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Old 04-17-2007, 03:36 PM   #1
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Seeking Advice On Building Contract


Howdy!

I'm a new member who will soon sign a contract with a home builder to build our home in Virginia. I'll be on this site a lot over the next year, as I'm going to work alongside him doing those tasks which I'm able (just call me a glorified day laborer).

The first thing I'm seeking is feedback on the contract he and I will sign. There are three basic types of contract I'm aware of: fixed price, percentage management fee, and fixed management fee. We're going to do a fixed management fee with an incentive clause. In a fixed price contract, the builder has an incentive to lower costs, but the home owner realizes none of those savings, because every dollar saved goes in the contractor's pocket, and none in the home owners. In a percentage management fee contract, the builder has incentive to inflate costs, as the higher the cost, the higher his fee. Again the home owner's interests are not best served.

We're moving forward on a fixed management fee plus incentive, where the builder gets paid a flat fee. We're also going to include a provision where we agree on a budget estimate of the cost to build the house, and, as an incentive for him to constrain costs, he'll get a percentage of every dollar the project comes in under that budgeted estimate.

My question is: What is a equitable split for any savings under the budgeted estimate? He's asked for 50%, and I'm thinking maybe 33%. I'd be grateful for any feedback from contractors or home owners.

I look forward to being on this site often during construction. Thanks in advance for your feedback!

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Old 04-22-2007, 11:13 AM   #2
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With zero feedback on my orig posting, I'm hopeful that one of the pros who peruses this DIY site would be willing to copy my posting onto the companion site ContractorTalk.

Any help would be appreciated. Regards, Rich

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Old 04-22-2007, 01:17 PM   #3
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Quote:
Originally Posted by RichardE View Post
With zero feedback on my orig posting, I'm hopeful that one of the pros who peruses this DIY site would be willing to copy my posting onto the companion site ContractorTalk.

Any help would be appreciated. Regards, Rich

I'll give it a try for you Rich...
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Old 04-22-2007, 02:00 PM   #4
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Richard,

Per Atlantics request on CT.

Personally, I think 33.33 % savings for the home owner and 66.67 % for the builder.

Not only is he creating a potential savings for the customer, but he has added paperwork nightmares to deal with.

If the HO does not like the 33.33 %, then I suggest not entertaining this cost cutting measure.

Also, what checks and balances are gong to be used to verufy hours on the job, hours for the job in transit and in the office, and actual costs of materials for that intended project.

I have heard from some home owners, that materials purchased with their project being the intended one they were purchased for, actually were used on a different project.

What if something gets stolen from the job site? Who is responsible for those costs?

Just some food for thought.

How much additional time will be spent and charged for, to theoretically save some costs?

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Old 04-22-2007, 10:09 PM   #5
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I think your plan is loaded with problematic areas...if you don't trust the builder, why use him? If I were you, I would search for a builder with a good rep, check references, and then do a cost plus contract, with the stipulation you control the material purchases. While opinions vary, let me tell you how I do it on some jobs: I GC the project for 10 - 20% of the total cost of the project, meaning materials and labor. Since my reputation is key to my success, I do not stretch a budget to high numbers to make more, nor do I have any reason to cheat the customer since it is theri money in the project, not mine. If any of you wonder how I can do a home for 10%, I also have the crews that build, and I charge X dollars per sq/ft for construction....no matter how long it takes.
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Old 04-25-2007, 02:19 AM   #6
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Atlantic,

If you'd be so kind as to re-post this on "Contractor Talk", I'd appreciate it. I'd post it myself, but respect the rules that it's trade only.

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Thanks, gents, for your considerations and for your honest feedback; it's exactly what I was hoping for.

Atlantic - Appreciate very much the re-posting on CT of my DIY thread, and hope that if the need arises we might be able to do it again.

Ed - Respect esp the experience and investment of your time that comes w/ 1000+ posts.

Solano - Don't know about being "slick", but heck yes, I want to save money! As to me being the GC, no way, Jose! I have too much respect for the complexity of the task and the experience needed. I admire those of you who successfully manage a complex project like building a home, on time, on budget, and with excellence. It's a little like being a conductor, integrating strings, percussion, horns, woodwinds; instead of making music, I'd make a horrible mess of it. Hell, I haven't yet gotten an approved final punchlist from my kid on the tree house I built him!

Lawndart - I'm an out of the box thinker, and tried to come up w/ a "win-win" arrangement. I've bounced this concept off of other GCs and HOs, and they have generally thought that approach has merit.

Joasis - Good feedback, thanks.

In closing: We'll do a fixed fee contract, and add the 50/50 split (which the GC proposed) for cost savings under the budget estimate. From what I've heard from you guys, that is more than fair; generous on his part even. BTW, I did check his references, which were sterling, and am really looking forward to the job. I'll keep you posted on how it's faring; we're set to break ground in a couple of months. Thanks again!

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