Browse Forums Owner Builder Forum 1 Sep 27, 2012 3:08 pm Hi all, Quick question regarding cost-plus contracts and the builder's margin for owner/builders. Amongst other things for the house, I've purchased the windows myself -- but the builder is saying that the contract still allows him to charge me his margin for them. So on $32k worth of windows he gets an extra $6k. We're using a standard HIA cost-plus contract, which says "the cost of the works includes... the net cost of all building materials". However, the cost to the builder is zero, so isn't his percentage also zero?... Of course I may be missing something... but as an owner/builder I had hoped to save some money by sourcing a lot of the materials myself (excluding the major items such as timber, bricks, etc). If the builder's right, I could be paying a lot more. FYI, he's still getting paid as a tradesman and as project manager -- this margin on materials is in addition to that. Thanks for your help! My storybook home build: https://forum.homeone.com.au/viewtopic.php?f=38&t=57987 Re: "Cost plus" contract and builder's margin? 2Sep 27, 2012 3:50 pm I think that's greedy. What has he contributed towards the windows? Nothing. Anyway, that's my view, however what I think is right/not right doesn't matter as what is in the contract is important- you could be up for $6k for the windows. Didn't you just buy the 'seconds' windows on special for $12k, therefore he is 'only' entitled to $2,250? I think that stinks... I would never use a project manager like that and would sack him on principle if he isn't looking after your best interest. Greedy double dipping mofo. Re: "Cost plus" contract and builder's margin? 3Sep 27, 2012 5:15 pm As a follow-up, I may have an out... I checked the quote and one of the things excluded from the estimate are the "doors and windows". That would imply they're not included under the contract, and so not subject to the builder's margin. Semantics, all of it. Goes to prove that if you employ a contractor as an owner/builder, you really need to list absolutely everything they're going to supply and do... My storybook home build: https://forum.homeone.com.au/viewtopic.php?f=38&t=57987 Re: "Cost plus" contract and builder's margin? 4Sep 27, 2012 6:52 pm I disagree with JB1 The purpose of cost plus contract is to provide builder with renumeration based on percentage of costs. I don't see how owner's supply will change anything, it is "cost plus" whether he buys it or whether PM buys it and tells owner to pay for it. As a builder myself I would not allow myself to get into the CP contract where owner attempts to by pass contract, therefore yes you need to think it through and set out terms and expectations at the start. Both of the parties have to act in good faith or it will not end well. Pre contract consultation could save you a lot of grief. Foremost Building Expert in Australia,assisting with building problems/disputes, building stage inspections,pre-contract review advice for peace of mind 200 blogs http://www.buildingexpert.net.au/blog Re: "Cost plus" contract and builder's margin? 5Sep 27, 2012 9:07 pm My building contract has a zero builders margin. The builder had his profit in the contract and I could change things at will and only paid the cost difference. Demolition August 2009, Construction Started September 2009, Completed December 2010 Re: "Cost plus" contract and builder's margin? 6Sep 27, 2012 10:07 pm Also be aware thay the builder is now responsible for these items. What will you expect if one of these windows gets scratched on site? Your answer may tell you alot about the relationship with the builder in a cp contract. @builderforlife Building inspector and passionate about construction When you need an expert to take a look. Re: "Cost plus" contract and builder's margin? 7Sep 28, 2012 6:28 am Hi Casa2 Are you talking about Project Management contract for a fixed fee? That's not the same as Cost Plus contract. In relation to CP contract, a lot of trust is required between two parties and both are exposed to misuse. Generally speaking in CP contract builder has no interest in containing your costs so you have to trust him that he will. If you then try to exclude him from fees due because you bought some materials(because you want to save) how will he do his best for you? Think about it! Foremost Building Expert in Australia,assisting with building problems/disputes, building stage inspections,pre-contract review advice for peace of mind 200 blogs http://www.buildingexpert.net.au/blog Re: "Cost plus" contract and builder's margin? 8Sep 28, 2012 11:07 am Point taken guys -- but how is an owner/builder supposed to do it? My only choices with the contract were fixed-price (which was only offered if they did the house from start-to-finish), or cost-plus (which made more sense as I could choose what was to be done). The builder was very aware of this when he entered into the contract -- the list of exclusions is on his quote. I can't see why he should be able to ask for money on items that he's already indicated are excluded from his contract. As an aside... I wonder why I can't find anything else in the forums about this? Surely owner/builders encounter this all the time -- after all, which owner/builder wouldn't source materials themselves? My storybook home build: https://forum.homeone.com.au/viewtopic.php?f=38&t=57987 Re: "Cost plus" contract and builder's margin? 9Sep 28, 2012 11:57 am I think most owner builders, myself included supervise the project themselves without hiring a supervisor. And if they did hire a supervisor didn't pay them on a % figure. I just purchased/ordered most of the materials myself. Other times I would let the tradies doing the work supply & fit (Roof tiles & Colorbond garage roof). My carpenter has been great, not the cheapest labour wise, but competent and looks after me. In his case, he orders my materials and I pay Mitre10 directly. In some cases, I got 10% trade discount as it was ordered under his name but invoiced to me. From day 1, my carpenter said he is not interested on making money on the materials, however preferred to use Mitre10 as he knows them well and uses them regularly but had no issues me getting the materials elsewhere. The Mitre10 I use is reasonable in price compared to other quotes I got, after the trade discounts. To be blunt, if you're employing a project manager/builder to supervise on a CP basis, you're not going to save that much however taking all the risk/financial risk if something goes wrong. Re: "Cost plus" contract and builder's margin? 10Sep 28, 2012 12:57 pm Well Johnson If you are owner builder (you are the builder) then do what builders do. Hire a competent supervisor on a wage or on hourly basis and perhaps with some incentive, but certainly not CP contract. CP contract is a basically a blank cheque and for everyone to put their snout in (if not controlled), not surprisingly it's is not popular and should never be used unless you are willing to pay premium for the flexibility of choice during construction, it definitely is not a cost saving way to build. Hope this helps you! Foremost Building Expert in Australia,assisting with building problems/disputes, building stage inspections,pre-contract review advice for peace of mind 200 blogs http://www.buildingexpert.net.au/blog Re: "Cost plus" contract and builder's margin? 11Sep 28, 2012 2:26 pm Johnson Point taken guys -- but how is an owner/builder supposed to do it? My only choices with the contract were fixed-price (which was only offered if they did the house from start-to-finish), or cost-plus (which made more sense as I could choose what was to be done). The builder was very aware of this when he entered into the contract -- the list of exclusions is on his quote. I can't see why he should be able to ask for money on items that he's already indicated are excluded from his contract. As an aside... I wonder why I can't find anything else in the forums about this? Surely owner/builders encounter this all the time -- after all, which owner/builder wouldn't source materials themselves? Hi Johnson, I'm a bit confused in you say you are an "Owner Builder" but you have a "Builder" doing the job with a HIA Contract in place. If that is the case then the Builder would probably be using his Building licence for the construction and thus taking on the risk and ensuring the building meets Specs. (If his Building licence is on the contract then he most certainly would) He would also be responsible for building insurance, site safety among many other things. Normally as an Owner builder you would have had to apply for a Building permit in your name from your State Building commission (Or relevant State Authority depending where you live) . You then take on the risk and responsibility to ensure all building work is up to scratch inc Insurances, site management etc. You also normally organise trades directly or (as some do) you could appoint a Site Supervisor to do that, but they wouldnt work under a HIA contract they would normally be on Wages of some sort, (Hourly or retainer) and if they were no good you could move them on and find someone else whenever you wanted to as you would be his boss. From what you describe you are getting a registered builder to build your house (at least up to a certain point) and you are supplying certain materials for fit out etc. This to my way of thinking is not Owner building at all as you dont have that overall control. Maybe you could clear up a few things which should indicate if you are OB'ing or not, (it might be just a terminology thing) then that should help clear up your original question on what the Builder can or cant charge you for. - Do you have a Building licence in your name or is that your builders responsibility? - Are you resposnsible for Building Insurance during construction? - Do you pay trades directly for each and every job or do you pay installments to your Builder as milestones are met? - Can you sack your "Builder" at any time without penalty? Cheers https://forum.homeone.com.au/viewtopic.php?f=38&t=44762 My Owner builder journey extending a 1930's Bungalow Re: "Cost plus" contract and builder's margin? 12Sep 28, 2012 3:35 pm Cheers Rob -- thanks for the post. To answer your questions: yes I have my compliance certificate and am a registered owner/builder; yes, I had to pay building insurance; no, I don't pay all the trades involved directly, just some (agreed with the builder beforehand); and yes, I can sack the builder, but it's subject to the HIA contract conditions (ie: I can't just tell him to bugger off without fair warning). I suppose you'd call this a "hybrid" arrangement... probably where the confusion is coming from. The builder is only doing his thing until lock-up, when I take over entirely. Fortunately there's a paper (email) trail, and both parties (me and the builder) have recognised where those responsibilities and roles lie. All back on track. *** PS: Is this arrangement uncommon? If so, does it raise any unforseeable issues (one we've discussed is future liability, which I think we've resolved, but there could be others)... My storybook home build: https://forum.homeone.com.au/viewtopic.php?f=38&t=57987 Re: "Cost plus" contract and builder's margin? 13Sep 28, 2012 4:10 pm Johnson I suppose you'd call this a "hybrid" arrangement... probably where the confusion is coming from. The builder is only doing his thing until lock-up, when I take over entirely. Fortunately there's a paper (email) trail, and both parties (me and the builder) have recognised where those responsibilities and roles lie. All back on track. *** PS: Is this arrangement uncommon? If so, does it raise any unforseeable issues (one we've discussed is future liability, which I think we've resolved, but there could be others)... Hmm certainly unusual how you have employed the "builder" under a contract arrangement like that, but whatever works for you is the main thing. Legally I have no idea how it would play out if there were issues. For example what happens if Trades or suppliers were not paid? Who is liable? Are they ultimately working for you the Owner Builder (under the supervision of your "Builder") Or is he liable for any costs incurred on site? I would think Option # 1 as its your house but I honestly have no idea. Other thing to consider is how things progress Post lockup re some of your Trades. You will need to use his Trades to finish some things they have already started. eg Electrical, Plumbing as they happen post lock up but have also been going on in the plumbers case since very early on. Hopefully you dont get stung on the $$$ doing that. All hypothetical of course and hopefully it never comes to anythign like that. So back to your window scenario - it really depends on what you have agreed between the 2 of you in your "contract". There may be Cost for installation etc not factored in but comes down to how you work it out or what you have agreed to. Certainly I think its fair to say yours is an arrangement not many OB's take. (Hence why nothing in these forums on that) Good luck with it all and I hope it works out for you https://forum.homeone.com.au/viewtopic.php?f=38&t=44762 My Owner builder journey extending a 1930's Bungalow Re: "Cost plus" contract and builder's margin? 14Sep 28, 2012 4:25 pm docker_rob Other thing to consider is how things progress Post lockup re some of your Trades. You will need to use his Trades to finish some things they have already started. eg Electrical, Plumbing as they happen post lock up but have also been going on in the plumbers case since very early on. Yep, this is prime case where this sort of arrangement becomes rubbery. Initially I was going to get in my own contractors to finish the electrical and plumbing fitout... but who do you call if something goes wrong? So the builder will be called back to finalise these items with his contractors, keeping the liability with the one contractor. (And of course, in that case, I'll be paying the builder's margin.) My storybook home build: https://forum.homeone.com.au/viewtopic.php?f=38&t=57987 1000000% definitely add insulation. I have in my home and it makes a big difference minimising sound transfer. Insulation is pretty cheap and definitely worth it 2 6191 We are building a house that was planned to be clad in Hardie Linea, our builder has now requested to swap this for BGC Nuline Plus. They look fairly similar and he has… 0 614 You talk about deletions, are they variations or PS and PC adjustments? pleas list them 1 16556 |