# Cost Plus Double Dipping???



## Bearded Wonder (Jan 21, 2011)

I'm about to start on my second large (large for me anyway, about $500k custom home) project that will be done with a cost plus contract. 
On the last one, I subbed out almost everything, although towards the end I did install some deck stairs, railing, mantle, and the like. My thought was that I would pay myself for these items just like I would pay a sub, and still charge my builder fee or percentage. The owner wasn't thrilled about this idea, so since I had made good money on the job I didn't fight it and agreed to pay myself for the work only, with no builder percentage added, just to keep peace with an awesome client.
On this next one, I'd like to spell out in the contract exactly how I'll be payed for work I do personally. Am I crazy to think that I should pay myself both ways? 
For instance, if I do the trim out, and I pay myself what I would have payed a sub, can I reasonably expect that I would also charge my builder percentage on top of that?


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## griz (Nov 26, 2009)

You can't have your cake and eat it too.

When you work on the job you get wages and add your P&O to it at billing.

You can't be your own sub, charge P&O and then charge P&O again at billing.

I have done very well at T&M but it is not for everybody....:thumbsup:


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## Ninjaframer (May 28, 2011)

griz said:


> You can't have your cake and eat it too.
> 
> When you work on the job you get wages and add your P&O to it at billing.
> 
> ...


I don't do cost plus but I " double dip" I guess you'd say. If I'm the GC and I also do the framing I charge my normal price as if I was a sub and that cost goes into the breakdown that I add my 10% or whatever to. So i get the price to frame plus 10% for managing myself


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## Bearded Wonder (Jan 21, 2011)

I hear what you're saying, Griz. But...

Let's say I was going to pay a sub $5000.00 for painting, and my builders fee was 10%. It would then cost the owner $5500.00 for paint. If I decide to do the painting myself and charge the $5000.00 I would have paid a sub, but with no builders fee, then the owner is paying less for the same job. If I add the $500.00 it's then exactly the same for the owner either way, and for some reason (probably greed and wishful thinking, lol) I'm having trouble making sense of which way it should be.


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## Ninjaframer (May 28, 2011)

ClaytonR said:


> I hear what you're saying, Griz. But...
> 
> Let's say I was going to pay a sub $5000.00 for painting, and my builders fee was 10%. It would then cost the owner $5500.00 for paint. If I decide to do the painting myself and charge the $5000.00 I would have paid a sub, but with no builders fee, then the owner is paying less for the same job. If I add the $500.00 it's then exactly the same for the owner either way, and for some reason (probably greed and wishful thinking, lol) I'm having trouble making sense of which way it should be.


I do most of my own work and charge exactly the way you spelled out- the builders fee is for management of the WHOLE project and is calculated as a percentage of the WHOLE cost. At least that's how it works in my mind.


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## elementbldrs (Sep 26, 2010)

I do the same as ninja and as the op. The owner still gets one bill from me for months end, its total is for all activity I manage for the period. Matters not to my client who performs, as long as I maintain budget and ensure quality and schedule as agreed.

I see the double dip.... but I did the same amount of work in managing. I guarantee I perform more leg work when I sub on my job than the sub I would've hired.


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## Elyrain (Dec 17, 2007)

It's cost +, not cost + plus +.


That's why on a cost + job there isn't much benefit to self perform work except to control scheduling and keep your own crew working.


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## Ninjaframer (May 28, 2011)

Elyrain said:


> It's cost +, not cost + plus +.
> 
> That's why on a t&m job there isn't much benefit to self perform work except to control scheduling and keep your own crew working.


Maybe I misunderstand the term "cost plus" but doesn't it mean the COST of any certain portion PLUS the builders fee percentage? The 1 time I did cost plus my contract said I could match the low of 3 bids and preform the work myself, plus my percentage. And I obtained the 3 bids


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## Bearded Wonder (Jan 21, 2011)

Cost plus is different than t&m in my book.

If I have to pay myself $5000.00 to paint then the cost is $5000.00 plus I charge 10%. No? 

Of course, if I could easily hire a painter for $3000.00 but I do the painting and charge $5000.00 for it, that's dishonest and not what I'm talking about. I would do it (whatever bit of work) for the same that I would have to pay a sub to do it. If I couldn't do it for that same price and make money, then I wouldn't. But generally I can do smaller bits of work for much cheaper than a sub would charge. 

Interesting the varied opinions to this point. Thanks for all the input.


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## skyhook (Mar 17, 2007)

It sounds like you under bid the job and trying to make up for it by doing the work yourself and price gouging the client.

Why not just keep subbing everything, stay on schedule and hustle up the next $500,000 job.?

Fixed price with adders and change orders is more professional. imo. Then nobody questions _what_ you do.


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## Chris G (May 17, 2006)

If you want to take on an aspect of the job rather than sub it, I don't think you should be charging a management fee. 

A management fee is there to compensate you for managing the subs - calling them, scheduling them, paying them, checking in on them, etc.

If I was a wisecracker Homeowner, I would asked why I am paying you 10% to call yourself, schedule yourself, pay yourself, and check in your self. 

How would reconcile this? 

10:30 am, scheduled a meeting with myself to go over paint selections, discussed priming options, agreed with myself on latex.

2:30 pm met with myself to inspect progress of painting. All looks good, discussed with myself about the need the need to keep area clean. I agreed with myself that area should be tidier.


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## TAHomeRepairs (Jun 18, 2012)

Chris G said:


> If you want to take on an aspect of the job rather than sub it, I don't think you should be charging a management fee.
> 
> A management fee is there to compensate you for managing the subs - calling them, scheduling them, paying them, checking in on them, etc.
> 
> ...


I was on the fence for the first page, I could see both sides. But this post sums it up pretty well.


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## Steve57 (Feb 17, 2013)

I do mostly cost plus work. All the bills from subs are marked up for a profit. When my employees work on the project, I charge an agreed upon hourly rate. Any material purchased, for my guys to use, are marked up the same percentage as the rest of the project.


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## BlueRidgeGreen (Apr 21, 2012)

There's a lot of grey area in these.

IMO, it just depends on how you go about it.

I have done cost plus jobs where my guys perform almost all of the work.

In these cases I am not billing for design services, materials acquisition/sourcing, dog grooming (he is the Chief of Security), or anything other than "boots on the ground" labor. So I feel totally comfortable tacking on my 10% to everything. 

To me, there are no "rules" to it, per say. In the end, I don't care if I take my fees in cash or Faberge Eggs, as long as I am providing exceptional value to my clients, and they are well aware of that fact, I sleep well.


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## Tom M (Jan 3, 2007)

I wrestle with the same things. It might come down to how you apply a mark up to a job. Or should I say is the MU on the job or is it different for subs, material, labor.

If you never swing a hammer and do months of management the MU would become your salary. It might not be enough. I dont know if its right either but I charge for a specified amount of time to manage. So my labor rate has built in OH so whether I am doing labor or managing I am being paid correctly. My profit is my mark-up.


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## Steve57 (Feb 17, 2013)

I also charge an hourly rate for myself for time spent at the project working.


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## Jaws (Dec 20, 2010)

Cost Plus, if my crew frames or trims it, I bid the frame or trim package like a sub. I still charge a builders fee.

Do I not still coordinate the project? Does my builders risk and general liabilty insurances still cover the work? Am I not fronting the material money as a builder, and assuming the risk? Never had a framer or trim crew buy a material package. Am I not still warranting the materials as a builder ? 

As the "sub" do I not have workers comp on my crew? Company vehicles and their burden? Tools and their burden? UI and employee taxes? Am I not assuming the same risk as a sub by giving a fixed price? I will make a moderate profit on the labor performed by our crew or why have them? 

Its ridiculous to think otherwise. I have never had that come up, but thats why my contracts are crystal clear on what it is.

Now anything hourly, I generally dont charge a fee on top of. Doesnt seem right to me, I dont know why. 

Like if we have hourly crew labor for different added things, like moving a window or an hanging pictures, moving furniture, ect... I charge direct cost hourly rate and my fee or normal hourly rate and no fee. I may be the only contractor I know who doesnt like making out on change orders.


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## Jaws (Dec 20, 2010)

Elyrain said:


> It's cost +, not cost + plus +.
> 
> 
> That's why on a cost + job there isn't much benefit to self perform work except to control scheduling and keep your own crew working.


I guess I dont understand. If I bid the frame, and the homeowner chooses my bid, I am supposed to cut all the fat and profit out of a fixed price bid? 

Or are you talking T and M? Hourly? 

In that case, Im not charging 35 an hour plus 15%, then my builders fee. :no:


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## Jaws (Dec 20, 2010)

ClaytonR said:


> Cost plus is different than t&m in my book.
> 
> If I have to pay myself $5000.00 to paint then the cost is $5000.00 plus I charge 10%. No?
> 
> ...


Cost plus is different than T and M. T and M your mark up is all on your hourly rate. 

For one thing on Cost Plus, I dont charge for my project management time, like scheduling, ordering, meeting subs, obtaining bids, meeting with the archy, red lining plans. My builders fee covers it.

T and M for me, everything is hourly, no mark up outside of it. I only do T and M on repairs.


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## Bearded Wonder (Jan 21, 2011)

Jaws said:


> Cost plus is different than T and M. T and M your mark up is all on your hourly rate.
> 
> For one thing on Cost Plus, I dont charge for my project management time, like scheduling, ordering, meeting subs, obtaining bids, meeting with the archy, red lining plans. My builders fee covers it.
> 
> T and M for me, everything is hourly, no mark up outside of it. I only do T and M on repairs.


Exactly. T&M only seems reasonable for very small jobs or repairs, where perhaps there are some unknowns as to exactly how much time or materials would be required, thus making it impractical to give a fixed price. I can't imagine doing any type of larger scale project that way. 

The way I do cost plus, there are no unknowns, and the job is quoted and specs are written in the contract. If the owner changes or adds something, then I write a change order and charge my builder fee. 

It's also in my contract that my fee is based on my quoted price, and if the project stays as quoted with no changes, then my fee is capped. The owner agrees to pay for any extra building costs that I missed or miscalculated, but I don't make a dime on costs over my quote. This shows the owner that I don't have incentive to push costs up by using more expensive subs or buying higher end materials, just to increase my pay.


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