Ongoing Contract Design

[jloomis]

I (contractor)have been actively working with an owner and his lending agency on a Contract, specifically addressed by owner as a T and M contract. I will go along with this, and do to the nature of the job, the rural locale, and owner participation. In my contract I specify :

Pre-Construction Charges. Planning for the efficient progress of the project before beginning work is essential. Contractor will charge for his work at the hourly rate set out below and allocate his time as necessary to meetings with the Owner (on-site or otherwise), reviewing specifications and plan documents, arranging for sub-contract bids and commitments, securing cost estimates and placing orders for materials, and related tasks. All such items will be specified in billing and paid for out of Owner?s first draw on his construction loan.

Owner replies with: ?Pre-Construction Charges? shown on Pg 1 normally are included in Overhead. Maybe it?s how it is worded, but I?m a little confused on this one too, as the items shown there I would classify as overhead too. Now if we talking trips to the lot to stake the site or oversee container placement or USA marking, that makes sense. Maybe these charges get itemized and billed in the first draw?

So, I am also puzzled as the contractor on a T and M contract, that visiting the site with sub-contractors, getting material estimates, and general pre-work conditions should be considered as on my time? How would one address this issue with fairness? jloomis

[richard]

In all fairness, put your walking shoes on. If you're a half way decent contractor, you don't need to put up with this nonsense.

[Tom Cular]

John, If pre-construction or mobilization costs are considered as overhead, you will get paid those costs over the life of the contract rather than in the first draw. That works to the owner's advantage, he is working with your money.

Site visits, plan & spec. review should be included in your overhead.

One other scenerio you might want to consider is a time & material with a not to exceed contract. This is often used on complex renovation projects where there are many unknown variables. It requires that you do a thorough estimate before you state the NTE figure. It's benificial to both parties for the following reasons.

1. The owner has a maximum cost, knowing that the contractor is not going to load the job with unneccesary labor just to increase the total price.
2. The difference between the actual cost and the NTE figure is split between both parties, so if the NTE figure was 0,000 and actual cost was ,000 the ,000 would be split and the contractor earned a ,000 bonus for being efficient. It's vital that your estimate is as accurate as possible, include some expected minor changes and a cushion is included in the NTE figure. Major changes should be excluded from the original NTE figure and treated as a change order, modifying the NTE amount as appropriate.