon cost of materials and labor for a customer now. I went into the project because of the challenges presented by the job.

We're still friends but there is conflict between his concern for costs and my concern for product.

But that is the nature of the beast, right?

 

[Wingnut]

I only had one taste of cost plus, an dit was a commercial one, but it soured me on that for the rest of my life (well, that might be a bit strong ... /w3tcompact/icons/grin.gif)
In the mid-70's I was one of the first employees for a major oil "mine" in Northern Alberta ... and the contractor (building the complex) was on cost plus.
Part of my responsibilities, once I finished my initial project and moved to the site, was to unearth the spares that were buried (oops, they were lost). I found $17 million in one pit. At the start of the project, I had $32 million in surplus parts and over a dozen missing pieces of equipment (they "sank" in the muskeg).
So ... for me at least, "cost plus" equals a license to steal.

 

[beenthere]

I would look favorably at cost+ if you want the flexibility to change your mind on materials and design as you go through the building process. Such changes are often difficult under a contract, and a bit easier to implement on a cost+ basis.
Also with cost+, if your builder gets tied up with another project, and you have time to work on the building, you can get some good return on your labor.
The 15% doesn't sound too bad, and I would hold back that 15% (if identifiable) until all work is finished. That way, the builder can pay his material bills as they accumulate, and pay his labor bills as they are earned. Pay on a monthly settlement (or weekly) to keep abreast of how things are going (know the approximate hours worked and amount paid out), rather than waiting until the end for any surprises or differences of opinions.
Just my thoughts. Good luck. (I started a project a year ago tomorrow, and wish it had been cost+. But the builder didn't want to do it that way, saying then I would be uptight every time his workers were on coffee break). As it was, we made sure they had coffee ready every day for break, and my wife also provided goodies to eat with the coffee every day. All turned out okay, as the labor I put in (I worked along with the crew) was paid back to me in the end (knocked $4000 off the contract for an estimated 400 hours of my time).

 

[JTD]

Jedens, I'm also in the midst of a costplus house & shop construction project. Our builder is charging 10% of labor & materials. His crew will do interior and finishing work plus other jobs. He subs out the framing, foundation (mostly done) etc. I can do as much as I want. I'll build most the cabinetry (except the kitchen) and all of the trim work. Eventually I'll build all of the interior doors and the front door (custom). I've did this on my last house. Only drawback so far is the slow pace; but the contractor is very well known for being slow (he admits it since he likes to closely monitor and do most of the work with his small crew). His construction knowledge and the quality of work are very good so it's OK.

 

[MDNY]

jedens,

Our builder established our base house price from all the decions we had previously made (prior to firing our former builder) and he was able to give us a very good price. He only charges us Cost+10% on all upgrades and I can tell you we hade a good bit of upgrades.

But as RobS point out the comfort and trust goes a long way. Had we kept our former builder we would be in court and no where near finishing. We started in May of this year digging and will be in mid next month (or so).

Keep on building it funs, for one time only that is.

 

[kevinro]

I just finished building a new house, and it was cost + 10%. I highly recommend doing it this way on two conditions:

1) The builder has done a cost + job before
2) You can check with prior clients who have done it this way.

Having a house built is not like buying a car or a tractor where you are looking to get the best price! You need to strike a balance between your needs to get value for the dollar and the need for your contractor to make a profit. Having your contractor not make money or lose money is the exact wrong thing for you to plan on. That is a nightmare for everyone involved, especially you.

Get an estimate up front from the builder on the total cost, and put that in the contract that the expected price will be X. That protects you a little bit from the builder running amok.

The problem with having a fixed bid on your home is that it is nearly impossible to completely spec out the contents of your house ahead of time. You WILL change your mind on several things before the end of the job. With a fixed bid, you normally get nailed on the change orders. It is this point where your contractor will have to try to make up any extra expenses he didn't account for in his bid. At a minimum, change orders are a pain in the butt.

Also, consider the fact that the builder, if he is smart, has added a 10% buffer to the bid to handle contingencies. If everything goes well, you just paid an extra 10% to the builder for no reason. If it wasn't enough, then it will either show up in a change order, or you are going to have shortcuts on the building, or a dispute at the end. Disputes are no fun at all.

The bottom line to building a house: If you don't trust your contractor to do it on a cost plus basis, you have hired the wrong contractor. Find one that you feel comfortable with. This is a team effort that is going to take time. You want someone you can work with and trust with your wallet.

Something to watch for is the billing rate for labor. You need to agree, BEFORE YOU START, what the billing rates for employees are going to be. $25.00/hr for a $12.00/hr laborer is not fair to you! That $12.00/hr laborer should cost you somewhere in the $15.00/hr range after paying labor and industries and other taxes.

I don't know about your area, but 10%-12% is a fairly standard rate in the northwest. Mine was done for 10%. It was a rather expensive house, so the builder did quite well. If your house isn't expensive, then the rate may be a little higher.

Kevin

 

[Tom_Trees]

My sister and I both used the same builder on a cost-plus basis. He had a dedicated framing team, a dedicated finish carpenter, and a VERY short list of subs he would use.

He quoted all materials at HIS cost, worked out the framing hours and extended that by his cost (wages and fringes), then included a 5% 'contingency' fee and a 10% 'contractor profit' line. He was off about 4 hours on the framing (his crew spent half of day one finding a compressor that would work with his generator -- they started a week before my temporary power was in). About half the contingency fee went on the well -- the guess was based on 40 foot and they went down 210.

The VP of the bank I got the building loan through (the contractor aslo didn't do financing/w3tcompact/icons/tongue.gif) said it took so long to get HIS donw they had to re-finance the construction loan. An for all the delays, and all the headaches -- they'd use the same contractor in an instant.

Cost-plus works real well. But check out his work, and check out the experiences of the other people he's built for.

Tom

 

[MikeNC]

I'm having a reasonably good experience with a cost-plus. We're just wrapping up. I got bids from three builders, the fee was the same for all of them, so just make sure your builders fee is the going rate for you area.

None of the builders would agree to a holdback of any sort. It's just not customary in this area.

Make sure you trust the builder, if you can't do that, you got the wrong guy for a cost plus. You're putting your checkbook in his hands.

Some one pointed out to make sure your builder has done cost-plus before. Good point! Mine had not. I got him to knock 3% off of his fee since I took on the risk, but we went over by about 5% (plus overages for upgrades), so I came out a little behind. Since my guy normally did fixed price, I was confident he knew how to be thrifty, but his ability to budget was kind of weak. HOWEVER the flexibility to make changes and chose materials was WELL worth it to me.

Make sure that the bldr has a line item for "Punch" or "misc" or "contingancy". I've had a handyman at my house for two weeks punching stuff out, and that's not in my budget at all.

I did my of "trash removal" and saved around $2500, BUT I have a residents-dump-free dump available to me, and could burn the framing scraps (ALOT of scraps!) This was harder than I expected.

I did the low voltage wire. I saved maybe $1500-2000, but in some respects, I know I made mistakes that the pros would not have.

I did some interior cabinetry, and the mantle, and saved about $10k, but this is was really funny money savings since I wouldn't have really paid anyone this much money to do it, if I hadn't. I would have gotten lower quality stock cabinets and mantle for under $1000.

And I'm doing landscape/seed. The budget was $5k, but I don't know how much of it I would have used.

And I did a bunch of handyman type stuff, and run-around somebodies-go-to-it stuff.

None of these projects endangered the schedule (well that cabinet could have, so I was under the gun for that). And honestly, thats all I could really handle, maybe it was too much. It was rewarding, but I can't wait to wrap it up, I'M EXHAUSTED.

Good Luck,

Mike