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Fixed Price, vs T&M vs Cost Plus

CAGIV's picture

I'm interested in how the contractors here structure their contracts.


We are mostly fixed cost with allowances for items such as flooring, light fixtures, etc.


Very Small projects are time and material


Never used a cost plus contract


I'd like to try to keep this more of a poll for now rather then the merits of each method.  I know it won't happen, but hey, let's give it a try.


Team Logo

(post #119624, reply #1 of 92)

I've been working on the Construction Management/Owners Rep./Contract Admin. for the last quite a while.  I've typically been doing:


T&M on very small projects (<$50,000)


Fixed Cost on Med. Projects ($50,000-$750,000)


and Cost Plus with a GMP on larger projects ($750,000-$4million)

(post #119624, reply #48 of 92)

Rob,

How much do you charge for CM on commercial projects in the $1m to $3m range? What hours do you bill for and what hours are considered overhead?

 


Jon Blakemore

RappahannockINC.com

Fredericksburg, VA

 

Jon Blakemore

RappahannockINC.com

Fredericksburg, VA

(post #119624, reply #80 of 92)

Since the replies so far have been all over the board, how about some discussion of what a GMP really is, and then we can move on to hard bid......

(post #119624, reply #82 of 92)

As far as I know, "GMP" stands for "Good Manufacturing Practice."  I think a few of the posters are having a bout of dyslexia and really mean "GPM," or "Gross Profit Margin."

-T

-T

(post #119624, reply #83 of 92)

How about guaranteed maximum price, aka not to exceed price.

.
.
A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
. William the Geezer, the sequel to Billy the Kid - Shoe

(post #119624, reply #85 of 92)

Not to Exceed is what I call it.

 


I'm not as funny as I think I am                 

  

when you are up to yur knees in gators, make gatorade     

(post #119624, reply #86 of 92)

In so far as contract language and in the context used I would read that as "Guaranteed Maximum Price", sometimes referred to as " Not to Exceed".


They can't get your Goat if you don't tell them where it is hidden.

Life is Good

(post #119624, reply #88 of 92)

As mentioned by other posters GMP is Guaranteed Maximum Price.  A typical GMP includes general conditions + good estimates if not bids for each division + profit and overhead + contingency(s).  Depending on the contract there are lots of things that happen if the project comes in under budget.  Typically the difference is split between the owner and the GC in a contractually arranged manner. 


Also GMP is only good for the bid plans, and only as good as the bid plans.  Changes in conditions, changes in scope, changes in schedule not dictated by the GC all result in change orders and increases in the GMP.


Rob

(post #119624, reply #2 of 92)

I do the same....fixed cost for the majority of my projects and T&M for the little ones with many possible variables.


'Course....sometimes, I might be better off throwing a dart into a chart filled with random numbers.




J. D. Reynolds


Home Improvements


Pp, Qq


 


 



 




R.I.P. RAZZMAN

 

 



(post #119624, reply #3 of 92)

Same as you.  Almost all are fixed cost with a few small jobs T&M.  DanT

(post #119624, reply #4 of 92)

Fixed price with allowances for 95% of projects


T&M for those can you get it done projects


Bruce

(post #119624, reply #5 of 92)

Almost all my work is Cost/plus.


Give spread bid on estimated costs to do the job including the percentage. 


example: Kitchen Remodel-Total job cost with specifications as listed. $33-38,000.00


small jobs- $ 7-800.00


repairs-usually no estimate given.


Total volume 100-150,000.00


A Great Place for Information, Comraderie, and a Sucker Punch.


Remodeling Contractor just outside the Glass City.



http://www.quittintime.com/


 

A Great Place for Information, Comraderie, and a Sucker Punch.

Remodeling Contractor just outside the Glass City.


http://www.quittintime.com/

 


(post #119624, reply #6 of 92)

Calvin,
Could you elaborate on your spread bid a little more.

Why $33-38k etc...

It kind of sounds ball parkish. Are you putting in a not to exceed clause with allowances?

Is this all cost plus here that you are talking about.

I have never bid cost plus before. I like the spread scenario.

(post #119624, reply #7 of 92)

I can't speak for Calvin but I'll comment on the spread we use on T&M jobs.


I have one job going now T&M with 40-48 Hours of labor and materials between 375-450.00


We do that partly to protect ourselves and partly to help show the customer it's a variable contract. 


To come up with the low number I take what I think it's going to take and add about 10% or so.  The higher number adds another littler bit.  I'd much rather go to someone and tell them we came in under or within the range then over it.  The range gives me a little room to stay within their expectations and not have them asking why it cost more then I said it would.


Most of the time we're right in the range sometimes we are higher sometimes we are lower.


I never put a GMP on a T&M job, if I could figure out how long or how much in the first place it would simply be a fixed price.


 


 


Team Logo

(post #119624, reply #8 of 92)

CAGIV,


What markup do you add to materials on t&m?


k

(post #119624, reply #10 of 92)

25%

Team Logo

(post #119624, reply #9 of 92)

Realize jeb that all my work is referral.  Many new customers, but a substantial list of former clients.


The spread bid is I suppose what you might call a ballpark.  However, it is not a guess.  It is an estimate of costs for the job.  Best case scenario to max. cost as I see it based on the job description.  If I was asked to give a firm price, it would be the high number.


My regulars like it and to them it has a track record.  I very rarely exceed the high number and then it usually is a result of the "couldyas" or "while your here's".


The referrals are offered the firm price or the spread.  Their choice.  I also lay out the payment schedule.  With the repeats I don't have a problem with cash flow.  The new ones need some education.


The numbers I used in the previous post I didn't even think about but I suppose the spread amounts to 10-15 percent.


I will do a not to exceed, but I'm not asked to very often.  Allowances are too ficticious for me.  At the time of estimate writeup I want to know what kind of sink/faucet/etc.  We have already decided on the price range as I offer the customer my price on all material.  Fixture costs are given to them by my supplier so they know that faucet is 600, not 79.95. 


All the costs are listed and then the markup is added on.  I take this price and then go up to the high number.


There's very minimal additions to the base number.  I've already figured money in for those unseen things others seem to make their money on.  Now remember, these are repeat or current customers.  They are my customer to lose.  Not often do I bid "against" someone else.  This wouldn't work with price shoppers.


And I have no doubt it won't work for most anybody else.  But after 35 yrs I'd be out of business if it didn't work for me.


Hope that clarifies it for you.



A Great Place for Information, Comraderie, and a Sucker Punch.


Remodeling Contractor just outside the Glass City.



http://www.quittintime.com/


 


Edited 3/20/2008 8:38 pm ET by calvin

A Great Place for Information, Comraderie, and a Sucker Punch.

Remodeling Contractor just outside the Glass City.


http://www.quittintime.com/

 


(post #119624, reply #11 of 92)

Calvin,

You did shed some light on it for me.

I can see cost plus becoming the new T&M. I like the idea for customers who have an understanding of what it takes to do business.

I have probably bid similar to the cost plus with out actually giving myself the plus margin. I know I have invoiced that way.

I've allot to learn.

(post #119624, reply #13 of 92)

Well, to me the plus is the profit.  The other costs of doing business are factored into the hourly rate.  I markup the material and the subs and me. 


If I am presenting a firm bid, I do the same but it is only shown as one number.


We all have something to learn man, no body knows it all.


A Great Place for Information, Comraderie, and a Sucker Punch.


Remodeling Contractor just outside the Glass City.



http://www.quittintime.com/


 

A Great Place for Information, Comraderie, and a Sucker Punch.

Remodeling Contractor just outside the Glass City.


http://www.quittintime.com/

 


(post #119624, reply #25 of 92)

jebadia..
i've never seen a difference between T&M or Cost Plus
to me they are the same contract
what am i missing ?

Mike Smith Rhode Island : Design / Build / Repair / Restore

Mike Smith Rhode Island : Design / Build / Repair / Restore

              www.mfsmithbuilder.com

(post #119624, reply #12 of 92)

My main artery I have here ,right now, is straight T&M for the most part..I am onsite and just tag my time. I guess I am acting as Pm to a HO /contractor.


Shop work I run as per ..such as a bookcase to be fabbed and installed..not to exceed 3k.  Custom anything is billed shop rate and mats as best as I can est. and come up with a number that I feel will work for both of us.


Spheramid Enterprises Architectural Woodworks


"Success is not spontaneous combustion, you have to set yourself on Fire"

www.richmondrenovationsandrestoration.com  

(post #119624, reply #14 of 92)

I charge time and materials (at my cost), with no markup.


I charge for every hour I work, including design & planning, ordering and delivering materials, consulting with client,  supervising subcontractors, and hands-on work.


I charge what I believe to be a fair hourly wage and am philosophically opposed to the idea of profit, which is unearned income.


 

Riversong HouseWright

Design *  * Build *  * Renovate *  * Consult
Solar & Super-Insulated Healthy Homes
 
Riversong HouseWright
Design *  * Build *  * Renovate *  * Consult
Solar & Super-Insulated Healthy Homes

(post #119624, reply #17 of 92)

"...profit, which is unearned income."

HUH?!

Bob's next test date: 12/10/07

(post #119624, reply #18 of 92)

Fixed Price. Allowances where necessary.

Bob's next test date: 12/10/07

(post #119624, reply #19 of 92)

"...profit, which is unearned income."


HUH?!


Would you care to elaborate on "HUH"?


Profit is the difference between income and expense.



  • If you're running a business, you have fixed costs which need to be recovered.

  • Then you have to recover costs for materials consumed in a job.

  • What you earn is whatever wage you set for your time.

Any income beyond those three is profit: unearned income, gravy, theft (take your pick).


 

Riversong HouseWright

Design *  * Build *  * Renovate *  * Consult
Solar & Super-Insulated Healthy Homes
 
Riversong HouseWright
Design *  * Build *  * Renovate *  * Consult
Solar & Super-Insulated Healthy Homes

(post #119624, reply #66 of 92)

Any income beyond those three is profit: unearned income, gravy, theft (take your pick). 


so, which of these three pays for the computer and BT subscriptions, none of


which, a man of your caliber needs to do his job well.  You can call all that extra


cash you're taking home at the end of the day whatever you want,  whatever


extra you walk away with is profit

(post #119624, reply #72 of 92)

It sounds like theft to me too!

Bob's next test date: 12/10/07

(post #119624, reply #75 of 92)

which of these three pays for the computer and BT subscriptions


If you believe those are necessary to your business, then they become part of the fixed costs of doing business.


If they are things you personally choose to spend money on, then they come out of your wages, as do all your other personal expenses.


 


 


 

Riversong HouseWright

Design *  * Build *  * Renovate *  * Consult
Solar & Super-Insulated Healthy Homes
 
Riversong HouseWright
Design *  * Build *  * Renovate *  * Consult
Solar & Super-Insulated Healthy Homes

(post #119624, reply #20 of 92)

I was with you till you said you were opposed to profit. what happens when you take a loss? what customer is philisophically opposedto leaving you short in the end ? what about service calls,do you pay for them out of overhead, profit, or bill the customers? I'm just being devil's advocate here cause truth is profitis earned by using your experience and for carrying risk. you need profit to counter the dilemas that arise from time to time.


"it aint the work I mind,
It's the feeling of falling further behind."

Bozini Latini

www.ingrainedwoodworking.com

"it aint the work I mind, It's the feeling of falling further behind." Bozini Latini www.ingrainedwoodworking.com

(post #119624, reply #28 of 92)

I was with you till you said you were opposed to profit. what happens when you take a loss?


I've never taken a loss because I don't view work as a form of gambling, which is what all insurance is.


As I indicated, I charge for every hour of my time.  On big jobs, I also bill weekly, so the greatest risk I might incur is one week's output.  For small jobs, I get a 50% deposit up front to cover all material costs, so the only potential risk is for my labor and not for out-of-pocket expenses. 


I also include a mediation clause "in the event of irreconcilable differences" in every MOU, though I've never had to invoke it - in part because I choose my clients carefully and take on work only with those with whom I feel comfortable.


As for warrantee work, because I don't mark up materials (and, in fact, pass on any discount I get from suppliers), my warrantee covers only my time while the customer pays for materials.


I find this a much more straightforward economic relationship.  I get paid exactly for what I do, no more and no less.  I don't gamble on winning or losing, and neither does the customer.  Obviously, I have to come in close to my estimate or I don't get the next job.  But every estimate states that "unexpected complications, adverse weather, or changes in work specifications might inflate the cost."



 

Riversong HouseWright

Design *  * Build *  * Renovate *  * Consult
Solar & Super-Insulated Healthy Homes


Edited 3/21/2008 11:13 am ET by Riversong

 
Riversong HouseWright
Design *  * Build *  * Renovate *  * Consult
Solar & Super-Insulated Healthy Homes