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"Cost Plus" Basis
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 an hourly basis. 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, We Help You Build, Inc., implies, 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 base 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 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 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 contract fixed 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 charges separately by the hour for only his own work.
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, the contractor will never lose money on a project, and the contractor does not have to over bid the job to cover potential losses.
When ever 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 times, the owner will tell me what his budget is and I can tell from that number that the home owner 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 that we call in.
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 basis.
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