construction cost, agreement, and billing

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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?
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Jud McCranie wrote:

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
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wrote:

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.)
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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.
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wrote:

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...
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That bogus cost of "supervision" should have been added into the estimated cost and the 12% should be on top of that. Do not let him add anything extra or he will start with all kinds of "consulting" fees that will add to your cost. Sounds like he underbid and now wants some money to fix that.
Edwin Pawlowski wrote:

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On 14 Sep 2006 13:35:31 -0700, snipped-for-privacy@backpacker.com wrote:

It isn't a fixed bid - it is cost plus.
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Well then he's padding his "cost plus 12%" . The cost of his "supervision" should be accounted for when he was giving you a price. Maybe he should have made the deal cost plus 13% to ensure a profit. Youre getting hosed by him if you dont tell him forget it. Or I'd require him to be on site 40 hrs week or such. Otherwise 800+ week is a great hourly rate if hes there for 2 hours Think about that. He may also start gouging with higher costs by dealing with buddies relatives etc. He sounds shady to me or someone is a sucker for giving a blank check
Jud McCranie wrote:

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wrote:

That would be nice. Are you buying all the stuff? Do you have control over whether the faucet costs $24 or $42? It is easy to get invoices for goods that cost much less. Labor the same way. $1,200 for hauling and cleanup labor. Who's to say how much he actually paid the guy. You can go right down the line.
If you are controlling all the costs by buying all the materials and having them brought to site, then it is a good deal. If not, he's getting to you on the costs plus the % on inflated costs.
Steve
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wrote:

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.
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Edwin Pawlowski wrote:

when something goes wrong he's responsible and that's worth paying for.
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Jud McCranie wrote:

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
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wrote:

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.
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wrote:

Most of it is several pages of items and costs, stating "materials and labor", and an estimated cost. Then that is added up and his 12% is added.
Wording: ... "The owner will be responsible for the construction costs stipulated as well as any cost incurred due to alterations in the agreed upon plans. The contractor will furnish materials and labor necessary to complete construction and will be done at cost, plus twelve percent (12%). " And then there are sentences about being accordance to building codes, contractor is responsible for workman's comp and liability insurance.
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Jud,
You should try to resolve this amicably but I think you are in the right. You say that the contract reads in part "The owner will be responsible for the construction costs stipulated as well as any cost incurred due to alterations in the agreed upon plans." So look in the contract for the stipulated cost of the supervisory labor. If it's not stipulated it's not your problem. But, as always, local customs apply so you really should buy a couple of hours of legal advice. Giving a lawyer $800 once may be cheaper than paying this fellow $ 800 every week for 3 months. If you like this contractor and think well of his work you may want to negotiate some sort of understanding about this supervision that you both can live with.
Dave M.
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RicodJour wrote:

If the contractor is reputable guy with integrity he'll do honest job building a good house. But if he is crooked, this kind of arrangement is risky. Over the years I have 5 houses built all by same guy. We communicated very well and he knew what I want/wish. He gave me a piece of paper with all the things specified, we shook hands and never been disappointed. Still there are people like that.
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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.
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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
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HotRod wrote:

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
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RicodJour wrote:

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 .
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