Home Improvement Project Using Cost Plus
What is cost plus? I get this question a lot from clients when I bring the
subject up. Really, cost plus is the least expensive way to do any home
improvement project. It works really well for commercial work as well.
Cost plus is nothing more than doing a job on hourly bases. As the
contractor, I can supply all the materials for the job, or the project owner
can supply all the materials or any part of the materials. Also, as our
company name implies, We Help You Build, inc. and what this means is the
project owner can participate to any degree he or they wish. Anything the
project owner can do in the project will save them money. Sweet Equity as
it is known in the industry. If the owner wants to do all the trash clean
up at the end of the work day, they can and they will save money. If I, as
the contractor do the clean up, I will bill the client on an hourly basis
for my people to do the clean up and then I will place a % mark up on top of
the cost. Another example would be if the owner wants to take the trash to
the dump themselves, they save money. If I go to the dump, I charge for my
employee, dump fees and place a mark up on the total cost.
At the beginning of a project the owner and contractor get together and look
the whole project over. Everything is still done on a normal contact. I
break down what each employee will cost the owner per hour. Any materials I
supply get a mark up added to what I spent for the materials. We bill on a
weekly basis for all labor, materials and then a fee or markup is placed on
the total for the week. The mark-up percentage is based on the company’s over
-head and the profit the company wants to make.
Working on a cost plus arrangement, the project owner can change his mind as
many times as he or they wish. Example: We put in a wall where the owner
wanted it. Then the owner decides that the wall is in the wrong place and
needs to have it moved. As the contactor, I do not care how many times the
owner makes changes. He is paying us on an hourly basis. If the change
requires us to purchase additional materials that will go on the bill as
well with a mark-up.
Under the bid type contract, the contractor has to really go over all of the
expected costs that he will incur and then add his overhead and profits to
come up with a fixed contract price. However, over the years I have never
seen a project come in at the price quoted. In most cases the total cost of
the project comes in less than it is contracted for. This happens, because
the contractor puts enough padding (jacking up the prices) in the contract
to cover any unexpected items that may come up. Now, if the owner wants to
make changes, the contractor has an hourly rate that he will charge and the
contractor will supply all materials under the straight contract and there
will be a mark-up on all the materials supplied by the contractor.
Under a straight bid contact, the contractor will not normally allow the owner to
get involved with the project. To the contractor, time is money and the
pros are much quicker than the home owner. Under the cost plus, the
contractor does not care how much the owner slows down the process. The
contractor is charging by the hour.
The cost plus is always a win, win for everyone. The project owner does not
over pay, can supply materials or even labor to save money and the
contractor will never lose money on a project and the contractor does not
have to over bid the job to cover his loses.
Whenever I visit a site and meet with the project owner, I get all the
details, and work out what I think the project would cost so the owner has
some idea what he is getting into. Most of the time the owner will tell me what
his budget is and I can tell from that number, if the homeowner will need to
help with the project to bring the project in at his budget numbers. This
almost always makes the project owner go in the cost plus direction.
Other good examples are:
Most project owners can paint themselves. Why pay a contractor to
paint? Many project owners have friends who can do electrical work. Let the friend
do the electrical work so long as it passes inspection. How about the project owner who has another friend who can do plumbing. The list goes on and on.
It doesn’t take long to see the value in doing projects on a cost plus