Cost plus contracts

1/5/2017 at 9:23:37 AM

Since the contract is cost plus, does it stipulate how cost is calculated and what costs are included? I'm curious because I have never entered into this type of agreement.

1/5/2017 at 10:52:58 AM

First I hope your 15% rate is fictitious...In a cost plus, YOU are the one taking all the contract risk, so profit should be reduced accordingly. Given standard lump sum margin can be as low as 5% (if some one is really keen), you do the maths. For my own personal jobs, I always do cost plus with a builders I trust and I've always done it at 5% with a guaranteed maximum price, savings split 50/50.

As for what's included in the margin, Cost Plus margins applies to everything the builder has to coordinate AND be liable for.

Labor components are negotiated or tendered and margins applied, eg foreman, carpenter etc...Note, if you are going with a foreman provided by the builder, understand that the builder have to make a profit to cover cost of employing someone so it's not a straight wages cost that applies, it's likely to be 2.5 x wages cost.

Tip/skips - yes, unless you want to cleanup yourself and not involve the builder (not recommended).

Generally, I'd let the builder coordinate everything other than no brainer stuff like fitting built-in shoe racks, and window furnishings etc... I would highly recommend you let the builder do ALL plumbing, including installing the dishwasher, a leaking dishwasher can cause a lot of damage.

1/5/2017 at 11:35:24 AM

Amy,

To answer your question, yes, you have the right to ask for all "costs", as this is what was stipulated. It may not be "the norm" for this contractor however, when I do a cost plus project, I always offer to show the hours spent be me, hours spent by other I may bring to the job, material cost and any delivery charges. The contractor may change a handling fee for material he/she purchased, but the too should be available. Simply put, you are entitled to know exactly what you are paying for.

Regards from Alberta

1/5/2017 at 12:52:57 PM

Absolutely you have the right to see the paperwork, if the paperwork is nontransparent how can we determine cost ?

I'm a renovation contractor in Edmonton and all paperwork should be made transparent in cost plus contracting

If they're honest numbers they will have no problem providing back up.

1/5/2017 at 3:05:36 PM

This is absolutely your right to know all the details about your contractor costs (materials and labor) as long as its a cost plus contract? If he said no, that's mean something is wrong around.

1/5/2017 at 9:06:27 PM

Yes your assuming risk in this situation so cost plus is the total of all material's and labour at the prescribed rate you have negotiated.

You will then add the percentage or margin added on top of the hourly rate

FYI: I charge the retail labour rate say 90.00 per hour plus profit & overhead (for us +23% usually 10% -15% for material and deliveries)

All homeowners always cry about labour rates being so high but the fact is, if your paying an employee $30 and hour you have to triple it, charge $90 or your simply not making money.

On the other hand if your doing a lump sum and ask for receipts i would have to tell you to take a hike as I'm taking all the risk and its none of your business to know that.

Withhold the back up? not sure what your getting at there.

Yes get your copies.

Hope my little bit helps any.

1/5/2017 at 9:14:46 PM

I have to agree that a cost plus contract is based on the sub trades and/or their employees hours. IF they wont show the invoices you can ask the trades specifically that worked on your house for the amount charged and in most cases they will provide you with the figures.

Now I have personally seen a few times contractors inflate numbers and I dont agree with that but it happens and they will keep doing it until they are caught. If I were you and you feel anything is suspicious you can go to the proper authority with your concerns and/or mediate the issue. If your sub trades that worked on your house figures dont match the contractors that is fraud and very serious and should be reported to the RCMP

You have full rights of disclosure of actual costs. I personally include a copy of invoices from sub trades a) for a copy and record of the trades that worked on the house b) proof of cost and that determines the cost plus and 3) shows your an honest company trying to be shady

I would be suspicious of someone not disclosing the information and supporting documents and as a home owner unfortunately you need to do your due diligence to ensure your not scammed and to know who your hiring even if that includes references.

As a company I do not give out numbers or the address of any residential customer I do. Only references posted online or commercial jobs accessible to the general public like a store etc. So sometimes it may be hard to verify contractors

1/6/2017 at 10:48:49 AM

Amy

I think everyone pretty much agrees that you should be able to see the documents for the cost-plus job; what I really think you are saying is that you think the labour portion is too high and you want to challenge that. Fair enough, but know what you are paying for in a cost-plus contract.

You will be paying for any amount of time spent on your job (whether on-site or not). A GC might simply add a XX% fee for trades to book, coordinate and supervise them. An electrician might send a bill for $5000, the GC might simply add a percentage for the management or may actually add a hard figure for time actually spent with an hourly rate. This is also compounded as the trade, in this case the electrical contractor will add XX% to handle the work for the GC. Time spend estimating the job, selecting and ordering materials, material pick-up and delivery, arranging for permits, inspections and other administrative tasks that you would not necessarily see happening on-site.

The other consideration is cost of the service of the trade. While in the end you might agree on the total amount of hours , the rate of pay for the sub-trades you might think is too high. One example is if the materials are supplied by the client, the hourly rate of the sub-trade will likely be increased. There are a number of reasons for this, but if you are not aware of that going into the cost-plus arrangement you might think there is price gouging happening.

In the end, if you were happy with the work of the GC and his sub-trades, there was good communication and the end product was delivered on-time; keeping the relationship with the GC for future projects might be more valuable than trying to squeeze some dollars here or there. If you are unhappy with the quality of work or there are other issues, there may be better ways to seek compensation other than going after the labour of the GC and sub-trades.

Cheers

John Kuehnl-Cadwell

Master Electrician

Datawise Solutions Inc