I wanted to take an opportunity to explain our approach to managing renovation and addition projects. Residential construction is a challenging business but we've learned a lot in the twenty years since we started the company. That experience has led us to conclude that the best way to set up our projects on an open book, "cost-plus" basis. You're probably wondering exactly what this means.
The process starts when someone approaches us to discuss a project. If they already have an architect and a set of plans, that's great. If no architect is involved (and we feel that the project will require one) we recommend an architect that we feel is right for the job.
In any event, once there are plans and written specifications, we'll make a site visit to familiarize ourselves with the project. We then solicit quotes from our team of subcontractors: plumbers, electricians, painters, plasters, roofers, etc. We use a spreadsheet template to fill in the anticipated labor, materials, and subcontractor costs.
Here's where our process differs from that of many other contractors. Instead of writing a proposal with a lump sum, fixed price, we show our estimate spreadsheet to the homeowners. We want them to see where their money is going. They see exactly what we will be paying for materials and subcontractors. They also see the overhead and profit that we've built into the price.
But up above I mentioned that we work under a Cost-Plus basis. What's that mean? That means that the actual price paid by the clients is determined by the actual costs that we incur. So, for example, the clients pay us for the actual time it takes to complete the project, not a guess made before the job starts. That means that we don't have to "pad" our price to cover a worst-case situation. We provide a realistic estimate of the labor involved. If things go well, our clients pay less than the budget figure. If a lot of changes are made the project may take longer and cost more.
In practice, about 75-80% of the project cost is fixed at the start because we have firm quotes from our subs and suppliers. The other 20-25% is the cost of our own labor. All in all, our original budget is typically within 5-10% of the final construction cost (not counting client driven extras). Interestingly, this about the same as the average "fixed price" job.
Our clients like the transparency of this system. They receive regular cost reports and always know exactly where they stand. They know that they are paying for the actual work performed- not an inflated price intended to protect the contractor. Because historic old houses are unpredictable, we feel that this system provides the fairest approach for both us, the contractor, and our clients.
If you have any questions or comments about this approach, please drop us a line.