construction cost, agreement, and billing

[Jud McCranie]

This is about new construction, not repair. My family is building a new house. We agreed to "cost plus 12%". We got the first bill (basically for the foundation), and the contractor is adding in $800 per week that he is paying himself for supervision. In addition, he is counting that as a cost. On this bill, it makes it cost plus over

23%. His bookkeeper says that the additional is for "profit and overhead". We understood that he was to take the cost of labor and materials and add 12% and that was what we paid. To me, it is like he is getting paid twice - he is to take his profit out of the 12%. He is working mainly on two other jobs and is rarely there.

Does this seem right? Should we be paying $800/week for a supervisor that is rarely there, count that as a "cost" and also pay him 12% of the cost?

[RicodJour]

Should does not really enter into it. It should be spelled out clearly in the contract. In my opinion his time is not a cost. If he hired someone to supervise your job and paid wages, that would be a cost to him, and possibly to you depending on how the contract was worded.

R

[Jud McCranie]

Thank you for the reply. There is nothing about it in the papers. He has estimates for all of the costs and adds 12%. He states that it is "cost plus 12%". There is nothing at all about adding the supervising cost. I can see it if he was paying someone else to do it, but he is paying himself. (and besides that, he counts that as a cost and adds

12% to it, which is another $96/week.)

[Edwin Pawlowski]

Sounds like you may both be right. Sort of.

This should have been spelled out as to exactly what "cost" was. While you think of material and direct labor, there is some supervision and "behind the scenes" overhead that is part of the real cost of doing business. It is easy to understand that the wood cost $100, the man spent 1 hour at $40 to put the wood together with $5 worth of nails, you should be billed $145 +

12%, What, exactly, does the 12% cover. Someone had to order the wood, write the check to the lumberyard, order the worker to do the work, then to inspect if afterwards. Even though the contractor is only there part of the active working time, he may still be doing work for your job at the office.

Time to sit down and get a better understanding of what is expected, then act accordingly.

[Edwin Pawlowski]

So, he should work for free?

I think you just resolved the question. If you are willing to pay for another person to supervise, you should be willing to pay for him? A supervisor must be paid and it does not matter who does the job.

[HotRod]

Let me get this straight the more money he wastes building your fathers house the more he makes? instead of using the $4000 concrete guy he uses the $8000 concrete guy and he makes an extra $480 that week on top... Niceee

[JoeSpareBedroom]

I'm curious: Did you suggest maybe quoting a finished price on the house?

[RicodJour]

You are in a bad position. This must get resolved right away and amicably. Cost Plus only works if the parties trust each other.

Since you're asking on a newsgroup instead of asking your lawyer, I have to assume that you didn't have an attorney review the contract. If that's the case, it's a major mistake. Whether that major mistake will come back to bite you remains to be seen. If you did make that major mistake, and the contractor omitted any reference to supervision being a cost, you may be in luck.

It may be that the contractor listed labor and not supervision under his assumption that time is time - it's all the same. It's not. Supervision is management and unless it's spelled out as being labor, it's not part of the labor cost. In other words, if he's just trying to lump management in with the trade work, he's in the wrong. If you missed something in the contract, then you may be wrong.

If the contract goes into detail about what constitutes a cost and includes detailed estimates for all of the work involved, and there's nothing in there about supervision being a cost, it's not a cost.

Post the section(s) of the contract that covers what constitutes a cost and anything that mentions labor, management and supervision.

R

[RicodJour]

That's why Cost Plus contracts require trust. It's also a good idea to have an incentive plan for coming in ahead of time and under budget. Split the savings type of thing.

R

[Malcolm Hoar]

Some supervisory cost seems reasonable. However, this should have been spelled out in the contract. The fact that it wasn't is, in large part, your contractors responsibility.

Assuming you're generally happy with this guy, I think it's time to sit down and agree a compromise that you both can live with for the remainder of the project.

[Goedjn]

He should work for 12%. But I wouldn't argue with him too much about it... there are two many ways for hime to roll the money back into other costs. I'd either look into cancelling the contract and just paying for the work done to date, or make up my mind to pay the bastard. One thing worse than paying a scam artist too much for a job, is having a pissed off scam artist building your house...

[marks542004]

In this situation you need good legal advice from someone familiar with contracts of that type.

If the contract does not define costs you are probably stuck with whatever the contractor decides .

[Steve B]

I guess you have never built a house, or you would be doing this yourself, right?

Let me tell you, just because he's not there doesn't mean he's not working for you. There are zillions of places to go, and people to call, and things to do. And it all makes sure that the people and materials show up at YOUR site. Does he have a cell phone? Can you always get hold of him? Isn't that "working"?

At the end of the job, add it all up, apply the math, and adjust.

If there's a difference, either negotiate or sue.

Don't nit pick as you go along. If he's doing good, leave him alone. You said the first stage is for the foundation. That is one of the most IMPORTANT steps. If that is off, what follows will all be off. If he nailed it, believe me, $800 is cheap.

What you want to do is get the job done. Choose which hill you want to die on. Right now is probably the worst time to go to war with him.

Like I said, wait till the end. And by "agreed", do you mean you both wrote it down and signed your names? Or you just said "okay"?

Sounds like the man is getting the job done.

Steve

[Steve B]

"JoeSpareBedroom" wrote

Yeah. Right. The homeowner is already picking him apart. Do you think ANY contractor could come in on time and on budget with someone niggling him every step of the way, as this HO is already doing?

Not in this universe.

Steve

[bigjim]

[Jud McCranie]

No. The agreement was for him to add 12% to the cost.

Because the agreement was to pay him 12% of the cost to supervise it.

[Jud McCranie]

It isn't a fixed bid - it is cost plus.

[Norminn]

Not knowing anything about building contracts, I can't give good advice. Sure raises lots of questions. Is "cost" defined in your contract? Materials and sources spelled out? In most states (and with IRS), there is a difference between an employee and a contractor. If he is charging a weekly wage, it seems possible that he is no longer a contractor, but an employee. Is there a time frame and max. cost in the contract? If he cuts back to 30 hours a week, does he still get $800? Whew!

[Jud McCranie]

There is no mention at all. And there were four people (besides him) when we were doing it, and none of us heard it.

It is possible that this was pay for people working for him. We're to have a meeting early next week to clear things up.

[Jud McCranie]

No, we asked him to make a proposal. He had allowances for things that we thought was excessive, must have been assuming a very high price on everything.