What is a reasonable Builder's Margin?

I was replying to OP who is building a house presumably on a standard industry contract. In Vic cost plus housing contract is prohibited except for exceptional cases.
Obviously in a cost plus contract margin is disclosed(only because as owner you are an open cheque book) but in all other cases it is a commercial secret regardless of whether it is a housing contract or a commercial building contract.

Willos74 writes

" I guess it sounds fair, but when you convert it to the fact he is going to make $65k from us...it kind of hurts a bit! "

In my view the above creates unnecessary negativity and discontent, only a stupid builder would discuss his margins with the client in a lump sum contract. What is there to gain? Nothing! What is there to loose? Growing seeds of discontent in the client and possible demands for concessions.

ours was 8% margin + 7% overhead.

the contract also states any variation items will be 15% as well.

but our project is over 1m which may drive down the overall %

So you will be paying every invoice the builder pumps out +15%
Goodluck with checking

thanks Structural guy. as helpful as ever

what every invoice? it's only for variations.

oh. did you still want me to prove to you that my stairs were structurally sound? do you want to see every piece of engineering drawings?

I have Engineering Drawings and BIM Models mate and I share them ..LOL , you have only rendered model elevations ?
No doubt you will be in for some Surprises +15% hth

Hi everyone,
In regards to builder's margin, can a builder demand for it if they are acting on our behalf, as agents? The story is, a pipe needs to be cut down by water company and a variation was raised by the builder. Can they include a builder's margin on the variation which is about 60% more of the actual amount? Let's say water company charged us $2000, what's is written in the variation is $3200. Is that normal? Thanks for your reply.

TeamKV
Welcome to the forum
Ouch....Seriously That's RED HOT
Check your contract & then contact Consumer Protection in your State

Thank you structuralbimguy for your response. As per contract the percentage applicable for extra work is 20%. You think that can be under that clause? Thanks

That Sounds Fair to me...

Yes it is. But I dont think the percentage charged to us is within the percentage stated in the contract. As apparently they charged about 60% more. Doesnt look right, though.

TeamKv
If it's a cost plus contract/clause it's best to have the works specified & quantified or
It may end up being "Whatever invoice is printed Plus 20% margin and there is no end to it"
Know what you are signing "Forewarned is forearmed"

Its not right, It's 20% on top of cost ($2000)
There is no basis for 60% more unless builder also had to carry out some work but then that should have been itemised.

Thank you building-expert. It is not itemised because they are actually not doing the work themselves. It is the water company. They are acting as agents/middleman for this particular issue. Their work will commence once the pipe has been cut back that is why I can't seem to find a valid reason for the high mark up being charged to us. Thanks

That's the Flip side of the coin
State sanctioned Service providers
That charge whatever they like and you have to pay it
..you should have got a quote at the planning stage.

We haven't started building yet, fyi. We have a copy of NOA from the water company and the quote is as clear as water. When the builder raised the variation, it sky rocketed. It's a simple math. You dont need to be an expert to confirm something is wrong. The price is almost doubled, and they won't even do any work at all. Hmmmm

Unfortunately you don't even have a Mexican Standoff between the service providers,builder & a Battler... sorry, you're stuck pay it.

Stuck to pay it? I am not sure if we are on the same page lol but thank you for your advice.

Not yet on the same page....But you not paying it delays the builders start and the contract taking effect, also he may be incurring monthly other price increases which he is entitled to.hth

Yup, completely understand that. I didn't say we wouldn't pay for it but they have to make sure the mark up is what's in the contract. We follow what's in the paper, after all that's what it is for.

TeamKV
If you have signed building contract and the contract provides 20% margin on builder's variations then that's it, no argument.
It seems that your builder is testing you to see how far they can push you.
You should consider your own independent building consultant to look after your build and to push the right buttons. it should change complexion of relationship with your builder in your favour.