# GMP Pricing & Project Bonding



## Dominion (Dec 18, 2007)

Two questions:

1. Do you do GMP pricing on larger projects? Do your customers usually request it? If so, how do you tackle it?

2. Project Bonding -- do your customers always request you bond your projects? Who do you use and how much per 10K are you charged?

Thanks,

Daniel


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## SelfContract (Dec 6, 2007)

Dominion said:


> Two questions:
> 
> 1. Do you do GMP pricing on larger projects? Do your customers usually request it? If so, how do you tackle it?
> 
> ...


 

Now, I know you just need information for finishing your school study and/or school project, is it? Why do I say so? Because your questions are so broad!.. and only those I seen enough that come only from textbooks in school? :no::laughing::thumbsup: Good luck on your term/final paper.. or whatever it is...


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## Dominion (Dec 18, 2007)

SelfContract said:


> Now, I know you just need information for finishing your school study and/or school project, is it? Why do I say so? Because your questions are so broad!.. and only those I seen enough that come only from textbooks in school? :no::laughing::thumbsup: Good luck on your term/final paper.. or whatever it is...


Wow. You're an embarrassment to the community. If you've got nothing to add, don't post.


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## bookie (Oct 24, 2007)

1- I would never, ever give GMP pricing for a private job. It's generally only used in government work, and then only when specifically required. GMP is what drives up the price of government work ($200 toilet seats, natch?) because bidders must put serious fluff into a GMP bid to cover their interests, and then once they produce that ridiculous bid, they hear the $$ka--ching$$ and want to collect it, so that drives up the total price of the project. Follow me here, the government budgets the base minimum that it would cost, then pays out the GMP and that is why our govt is trillions in debt in the simplest of terms.

Someone would have to be an idiot to guarantee a maximum price on a private job without psychic ability to precognate all variables or eventualities. When people change things, that costs money. So no, it's not common. If you request it on your bids, you probably won't get any response.

Have a good scope of work, take bids on it, know the T&M rate for YOUR extras (they are not the contractor's extras, nobody seems to really get THAT) for work not included in bid scope, and move on.

2- A $10000 surety bond (like for a business license) runs around $100 per year but it varies widely by state. If you are talking about a performance bond, that varies widely by state, insurance company, and variables such as your business entity type/age, revenues, profitability, and how your asset/debt load. In many areas letters of credit have overtaken performance bonds entirely. If you have no business credit history you will not even be able to get a performance bond or LOC without dollar-for-dollar illiquid assets (read: green money or non-depreciating land other than the land you are building on) backing it.

Referencing your other post, if you are $100k into the project just on design without knowing this stuff (or reduced to asking about it on a message board) then there is no saving you. Stock up on Mr. Bubble, you are about to take a bath.

/free advice.

bookie


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## jwbond (Jan 5, 2005)

Not to be a wise-guy, but let me corect you on some items since this is my area of expertise...



bookie said:


> A $10000 surety bond (like for a business license) runs around $100 per year but it varies widely by state.


The original poster asked about a bonded contract, which would be a contract performance bond. 

However, to comment on your remarks about commercial license/permit type bonds...The bond amounts change from state to state, but the rates change more so based on the individual/company being bonded more so than the state requiring it. $100 for a $10,000 bond is a 1% rate and is only for the most qualified contractors. This would require good credit, strong financials, etc. However, rates can be as high as 13% for high risk candidates. 



bookie said:


> If you are talking about a performance bond, that varies widely by state, insurance company, and variables such as your business entity type/age, revenues, profitability, and how your asset/debt load.


The location of the work does not influence the rate for performance bonding, unless the geographic location of the job is too far from the contractor.

Most carriers have similar rates...

You are correct in saying that the business financials are a key part of what rate you will qualify for. In fact, a balance sheet and income statement are the two biggest factors in seeing what a contractor qualifies for.



bookie said:


> In many areas letters of credit have overtaken performance bonds entirely.


Only for contractors that do not qualify for a bond. An ILOC is always a worse decision if you qualify for the bond. Do the math...With an ILOC you need 100% collateral, but you shouldn't need any with a bond. This frees up capital. The cost of a contract bond is normally 1-3% vs. 1% for a letter of credit. However, you can easily earn 5% interest on the freed up capital you'll have with the bond, making it 3-5% cheaper than a letter of credit and allows for more liquidity for you to run your business.



bookie said:


> If you have no business credit history you will not even be able to get a performance bond or LOC without dollar-for-dollar illiquid assets (read: green money or non-depreciating land other than the land you are building on) backing it.


Not true, I know of many programs based on personal credit alone that can get you up to $400,000 in bonding.


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## Kgmz (Feb 9, 2007)

jwbond said:


> Only for contractors that do not qualify for a bond. An ILOC is always a worse decision if you qualify for the bond. Do the math...With an ILOC you need 100% collateral, but you shouldn't need any with a bond. This frees up capital. The cost of a contract bond is normally 1-3% vs. 1% for a letter of credit. However, you can easily earn 5% interest on the freed up capital you'll have with the bond, making it 3-5% cheaper than a letter of credit and allows for more liquidity for you to run your business.


 

I guess it would depend on your bank and how much cash you have.

We just recently had to provide the county a $375,000 bond to guarantee that road improvements would be done and paid for, for a commercial project. We looked into a bond and no way was I going to pay the price they wanted. So I talked to the county and a ILOC would be fine. We went to our bank, they allowed us to keep the money in a CD and keep the interest and there was no fee for the ILOC. So instead of paying almost $10,000, I'll will still be making the $15,000 or so on the money I would have anyway. Still have my money and the guarantee for the county costs me nothing.


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## jwbond (Jan 5, 2005)

Kgmz said:


> I guess it would depend on your bank and how much cash you have.
> 
> We just recently had to provide the county a $375,000 bond to guarantee that road improvements would be done and paid for, for a commercial project. We looked into a bond and no way was I going to pay the price they wanted. So I talked to the county and a ILOC would be fine. We went to our bank, they allowed us to keep the money in a CD and keep the interest and there was no fee for the ILOC. So instead of paying almost $10,000, I'll will still be making the $15,000 or so on the money I would have anyway. Still have my money and the guarantee for the county costs me nothing.


You are referring to what is known as a subdivision/site improvement bond. It sounds like you got a quote at around 2.5%, which is right around the industry average for this type of bond. There aren't that many carriers in the country that write these bonds for smaller guys, so you are lucky that you could even find someone to approve it for you. What was the name of the carrier and agency?...I'm curious if I recognize the name (the surety industry is rather small)

You must have a good relationship with your bank if they allowed you to earn interest on the funds and did not charge a service fee! Clearly the letter of credit was a much better choice for you (provided you don't need the capital for the duration of the job). Good for you! :thumbsup:


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