Residential Construction Contracts: Cost Plus Fee

August 9, 2013 — 126 Comments

Today is Part Two of a series of posts that are addressing the different types of contracts homeowners normally consider when working with a general contractor. Yesterday I discussed the Competitive Bid process which included most of what I think are the few positives and most of the negatives to using this method when evaluating and hiring a contractor. I don’t generally like them because I believe it creates an adversarial atmosphere in what should be a collaborative team environment. The competitive bid process is one of the two most common methods we typically use in our residential architectural practice. The other, which will be the focus of today’s post, is the Contractor Cost + Contractor Fee Contract – commonly referred to as a “Cost Plus” contract.

Residential Construction Framing

Cost Plus Fee Contracts
The Cost Plus contract has been gaining more and more traction in my world over the last 12 years and is now my preferred contract. When I discuss the process of hiring a contractor (both the when and the how) I always talk about the different sorts of contracts we might consider using use because it has an impact on the timeline. Competitively bid projects don’t generally involve the contractor until the very end of the construction document period – once all the decisions have been buttoned down and successfully represented in the drawings and project specifications. By contrast, the Cost Plus contract typically involves the contractors really early in the design process – sometimes as soon as the completion of the schematic design phase when the only design drawing is a floor plan. But I’m getting ahead of myself – let’s talk about the Cost Plus process before we get into the advantages.

A Cost Plus Fee contract with a contractor is exactly what it sounds like – the actual cost to build your project plus a management and coordination fee for the general contractor. The management and coordination fees are generally a predetermined percentage of the actual costs. In my neck of the woods, we typically see around 15% as the percentage used regardless of the skill level of the contractor. That might sound peculiar, that it would seem obvious to assume that “more better” contractors can charge a higher percentage fee than just “better” contractors … but you would be wrong. The more better contractors make more money charging the same percentage rate for the simple reason that 99 times out of 100, they work with better subcontractors who charge a higher fee for their work. See? It’s pretty simple and obvious when it’s laid out. I’ll admit that a really skilled contractor can get a better product out of an inferior subcontractor than a less skilled contractor but those are typically isolated instances and most of the more better contractors I tend to work with eventually weed out the sub’s who create more problems than they solve.

One of the significant advantages of a Cost Plus contract is that the contractor can be brought on very early in the process and can be a valuable member of the design and construction document process. Most contractors can start providing “budget” pricing with just a plan. Since a high percentage of homeowners think that the only way to get the best price for the end product is a competitively bid process [where all the contractors are put into a cage match and have them slug it out over the price until the lowest bidder is left standing victorious] the idea of paying the contractor whatever he charges PLUS a management and coordination fee is ludicrous. Cost Plus contracts let the contractor develop pricing at various points of the creative process and they help manage the expectations of the finished product. The contractor is also an asset to the architect (me) by helping me solve certain problems as they develop on paper rather than in the field when someone is going to have to pay to build it, tear it out, and then build it again … not really the most cost-effective way to solve a problem. Before you say “that’s not my money, the contractor has to pay for their mistakes…“, let me point out that most people get loans from the bank to finance their construction projects and they pay interest on those loans … since we all know know that Time = Money, as the homeowner paying interest on your construction loan while the contractor is fixing a problem, even when you win, you still lose.

Architects desk

Every project that I have managed and processed over the past several years where the contractor used a Cost Plus contract, the costs are completely transparent. Unlike competitive bid projects when the actual cost of things is a total mystery, the Cost Plus contracts require the contractor to submit a bill or invoice for every single expenditure on the project. If they run over to Home Depot and buy a box of nails, I’ll see the receipt when I process the application for payment. Most of the applications for payments on a Cost Plus contract could be used as ballast to anchor a battleship they’re so extensive. Keeping track of the expenses is paramount to the success of a Cost Plus job because if the contractor can’t produce a bill of sale, they can’t submit it as an expense.

One thing that needs to be made clear about Cost Plus contracts – the contractor is still bidding the work! In fact, contractors bid the work far more often in a Cost Plus situation than in a competitive bid process. They are constantly providing budget estimates throughout the design and construction document process and when the contract is finally executed and the owners are going to the bank to get their loan, they are bringing in the final budget bid that the contractor provided. It is this same budget bid document that I use to track the progress of the project and measure percentages of the billed work completed when I process the applications for payment for the contractor. To use an analogy from yesterdays post, this bid budget can let the homeowner know what size bed they are getting into before they buy the bed. Another benefit that most people don’t consider is that the competitively bid project tends to create a lot of change orders (move an outlet – that’ll be $125) for every possible modification along the way. As many times as not, when the homeowner changes the scope of work in a Cost Plus job, there isn’t any change in the total cost for that scope. The electrician installing that electrical box is generally being paid time and materials for the work he does and since moving or adding a box literally takes a few minutes, you don’t get dinged for all the little revisions. Imagine that you are installing 100 outlets in your house and the fee to install them is $8,000. Most of the time if you come in and add another 10 outlets you’ll still only pay the $8,000 and not an additional $1,250 for 10 outlets at $125 per outlet.

**On a side note, since the owners get a copy of these payment applications, they know the names of every subcontractor and product on their project. If years later you want to modify the gate latch on your fence, you could always go back to your paperwork and see the name of the person who originally performed the work – amazingly valuable information if you ask me.**

Last, but not least, I want to spend a minute talking about what I think is the single most valuable aspect of the Cost Plus contract – teamwork. The single largest issue I have the the competitively bid project is the adversarial environment that is created in which everyone is keeping an eye out for themselves to make sure they aren’t going to get screwed. In this instance where the competitive bid is bad, the Cost Plus contract is fantastic. The contractor knows that he is going to be compensated for the full extent of the work he is asked to perform – which I think it is fair to say that most people think that’s completely fair. Another benefit to the contractor is that since they know they aren’t going to get penalized for making a mistake during the bid process, they are far more likely to fix genuine mistakes when they happen without having to be caught and told to do so. Contractors have a bad reputation for cheating people and I’m not sure that it’s entirely deserved. Whenever you force someone into a corner, the only way they can get out is going over the top of the person that put them there. Mistakes happen and most contractors don’t have an issue with fixing their mistakes – it’s when an honest mistake is made and they are forced to suck it up and pay for it …. well, I just don’t think it’s a very collaborative position to take to make a person give you something without expecting to compensate them for the work. Cost Plus contracts expose all the costs so the owner pays for what they receive and the contractors are compensated for the work they provide. Since the architect isn’t having to play the heavy and go looking for the stuff the contractor is trying to get away with, architects are more likely to be open to what the contractor is saying, the financial bullsh*t filter is removed and everybody’s cards are on the table.

All that’s left is that the three interested parties have the same goal – to complete the project with everyone walking away thinking that they got what they wanted … and ideally what they expected.


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  • First time home builder

    When one purchases a lot from the contractor, would you expect that the lot be included in the “cost to build” figure when applying the 15% “plus” fee? For example: $1.8 million home and a $200K lot, so the contractor asks for a $300k contractor fee? Rather, I would think that 15% of the 1.8 million would be more fair and logical. Thanks for your reply.

    • J Bunda

      I am a builder and I prefer to estimate the resources needed for the project and how long the project will take to complete. I then propose a fixed fee that is commensurate with those two parameters. Using that method, it is not a percentage of anything. It is essentially a bid for the cost of my services.

  • Frustrated with contractor

    I have a question. Presently I am working with a GC and have a cost plus contract. Overhead is 5% and profit is 10%. I realize he calculates his 10% profit on top of 5%. For example:
    Total cost $10,000
    5% overhead 500
    10% profit 1,550
    My assumption was that the 10% profit was on the cost not including overhead percentage.
    Any advice would be greatly appreciated!

    • there really isn’t any advice to give here. I am assuming you have a contract and this should be spelled out within it. Overhead is a project cost so I’m not sure why you would have made the assumption that you did. Think of it this way – the contractor is selling you time and service to execute your project (those are actual job costs) and the profit is applied to project costs.

      This is fairly typical.

    • Doodlebugger

      10% of $10,500 is $1,050. Just saved you $500!

    • J Bunda

      It is whatever the contract states. It is not important to fixate on whether the profit is on “top of” the overhead or not. What is important is whether the total amount charged by the contractor is competitive and whether you deem the total amount a good value for the services received. Too often people get hung up on how something is calculated rather than whether the whole deal is a good one or not.

      It is the same when people ask how much a home costs per square foot and compare homes based entirely on square foot price. Cost per square foot is a guide; however, it doesn’t take into account quality, location, or unique characteristics of the home.

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  • Doodlebugger

    How do you know if the Contractor is getting rebates, frequent flier miles, kickbacks, or any benefit on the cost portion, especially from subcontractors?

    • you don’t but at a certain point, you are both making your own deals. The contractor has ongoing relationships with the subcontractors that he works with and from their perspective, you are a one time gig … who do you think they are going to look out for? That is part of the reason cost+ contracts have come in to favor, you should be seeing the invoices for the actual project expenses. If they are falsifying those invoices for the purpose of deceiving you and charging more than they should, that’s illegal and no amount of paperwork is going to keep someone who is inclined towards illegal business practices from doing something that they should be (e.g. you have other problems to be concerned with if that’s the case).

      But – would you really be concerned about the contractor getting frequent flyer miles?

  • Yumi

    I am having problem with builder right now, i need help
    We are paying him 20% overhead. He trying to cheat on materal and labor. Is this normal?
    We have no contract sign. We only have is purpose to bank. I have been asking final contract and spec. He has not giving to us. Excavations has done. We dont have anything. What is going into house, materal ex. No copy of blueprint we paid for. What whoud I do. Please help.

    • Sounds to me like you shouldn’t have started work since you have none of the things you should have received. I would terminate the work and part ways. You should not be working without a contract in place. Sounds like you don’t know what you are getting … how is it that this project started in the first place?

      • Yumi

        Well, He he was trying to estimateing excavation. He found out there maybe trash buried in. He was asking 10.000 for 4feet deeper. I told him we dont know until actually see it. Thats why he was started digging. There was clean dirt underneath concrete. Even clean dirt he said he might need to go to 2feet deep. He ask for 5,000. I asked person who dug how bad is. He was saying dirt is clean not necessary to dig any deeper. So told him if he still want to dig deeper, we are not going to pay for it. So now it has been 3 weeks sitting like that. Don’t know what to do. It is not just this one. We ask for drill well he listed on allowance for well now he want to uesd old well sitting there for years. Thats not a point. We want two wells. One is for landscaping purpose. He is saying he need to extra money in case we past the loan amount. Is this normal? What i mean is his price is very high. Materal,labor,ex
        I had shop around 2~3,000 different than his price. I thought his price will cheaper than mine because of he gets builder rate. Mine was retail price. Dont know what to do. Please give me any i mean any suggestion or a device.
        Thank you

  • Marv Gray

    We have a cost plus contract and we are being charged for tools required for the job. Is this normal????

  • Stumbled upon this randomly this morning, and have to say it’s the best explanation of the contract we use for everything. You’ve nailed the reasons why, 100%. The teamwork aspect is huge… Well said. Thanks!

    • Thanks Michael – glad it was helpful to you.

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  • Sunny

    We signed a contract with a price in it and now, just after excavation, the contractor is saying its going to be 5% more expensive with no changes in scope. What do I do 🙁

    • There are so many possible moving parts to this question that I can’t really give you a reason. Did the contractor ever tell you why the project is costing more? Did they bid the project as part of the process?

  • jweath

    Not sure if you have seen this or not but a few companies quoting my house have noted the following which is in the 3.5 mil range

    Cost plus with 12 percent contract fees

    Labor is marked up in charge out rates including WCB workers compensation ( independent of 12 percent Contract fees )

    Fees handled by contractor ( to be billed to us with no mark up include)

    Architect fees

    Engineering fees

    Interior design fees

    Home warranty insurance

    Office Admin fee


    All other items connected with building has 12 percent mark up

    They have allocated a jobsite hourly project Manager allong with the full company crew . Project Manager is allocated to be there maybe 20 hours a week , the project Manager will be more then likely the owner .

    So do these rates and allocations make sense ? , and is it normal for the owner to be charge out as a project Manager even though he has a 12 percent mark up ? , and should I be paying insurance or office fees ?

  • Niles

    Interesting post. I’m an architect doing mostly residential stuff and have to date always proceeded on a fixed price basis with contractors, with all the attendant shortcomings. Are you able to make any suggestions as to the type of contract or wording that can/should be used with a cost plus agreement? I’ve used A105 to date, always a large pill to swallow. Thx for any input.

    • Normally, the contractor starts with their contract and then the owners attorney reviews it and makes changes. When we are able to recommend a contract, we typically start with the A103-2007 (Owner Contractor Agreement – Cost plus Fee with no guaranteed maximum price)

  • Roger, while your citation above is indeed a differing
    opinion on this topic, it should be noted that Michael Stone is an advocate for
    the contractor. Michael is an author and consultant to contractors. He makes his living advising contractors on how to be profitable.

    And please don’t get me wrong. I am a supporter of Michael’s – I own both
    his books, read his blog regularly and have sat through his seminars. Michael does a huge service for his contractor followers, but I think it’s important to know where he sits – while citing where he stands.


  • awesome!

  • I am always willing to indulge another person’s opinion, the industry can use of all the transparency it can get.

    I should clarify that I generally don’t do straight up Cost+ contracts with people I don’t already know and have a relationship with. The Cost+ contract certainly has it’s advantages but if someone has ill intent, this is not a good way to go. For that matter, if anyone has ill intent, working with them will have its challenges.

  • Laura Arlati

    great post, I’m a new solo firm and I was looking for something like this in italian websites for weeks! thank you Bob!

  • LauraF

    I’m in the process of building my home on a Cost + and while I appreciate the ability to pick and choose where my money is spent, the stress of staying on budget is completely mine. My builder (who I also work for) is charging me Cost + % as well as a flat monthly “management fee” which I felt like (at the time) I didn’t have much of a choice on. So the longer my house takes the more they get paid. There are no intentional delays, let me be clear, but I feel like I’m in a position to negotiate this right now so that’s why I’m asking. What’s your opinion on Cost-plus (%) + flat monthly management fee? I thought it should be one or the other. I’m hoping to not open myself to criticism here because there are a LOT of details surrounding the construction of my home and my relationship with the builder that I am not discussing.

    • I don’t care for a cost+ and a management fee … that’s what the “plus” is for.

      • LauraF

        Thank you. He gave me a break on the “plus” part so maybe that’s why he insisted on the fee. If you have any advice on how I should approach this, I’d appreciate it.

  • Mindy

    With cost plus, I struggle to understand why a GC should make more money (increase his fee due to the percentage of total cost to build) based on my selections. Why should a GCs fee be dependent upon how expensive my appliances, fixtures, flooring etc is? For this reason, a hybrid model makes more sense to me – owner pays actual costs to build + a fixed fee to the GC. (As background, we are close to completing our construction documents and then plan to bid them out to determine if we can afford to build or not. From there we will select a builder, and then ideally negotiate a fixed fee to pay that builder, along with the actual hard costs of the project.)

    • Like all things, there is the napkin version of this question which doesn’t rely on particulars, and there is the very specific. Other than the fact that the contractor will probably get the appliances at a discount due to volume purchasing that you won’t receive, the contractor also has to receive the appliances, make sure they aren’t damaged, and that they don’t get damaged during construction, and they have to install them. Does it seem reasonable to you that they should do this for free? The argument that a cheap dishwasher should cost the same as an expensive on to install, isn’t always true but for this example, let’s say that it is. The liability and exposure to the contractor on the more expensive piece of equipment warrants the additional money paid to the contractor.

      On the other hand, you can always identify which items are owner provided and contractor installed, this way you allow the contractor to get paid for his risk of receiving and installing, and you keep the appliance cost internal. You’re still left with the question of whether or not the contractor discount + percentage markup is more or less money than you buying it yourself at retail cost.

      Hope this helped.

  • Matt

    Great Article Bob. I completely agree. Certainly some projects are suited for competitive bidding (typically smaller and less complicated projects). For high end residential construction, it’s much more common to see a cost plus format which encourages quality craftsmanship and adherence to plan details. There are certainly cost overrun risks for the homeowner, which is why using this contract with the right contractor is paramount–which also goes for competitive bid contracts!

    • Thanks Matt – a majority of my contracts have become cost plus – and not because I’ve pushed them that direction. We still put a bunch of controls in place, the contractors still prepare a budget bid the job and then we use that budget bid information in our application for payment continuation sheets. If we are working with a contractor that we have used before, I am fairly confident that this is the preferred contract type – both for the contractor to ensure quality for quantity AND for the owner who doesn’t mind paying for what they are getting but doesn’t want to feel like the contractor is trying to cut corners.

      • Mannie

        Hi Bob, great article! Im a GC in Ontario, Canada and I have been working exclusively on a cost plus-time and materials basis for the past 5 years. I work on residential custom designer high end renovation/ remodel projects. Very,very detailed work. Condo projects as well. I would never ever work on a fixed price contract for these types of jobs. On cost plus transparency is a wonderful thing. It’s win win for all involved. My clients love it!

  • Will B

    great, I suppose since the fee is stated when the contract is signed, the first payment made is for the fee? what happens if the contractor goes on vacation and the project just sits for a month….still pay? Cost contracts require a tremedous amount of oversight and that can be a problem if you are 1000 miles away from it.

    • pretty simple – no work = no pay. Why would the project sit for a month and you would pay the contractor?

      That makes no sense.

  • Joe

    There’s a reason competitive bid is the most widely used process to hiring building contractors, especially for commercial work.

    It’s the best (imperfect) way to get the most value for the owner’s dollar.

    Contractors don’t like it (and maybe architects don’t either), but they know it’s part of the business.

    • and there is a huge difference between residential work and commercial work from the owner’s side of things as well – par to f the reason we see more and more projects moving away from competitive bids on the residential side of things.

      • Joe

        Agreed. But in your professional opinion, across the residential construction (home building) industry, what would be your guess as to the most popular method from the Owner’s perspective? Cost+ (any variation) or stipulated sum?


        • I can’t speak across the profession, but in my particular experience, the cost+ contract is by far the most popular (both before, during and after). I think one of the reason’s why is that I am fortunate to work with incredible contractors and they all have stellar reputations. They do not do volume building and as a result, they would never risk screwing someone over for one payday since so much of their work flow is dependent on referrals and repeat work from people like myself. The Cost+ contract setup also seems to put everyone on the same side of the table – we all have the same objectives whereas the hard bid projects (by design) create an adversarial relationship from the very beginning.

          Cost+ contracts don’t the owner to open their wallet – if that’s the thinking, you might be missing one of the greatest advantages to this sort of contract. Since the contractor can be brought on board as early as the schematic design phase, they are an incredibly valuable tool in controlling costs. Since I don’t do production work, I am constantly pushing the envelop with new materials and construction techniques – a hard bid would add a learning curve or fear factor cost to the quote. Open books from the contractor normally puts the homeowner’s mind at ease because they are typically worried about paying a lot, they are worried about paying more than they should. Subtle, but a big difference between those two.

  • Joe

    We are owners and prefer design-BID-build with a stipulated sum AIA contract. We feel that design-build is too much akin to walking onto a dealership lot and telling the salesman how much you have to spend on a car. For us, fully designing and specing out the project up front with an architect then bidding out the job and going with the lowest AND BEST bidder (not necessarily the lowest) is the way to go. Our goal is no change orders – and if there are any change orders the AIA contract specifies they are to be a cost plus. The problem we see with cost plus is there is little incentive for contractor or architect to CONTROL costs. Doing your homework up front and making all your selections and finishes up front is hard. It’s also a pain. But it is something the owner will have to do anyway. Why not do it before you start the clock and while your wallet is CLOSED? Create a bid package that makes it clear to all potential bidders what the project should look like for an apples to apples comparison of bids, do your homework on the selected contractor, then pull the trigger. Contractors always want to know what you are wanting to spend on your project. That’s none of their business (before you get started) it’s THEIR job to tell YOU what they will charge YOU for the work. Perhaps we are just old fashioned. No method is 100% perfect, the owner must be able to sleep comfortably with their decision. Another dig on the cost-plus method is that I hear it is common for suppliers to hand a invoice to the builder with a “builder markup” already included wink wink.

    • I won’t disagree with anything that you’ve said here but there are some moving parts here that can’t be completely ignored.

      Few projects are at 100% when the project goes out to bid – more times than not the reasons are somehow related to outstanding owner related decisions. That’s not a crime and it certainly isn’t an indication of laziness, it’s just that few people realize just how many decisions need to be made when building a house. An additional consideration is that the design-bid-build model precludes that a contractor isn’t on board until you’ve already spent all the time (and professional service fees) to get a set to 100%. Selecting a contractor on qualifications early on in the process typically means that they can be a part of the financial decision making process and a large part of the fear you allude to (wallet closed) is alleviated. Also, in a competitive bid process, the contractor is under no obligation to show you the costs they are incurring – you are agreeing to pay a certain amount for something regardless of it’s actual cost. There is of course risk of losing the job if the contractor chooses to exceed actual costs by an exorbitant amount but a little here and a little there starts to add up.

      There are obvious benefits and negatives to either method and I think the sort of relationship between all the parties involved can justifiably swing the favor towards one method over another.

      • Joe

        Bob, I think my point is that as a lay person hiring a professional to build my house, I don’t care what my builder’s cost is. Just like I don’t care what it cost the manufacturer to build my car that I’m ordering from the factory. The number I care about is the one that the builder promised (legally and contractually) to sell me the deliverables for. If he is a good contractor, he should know how to estimate. If the builder does his job (and is reputable and reliable and has been in business for a while with good references, blah blah) he should also know how to operate as efficiently as possible. If he makes MORE money by somehow getting costs lower, that his own reward for being a sound businessman.

        The other thing I forgot to mention is that we are eliminating all allowances in our bid package. We have picked out everything (except the serial numbers on the appliances).

        • You should care what the builder’s costs are – and they can’t be legally or contractually bound to estimates (defeats the concept of an estimate). If you think that you are going to build a house – a project type that could be staffed by the lowest common denominator of the education system – without running into a change or error, an add or a deletion, good luck.

          Things happen and the success of most projects lies in how you deal with it, not in the position you have to force others. You shouldn’t be a surprise to discover that if someone makes an honest mistake on your project, and your attitude is to always win and force this person (who probably isn’t being paid very much in the grand scheme of things) to eat the cost, that they will find somewhere else to recoup that cost. You can’t watch every nail being set, or every plumbing connection that is being made. People miss things during the bid process and you shouldn’t expect to profit off someone else’s honest mistake. I don’t think they should get off without absorbing some of the error, but if you are benefiting at someone’s detriment, this will be a stressful experience for you. From your comments I think you have it all figured out – I hope you do. Good luck.

          • Joe

            Hi Bob,

            Thanks for your feedback and you have a very useful blog.

            We have no intention to bind the contractor to an estimate, but to a stipulated sum AIA contract, whereby the stipulated sum is determined by the contractor him/herself as a result of an honest competitive bid process. Our goal is always to have the winning bidder declare the price (to us) for which he is willing to deliver the Work. In our case, the winning bidder is usually not strictly the low bidder, but the bidder that comes in closest to, but less than, the average of all the bids (provided he otherwise “checks out”).

            We believe the “right price” is a fair number that Owner can barely tolerate AND the contractor can barely tolerate. The contractor will not offer that number if he doesn’t need to compete for the job.

            As I mentioned earlier, any omissions or mistakes left out are Owner’s responsibility to pay for IF the change adds value to the Owner. However per the AIA contract, they are to be billed on a reasonable cost plus reasonable profit by contractor.

            Nowhere did I mention (I don’t believe) that we look to take advantage of anyone’s mistakes in bidding. Where did you get this idea from? We simply look to take advantage of a tried and true process to rely on a group of contractors to compete for work and provide their best offers to perform said Work.

            It’s a process called “shopping” for best value. It happens every day in all industries. Why should this one be an exception, because it makes the Architect do more work?

            I understand this creates more work for Architect perhaps this is why you are biased in this regard. My bias is from the Owner’s perspective, for if it weren’t for the Owner, the project wouldn’t even exist.

            Sure the competitive bid approach requires everyone involved to monitor the contractor – but you better be monitoring your contractor anyway.

            Thank you for your feedback.

          • you didn’t say that you look to take advantage of someone’s mistakes per say – but this tends to happen on competitively bid projects when the documents aren’t 100% (which they never are). Now comes time for interpretation, how much of what was inferred should have been interpreted by the contractor as something that is commensurate with the rest of the project. They always have the opportunity to bill the omission with profit (which needs to be identified up front) but at what point can you reasonably draw the line as to what is or isn’t reasonable? I have never seen full blown 3-part specifications on a residential job (not to mention that most residential jobs have their MEP done design build) so at what level of oversight do you get to determine what is and isn’t covered by your contractor in a competitive bid?

            Neither system is without it challenges and I can poke holes in either one fairly easy. Since I do monitor the contractor – and I have a vested interest in maintaining my reputation in this community, nobody gets a free pass.

            I’m not biased one way or the other, but a larger percentage of the homeowners I have been working with – when given the choice – prefer receiving open books from the contractor, the ability to make decisions along the way as the house unfolds (as they get a better understanding spacially of what is happening), and not paying me to spend all the time it would require to get a residential set of drawings up to the point where they can be competitively bid. I would love to produce a full set of drawings AND have everything resolved prior to breaking ground … it’s just not a reality I am afforded.

          • J Bunda

            What you haven’t touched on is that there aren’t any free meals out there. If the architect spends more time specifying a project, then the owner pays for it, and because building a home is a complex process with unknowns it is difficult for a builder to identify all of the risks associated with a project, which is why, in a fixed price contract, the builder builds the cost of those risks into the proposed price, essentially billing the customer upfront for the unknown risk, whether or not those risks are ever realized.

            What you get with a competitive bidding process are builders that don’t have enough steady work to keep them busy, so they have to go out and compete with other builders without steady work, which means that you get inexperienced or low quality builders bidding on your project.

            Our firm doesn’t engage in competitive bid projects because we don’t need to and we refuse to. Our work comes from referrals from existing clients and from prospective clients that have seen our work and use our firm because we offer a superior product.

            Our clients understand quality and understand that value doesn’t mean the lowest price. If you think the builder with the lowest price that “checks out” is the best way to go, I can tell you that you believe that you are somehow getting the same quality for less, which is almost never the case by taking the lowest bidder. The lowest bidder is usually the loser because that builder is trying to give you something that no one else can, an equal product for less. That builder has to make it up somewhere, which usually means a sub par product for the Owner.

      • Joe

        Bob I would definitely agree with you that most projects aren’t at 100%. But that is often because the Owner is a little lazy and a little impatient to get all the details worked out before hand. It’s tough!

        This is why it’s important to take the long view. Every time the owner starts to think, well, we’ll let the contractor figure it out as he goes, because I want to get started now now now… the owner should remember he is making a mistake. You should not start a project worth hundreds of thousands of dollars without it being very well defined.

        If you opt not to the proper time and due diligence to define “what” the builder should be building you, you don’t really have a leg to stand on if there are communication problems or worse later.

        We all want things immediately but often fail to realize the costs of “quick”.

    • J Bunda

      Joe, your comment was a year ago, so I guess this reply maybe be a little untimely, but I agree with you that if a client can make all of their decisions up front, a competitive bidding process may be the way to go, if the customer isn’t concerned about having control and transparency over the process, and they happen to know exactly what they want upfront, which is typically what you get in a tract or spec home.

      I’m a design/build contractor, and I’ve found that if a client chooses a firm bid/fixed-price option, we must cover all of the potential risks (overages, material changes, hidden issues, etc.), up front, with their money in the price, whether or not we encounter those risks during the project. In a cost plus contract, the customer spends only the amount expended on their project and for some unexpected costs, if any, along the way. Additionally, most builders tend to be more apt to build in a higher margin in the fixed-price contract because the margin is hidden away in the total amount.

      I’ve had many cost-plus projects come in under the stated budget, which the difference would have gone to the builder’s bottom line if it would have been a fixed price contract. I’ve never had a fixed-price contract come in under budget for the client. Also, the primary consideration from the builder’s side in a fixed-price contract is cost, which may force the builder to make tough decisions that could affect the quality of the project because their primary consideration is the bottom line.

      In a cost-plus contract there is usually more discussion with the client to consider higher quality or more appropriate alternatives that may not be discussed with the client in the fixed price alternative, due to the fact that the builder’s duty is to install the preselected item.

      One of the first things that I discuss with a potential client is their budget. I’ve found that, at times, clients are unrealistic or unknowledgeable about the cost of building a home. It is always best to talk about cost first to ensure that time is not wasted on an unfeasible project or so that the client’s expectations can be reset to match reality.

      I’m not sure what you meant when you said “it is common for suppliers to hand a invoice to the builder with a “builder markup” already included wink wink.” If you mean that an invoice is purposely falsified to steal money from a client, then that would be fraud and would be illegal.” I suppose that fraud can and does happen in lots of industries, but I would not say it is common in homebuilding. I have never submitted a supplier or contractor invoice to a client that was different that what was actually charged and actually paid.

      I do agree with Bob about involving a builder early in the process so that they builder becomes part of the team. Doing so allows the builder to become, often times, an unpaid consultant throughout the planning process. It is also wise to have the builder familiar with the process from the earliest stages so that the builder and client know what to expect from each other, and so that the builder becomes intimate with the design and other parameters of the project. In a competitive bidding process, the builder and client don’t even know each other until the process begins.

      All in all, I think a customer should select a pricing method that they are most comfortable with.

  • Serafino Agnone

    I have been charged finance charges from a general contractor for a few months of 22.5% for past due debt owed on the contract. The original contract did not have finance changers. What resources may I find for legal info?

    • Joe

      The beauty of cost+. The builder sets the “cost” and Owner promises to pay it “plus”.

    • If it’s not in the contract, they can’t charge it (or rather, you don’t have to pay the finance charges). Pay what you owe and if they want to come after you for the finance charge, that’s on them.

  • Andrew

    Hi, I see one of the posts mentioned Cost + a Fixed Fee for the GC. I am assuming this is different than Cost + a percent…if so how is the Fixed Fee established? Do the home owner and GC agree on a costs estimate upfront and establish the Fee or is it done some other way? Or am I not reading this correct and Fixed Fee is just the percent charge on top of the actual costs?

    • It depends on the sort of contract used (AIA versus an individuals custom contract which is how a lot of contracts that come into our office are presented). At it’s lowest common denominator, cost + fixed fee and cost + percentage are the kind of the same thing (although the fee does not necessarily get derived by a percentage of the whole). You can further complicate (or simplify) these contracts be establishing percentages on items that fluctuate in cost and establish a fee for certain aspects. I’ll use drilling piers for a residential project as an example. You pay for piers by the depth and the amount of oversight and coordination isn’t dictated by the depth. It isn’t all that uncommon that a fee per foot is established for piers and separated out from the overall percentage portion of the contract.

  • Wonderer

    Question for you, on the cost plus method, is the builder’s percentage fee calculated on the materials cost and the labor cost, or just the labor cost?

  • NH

    Hi Bob (and all),
    I’ve received a contractor’s estimate that includes the 20% markup for overhead and profit, but additionally adds $65/hr billing for a project manager, for the duration of the project. By my calculations, this will add 15-20% on top of the total, and only if they stay on schedule. Is this normal, I’ve never heard of such an additional item? Everyone I’ve spoken with is surprised, as in our experience this project manager is included in the total construction cost. The client and I are nervous that this could really add up – any suggestions? Thanks!

    • I’ve seen it done the way you are describing – but mostly on commercial projects. If I had a residential contractor that wanted to mark up the work and charge a separate hourly rate for a project manager, I would at the very least make sure that it was not included in the scope of work that was marked up (then your $65 PM is actually costing you $78)

  • Gobers

    Hello Bob – that you for being a resource in this field! Building a new home is a daunting task …
    We just received our budget for a new home in Houston, TX – it is a cost plus 18% contract. I was surprised when I saw a $48K fee for “project management, warranty and draw administration” included in the budget. This seems like double dipping. While it is a builder’s market right now, this seems at the very least high.
    Also, is it reasonable to ask a builder to share builders risk and workers comp insurance?

    • it does seem like double dipping but it isn’t completely unheard of unfortunately. While you might not like it, it is a sign that you have an honest GC because some of the folks we have seen bids from simply bury that additional fee into the bids from the trades. Most of the contractors we work with don’t charge this separately but it is contained within the “plus percentage”. The moving part to this – and the part that can make your head explode with education – is that there are sorts of line items that either are, or are not, included in the bid that could make up a big part of the difference between those that charge a percentage and a fee and those who do not. Things like:
      Site Facilities
      Fuel and Vehicle expenses

      It’s not as easy to simply look at the two parts and make a judgement, you have to pull some things apart to make sure you can do an accurate comparison.

      Best of luck on the new home

  • liaqat hayat

    What about scaffolding put up by the main contractor specially for the sub-contractor’s additional work. Is this assumed to be included in General Attendance fee charged or it can be requested to be reimbursed separately?

  • Gk

    I assume that the Builders Risk policy would also be classified as a cost and therefore there would be a markup for it. Is that also true for the General Liability Insurance? My insurance carrier does not provide an invoice for each project but only an estimate at the front end of the year and an audit of actual expenses at the end of the year for the “real” cost.
    If the project is a good drive away, is the mileage or fuel to get there reimbursed somehow or is it absorbed in the markup?

    • the answers to those questions can be either yes or no – there aren’t any rules here, just what the contractor chooses to charge (or at least disclose) and what you are willing to pay. Normally Insurance and BR are costs carried or charged to the owner per project. Gas and mileage are job specific … but it’s not like the contractor didn’t know where the project was when they were bidding.

  • NES

    Bob, this may be a silly question but with regards to what the cost plus percentage is calculated from… what does it exclude? Would appliance purchases be included? What about things like security system installation? What would you include for the percentage to be calculated off of vs. what would you exclude? Thanks so much.

    • not a silly question at all –

      Anything that the contractor has to carry in his expenses, receive on site, oversee installation, provide protection of, etc. those would fall into the contractors scope. You could pay for the appliances yourself but it wouldn’t be fair to the contractor to pass on responsibility of any sort to the contractor without compensating them for any of the responsibilities I listed above.

      Hopefully that makes sense.

  • Tim Hoeft

    I’m an architect in FL finishing up DD drawings for my own home and this has been a great resource for me – THANKS!
    Could you comment on the related AIA contracts most similar to this approach (A102, A107, A133) or share an example contract for reference? Any help is much appreciated, so much thanks in advance!

    • I’m not a lawyer so take this all as casual information shared –

      A102 – standard agreement between owner and contractor which is basically a cost plus contract but there is a guaranteed maximum price.

      A107 – basically a cost plus contract (make sure you also use A107 Exhibit A)

      A133 – basically it’s the A102 but using a construction manager (owner’s rep) as the contractor

      If I was to use an AIA contract for my projects, I would use the A107.

      As far as posting an example of my contract, I don’t really feel comfortable doing that, not to mention I had to pay an attorney to wordsmith it for me.


  • Jean-Pierre Louis

    Bob, is the 15% fee you see a markup fee or a margin fee? We’ve been looking at contractors and have been running across 15% margin fees. As always your site is a great resource.

    • markup fee


      • Jean-Pierre Louis

        15% mark up doesn’t seem as common here in Austin. Thanks again.

        • maybe it’s the contractors you are working with – we have a $2M project going in Austin right now and all the contractors (5) we interviewed had a 15-18% markup

          • Jean-Pierre Louis

            17-18% I’ve seen, our project is maybe a quarter of yours. Still need to talk to a few contractors. As the homeowner I have to say pricing has been my least favorite part of the home building process.

          • give it time … sometime it gets worse 😉

  • yetanotherjohn

    I’m not sure the cost plus model really makes sense from the home owners standpoint.

    Let’s consider the narrative. The nice couple in their 70’s who are building the home decide that they want LED vs CFL light bulbs. You can’t think of a nice way of asking them if a 25 year payback period is the right time frame for them to consider and like their grand kids, so put the LED bulbs into the spec/design. Let’s assume that a $0.45 mark up is appropriate for the contractor to source the CFL bulb, get it there on time, etc. Just what part of the “mo betta” contractors expertise, time, etc. justifies the contractor getting paid $4.50 instead of $0.45 to source the LED bulbs vs the CFL? And if the contractor screws up, forgets to order the LED bulbs over the internet and has to buy them locally at a $3.00 premium, not only does the home owners get stuck with the higher cost, the contractor gets an extra bonus of $0.45 a bulb for screwing up. You get what you reward for, so why is this a better deal for the homeowner?

    Now the contractor’s assistant (wife’s nephew named Dufus) decides to show off his mad juggling skills with the bulbs and drops one. Not only does the homeowner get to bear the cost of buying another bulb, but the contractor gets another bonus. Here Dufus try juggling some more.

    Homeowners do a walk through during the building process and notice that some of the quarter round trim isn’t following the floor, but making an independent sine wave. Homeowner points this out to contractor who promises to make sure it gets fixed. The fact that the contractor didn’t catch it while the trim carpenter was there doesn’t speak well for the contractor, but let’s give him some grace. But that grace comes at the expense of the homeowner. Who pays for the new trim (since the original trim broke when being taken off), the painter to come out and do touch up, etc? Who get’s a bonus for not doing their job right the first time?

    Imagine that you notice that not all the plumbing is in the right place after the slab is poured. You as architect might make a note to never start a build on March 18th with O’Reilly construction again, but the homeowner gets to pick up the tab to fix the problem and O’Reilly gets a bit of the hair of the dog bonus to cheer him after his screw up.

    If the contractor screws up and is 10 boards short, who pays the extra $50 + 15% delivery fee? If the contractor and plumber spend an hour Monday morning re-hashing the big game from the weekend, who pays and who gets an extra little bonus for talking about sports? Just a hint, it isn’t the homeowner who benefits.

    I think you get the point now. It’s hard enough to justify the increased contractor earnings based on the quality of the materials, but even harder to justify rewarding bad behavior. I suspect a lot of what you discussed about architects getting paid by the hour for their work could apply to the contractor getting paid cost plus.

    So what is the solution? I’m not sure. I agree that the competitive bidding option has flaws. It encourages the contractor to low ball the bid to get the job and then make it up with change orders and cutting corners. But the homeowner is the one least able to control costs, so why put all the risk on them?

    Perhaps we should be paying the contractor a fee for budget estimating through the process. I understand that the architect’s skills in developing estimations may be lacking. It’s similar to the reason you hire the structural engineer or a landscape designer in addition to the architect, you pay for skills that the architect could do just not as well (or in the case of the structural engineer is required by the insurance company). A $1000 up front fee or whatever wouldn’t fully compensate the contractor for his time, but when it came time to bid he would have a leg up as he would already know the project, have had a chance to steer the project towards his strengths and even if he doesn’t win the bid he gets a little something for his work. This up front fee should buy a lot of the advantage of the cost plus model.

    A fixed price model puts the risk on the person best able to control the risk, but the homeowner pays for the risk indirectly anyway, can still get nickel and dimed to death with change orders and at the end of the day may just have bought a lawsuit if the contractor doesn’t deliver.

    A competitively bid of cost plus fee may make more sense. The contractor who just bids a straight percentage would be at a disadvantage to the contractor who recognizes the difference in his role between CFL and LED light bulbs. The contractor doesn’t get a bonus with each screw up.

    A upfront consulting fee during design followed by a competitively bid cost plus fee with a penalty/bonus schedule for missing/hitting/beating the cost/time estimates may be the best model. You get the benefit of the up front cost estimate, the contractor gets some compensation for his iterative estimations, the inside track for the competitive bidding and has some skin in the game for hitting the cost estimate. The risk on cost is going to still be with the homeowner, but then it always will be anyway. The risk at least partly spread to the person most able to control the risk through the penalty/bonus. The fee bid can reflect the actual work rather than see inflation based on the cost of the materials when the work for laying the tile would be essentially the same no matter the cost per tile. Change orders have the advantage of the cost plus though if there are enough of them the contractor could lose out in his fee. Perhaps the bidding process could specify a number of change orders and an increase fee when you go beyond that number. A discussion on what role the architect played in the change order would be a separate discussion.

    Bottom line is besides making the architects life easier, I can’t see how the cost plus model is in the best interests of the home owner.

    • Han

      John is spot on. Bob is ignoring all the risk and costs passed on to the Owner. Totally written from the perspective of the Architect (whom is not always in the best interest of the Owner)

      • dan

        I see where John is coming from, but he’s painted a pretty poor picture of a contractor and these people have to be weeded out by the Arch. Some other things to consider: If someone is building their dream home then they might want to change things part way through the process. Bob mentioned the price of change orders in a contract and they aren’t cheap. One uncharged change order can make up for a lot of dropped light bulbs, but the difference is both parties are still happy and working together. Another big one is that mistakes and accidents still happen on fixed price contracts. The contractor has to fit a certain amount of that into his/her bid. If the job goes perfect then it’s all profit. If not, then they’re paying for more light bulbs. Bottom line is that the home owner is likely still paying for some in-discrepancies like John describes, even in a fixed price contract.

      • Doug

        I see it this way, typically.
        Most home owners are skeptical of builders and contractors in the beginning. So the cost plus contract is a way they are assured of getting transparency. With that transparency, a larger share or burden of the risk can fall on their shoulders. If the contractor is willing to provide a fixed price based on a clear scope, he should be relatively competitive with the other bids he is up against. He is, however, sharing the burden of the risk related to his margins in the fee contract. So who wants the risk, the home owner or the contractor? That is the question to weigh. Bob is completely correct, if you can eliminate the adversarial environment on a job and use your best judgment related to the personalities involved, you can have successful results with everyone being happy. Lets just use Bob’s assumption that we are dealing with reputable and competent contractors. If you assume or believe anything other than this, why are you dealing with that contractor in the first place?
        It is obvious, home owners are taking a large risk by hiring any contractor, since it is ultimately their money at stake. Aligned with their desired vision and pocket book, the home owner would be wise to vet their contractors extensively. The best way to vet contractors would be to use a well respected architect, who uses or refers a competent engineer and has the ability to completely specify the scope of the job. Of course, there can always be change orders involved because this is a largely complex undertaking and people should have the ability to change their minds in the process. That is not a risk but a reality. The home owner should get a good deal but the team should be compensated for fairly in return when these situations arise.
        Please don’t forget, the contractor is also taking a substantial risk in return. It is my opinion that most home owners neglect to take the G.C.’s risk into account at all and focus on getting the best price, without regard to the finished product. A reputable G.C. has ideally used a number of trades and hand selected the good ones along the way (these do cost a little more). This gentlemen is guaranteeing his work for at least a year and probably longer if he is planning on referrals. He is also hopefully carrying accounts with multiple vendors and trades. If there is a disagreement with clients, who is on the hook? If draws are slow, who is on the hook? If there is a misunderstanding related to scope, who is on the hook? Hopefully he is insured, has a phone and computer, drives a vehicle, feeds his family, and that list can go on and on. I am a G.C. and I have had Great jobs, good jobs and unfortunately had one or two not go so well. I say this with self reflection, trying to realize my short comings in an effort to never make the same mistake twice. While trying to grow my business by referrals and long term relationships with my clients and vendors alike.
        I like to believe that I have the ability to provide an excellent product, and that is what my clients pay a slight premium for. I personally shoot for a 25% margin on jobs that have a lot of vagueness or lack of scope involved, this way I can hopefully clear between 15 and 20% when all is said and done. I am also very upfront with the desire to attain an overall 20% margin. If the job is specified well I can typically shoot for that 20% upfront and not burden my clients with excessive change orders or request more money than contracted. I also have no problem providing my clients with transparency once this has been disclosed. Cost + contracts are fairly heavily litigated since, they typically involve a lack of scope and there is a lot of ambiguity in that scenario. I will use the example of appliances as case point number one. It is very common for everyone to think they can get the best deal out there, whether it be online or at the Sears outlet. It is also invariably assumed that scheduling is an easy task and if I buy my appliances at the beginning of a job, the contractor is going to be able to hit the delivery and installation date without losing a step six months down the road. Lets take all the potential for delays with weather, selections and designing or even change orders out of the equation. They don’t want to get taken advantage of by paying the contractor a markup on some random item we can get at home depot!!!!! Ok, with that part of the explanation out of the way, lets ask the following questions. Who installs the appliance? who is responsible for scheduling delivery? who is on the bill? I personally use a distributer who gives me a better price than most, and yes I make a small margin on the appliance…. I schedule with my distributor who subs a highly skilled sub to install the appliances, not some rag tag electrician who scratches your $10K Viking range and vent hood with his tool belt. I also take the specs for these items and make sure the ventilation is the right size and ready for the time of install. I also make sure the electrical outlets are placed and sized correctly so we don’t destroy $20K worth of cabinetry. I also have access to my distributors sales rep who helps me adjust schedules on a daily basis if need be, without spending 2 hours on hold with no real results with Sears direct. I know this sounds like a rant, but once you have vetted your contractor you need to trust that he has your job under control and that schedules are subject to many variables.
        I do not want to sound flippant by this next statement, but most people do not initially realize the amount of time or money it takes to get a first class renovation or build completed. There is usually a very large sticker shock associated with any large scale build and invariably home owners want to assure themselves that they are A.) not being taken to the cleaners and B.) going to have their living room, kitchen or bath turn out like the front page of the Southern Living showcase being used as a reference. I personally try to empathize with clients in relation to their pocket books, because lets face it, anything over $500.00 hurts coming out of my wallet. When estimates get into the hundreds of thousands, people get their emotions involved very quickly.
        Best advice, hire a first class architect and ideally a designer to completely spec out any job. Both parties can hopefully refer you to a short list of viable contractors. Then vet these contractors according to their references and job history. Most of the time you will see their work being displayed in the architects and designers offices. Also, don’t be afraid to use your gut feelings related to how you are going to work with this person. I can assure you that most contractors have been either burnt or somewhat abused over the years. So don’t be afraid to ask questions and keep a fair outlook on the process. You are paying for someone’s expertise, advice and ultimately finished product that rivals the Southern Living Showcase. So choose someone you trust, don’t go with the cheapest bid if you want the show case (typically) and let the professionals run the job. Hopefully they will have enough respect to communicate well with you and advise you of pit falls along the way.
        Just my two cents.

    • Justin Zeller RI

      Sounds like a terrible contractor, and it sounds like the selection process was poorly executed. Vetting your possible contractors should take many other things into account than just dollar figures.

      Consider the contractor who’s made all those mistakes on a fixed price contract. Now, because he was made to fix everything that was visible and was “caught”, he is closing in on bankruptcy and can’t make payroll unless he roofs the house for a payment before the fascia and rake trim are on–and that isn’t his only work around. He also sides part of the house with no house wrap installed first. True story, I’ve consulted on a short sale rehab in MA, on a $1M home, where the new owner had to re-roof and re-side a new house. In a case like this, it was definitely the homeowners who took the risk and lost.

      When it comes to building and remodeling contracts, every relationship is different, and no one solution is going to work for everyone. Whether the homeowner decides their best fit is a cost plus or a fixed-price contract, the most important step in remodeling or building is the selection process of the builder. Homeowners should walk-thru a builder’s current project. Talk to past clients. Read the builder’s posts and websites and reviews.

    • I should put the descriptor on my point of view in that I don’t work with bad contractors and that solves a lot of the problems that occur on residential job sites. I would also go so far to say that on the higher cost than average projects that I get to typically work on, that homeowners and their impression of how the project went is extremely important – the contractors are reliant on having a happy client at the end of the project because there is a small community of contractors that work on these expensive projects.

      All that having been said, I can paint a picture that can make any contract look terrible. The construction documentation process doesn’t change on my side of things based on the final contract type so my life isn’t appreciatively changed one way or the other.

      The problem with competitively bid cost plus jobs is that a contractor may get the project because they are the low bid but when the pay applications come in, line items from the bid don’t align with the pay application – all the contractor has to say is that “the cost changed”. Many of the projects I work on take 2 years to complete and few people will honor a bid more than 3 months old.

      Also, your analogy of the concrete mistake with the owner shouldering the burden is ludicrous – under what contract would the owner be required to absorb contractors errors, oversights, damages, and overruns? We don’t pass screw-ups on to the owner and if the person reviewing the applications for payment isn’t on top of things, that’s not a problem with the contract, that a problem with the oversight.

      I don’t expect the owner to pay for mistakes, but I also don’t expect the owners to get something for free because someone made a mistake. The cost plus model works when the adversarial relationship that typically exists is removed.

  • Ryan

    Hi Bob, How is construction Manager CCDC5B different from Cost Plus ? now that 5B is used by most contractors, is cost plus CCDC 3 still viable procurement method?



    Construction Management student

    • Those are Canadian contracts if I’m not mistaken – and I have no familiarity with them.


    • Steve

      Hey Bob I am a contractor form Canada an I love the dialogue posted. I have been doing cost plus for the past 7 years it is the only way I will work. Your arguments are absolutely sound. Customers can see every penny that is being spent and it is very easy to see how reasonable our charges are. We charge a set labour and management hourly rate with which we are very competitive and a 10% mark-up on all sub-trades and material. With these rates we can focus and deliver our highest quality work with total flexibility for the customer to make changes and selections on every aspect of the job.

  • Pingback: Renovation Education: The Benefits of the Cost Plus Fee Contract | Renovating NYC()

  • athlondi

    Hi Bob,

    I was wondering if anyone uses a Cost+ model that includes an element of risk sharing? It is common enough in defence contracts, whereby cost overruns are split between the contractors and the client. It allows you to avoid the issues with a competitive bid process, but also provides greater motivation to contractors to come up with solutions to unexpected issues and to control costs as well as they can.

    I am slightly perturbed by the idea that a better contractor makes more money on a % contract because he uses more expensive subcontractors – where on earth is his motivation to avoid expensive but not *better* subcontractors? Its the client’s money after all! I agree, reputation does have an input, but it is a very murky feedback system between not controlling costs 100% and losing business in the long-run. Surely “better” should include “controls cost well” on top of “produces quality results”?

    • Doug

      You need to have some confidence your contractor knows when and how to choose the expensive trade v. the cheapest one out there. Honestly, it is evident very quickly when people are merely trying to get more money out of you. Hopefully your contractor knows where to go to get the right trade. I personally deal with people who make my job the easiest and help me expedite the process, by showing up on time and getting the job done correctly the first time without destroying other subs work. It makes absolutely no sense for me to try and bleed a few percent more out of you at the price of spending weeks and months trying to get finished and then trying to appease you of poorly performed work in the process. I quickly lose that extra margin if I am reputable and come back to service complaints etc.

  • Norman Lewis

    Bob … The boys ’round here want money for 10 more outlets, unless the contract stipulates that the fixed fee percentage applies only to the total original amount. Or, if the fee is a fixed dollar amount charged one time. Otherwise, T&M sheets approved by the arch/owner rep may be the best way to go.

    • I should clarify – everyone is getting paid, it’s just that the actual cost (after the fact) might end up being less than the estimate (before the fact) once the bills and invoices are submitted

  • T. Dustin Hauck

    Hi Bob. Love your blog. You do a great job at explaining many of the components of our profession in terms that are easy to understand. These are topics that are not discussed often enough. You should consider your own Handbook of Professional Practice that touches on the issues left out of AIA’s version. It could be a resource to architects, contractors, and clients.

    We also prefer the Cost+ method and agree with most of your comments. One issue we run into is compensation to the contractor for budget assistance early on in the design process. The contractor puts in a lot of time reviewing designs, attending meetings, generating/revising budgets, etc. How do you deal with compensation for this early phase to the contractor? This is a valuable service that can be difficult for a client to grasp compensating for. Many times, the client looks to the architect as a cost estimating resource, when that is not usually the architect’s defined position, and clearly outlined as such in the contract. Winning the project is not compensation enough for most good contractors. Those good contractors have better things to do with their time, such as getting paid for it. And, this early work is above and beyond their typical proposal for the project. How should the contractor be compensated for this additional time? There is a fine line to be walked when asking preferred contractor ‘A’ to assist on a project budget only to find out later that the client awarded the project to another contractor ‘B’, especially when the architect also relies on contractor ‘A’ for referrals. It is not a comfortable scenario, but does happen. Clients don’t always listen to their architect’s recommendations. I am sure the contractor would rather we building a project than preparing budgets and not building.

    Keep up the good work!

    • Thanks Dustin,

      The short of it is that we never pay the contractors for the time they spent on the front end working through estimations early on in the process. Not that they shouldn’t get paid mind you, we just don’t see it happening in our area of the world. As such, we (the architect) are mindful of the time and tasks we ask the contractor to take one and the number of times the contractor has been burned has been very few. I recently had a project where the contractor spent probably 100 hours working through designs, reviewing structural foundation systems, meeting with the client, preparing budget estimates … only to have the project die. It breaks my heart on many levels but I do feel empathy towards the contractor. When I told him how sorry I was, his attitude was terrific and I realized that this is partly why I love working with this particular builder. Does it translate to more opportunities for them? Absolutely! And I am happy to explain why to anybody who would ask.

      • Mark

        In the commercial world, when the GC is brought on early at schematic or DD phase, they are generally paid for their “preconstruction services” which includes estimates, drawing reviews, constructability reviews, etc. The drawing development cycle for a commercial project is much longer and on such contracts, often times 1000’s of hours are spent by the GC to review the drawings for construcability, completeness and to provide estimates. It would not be equitable to the GC to have him provide these services without compensation.

        • absolutely right

          • Rob

            Just ran across your blog. Informative and thought provoking – hopefully your clients take the time to read it as well.
            Great post, the contractual issues discussed in this post and your last seem to be forever ongoing in the construction industry. As a small GC who does both custom residential and light commercial work, the issue of preconstruction cost planning reimbursement is in fact on ongoing issue for us. As discussed above, for whatever reason the expectation is that it is acceptable for a GC to be compensated for one’s time & effort for this work in the commercial arena – but not for residential projects – continues to baffle me. Just curious how you square the the one vs. the other?

          • To be honest, we don’t pay commercial or residential contractors for their time in providing bidding – but we don’t waste their time either. Most of our contracts are set up so that the contractor is selected based on qualifications, not lowest price so the amount of work we ask a group of contractors to take on is to become familiar with the project prior to the interview process. If they make it past the personality round, the project is theirs and pricing is part of their overall compensation package.

          • Rob

            Question for you Bob. With one of the primary aspects of fixed price vs. cost+ contracts being the assumed “risk” factor and who carries that burden (owner vs. GC), the understanding is that a GC will usually plug-in a reduced profit margin on a cost+ contract vs. a higher one under fixed price.
            So with all other factors being equal – job complexity, size, travel time to jobsite, etc. – what do you see as an equitable difference in a GC’s profit (only) markup – or margin – for the jobs you are involved in? In a steady market, I usually shoot for a 10% profit markup (not including overhead) on fixed price contracts and a 7-8% profit markup for cost+. This % difference along with a 2-3% contingency line item give sthe Owner the potential to save as much as 5% on the toal cost of a job under cost+. I’ve heard other architects & GCs speak of 5% profit markups but that seems too low and a likely way to run ones self out of business in the long run. Curious as to what the ‘norm’ might be in your neck of the woods.

      • Maciej

        Exactly, this boils down to a problem of time source limitations, for every company size. I worked in both small and mid-size companies, and they both went down just because of that. The questions always remains the same: how much time can be wasted (spent without getting paid) before throwing own financial structure out of balance? Financial structure is very, very wide subject, and its understanding, its dynamics depend on so many, sometimes unrelated details at first sight… But narrowing it down, for example, for small contractor this translates into: how much longer for I will bleed till I secure enough money to pay my bills? Some work day and night, more or less fortunate perhaps work less. All depends on market conditions, skills, health and position in own life. It doesn’t matter if you are the best carpenter in the area if there is no market for carpentry services? Or you may be simply outbid-ed by Chuck with truck who has no costs related to insurance, licence, etc. because he simply cannot afford it, still selling his services to clueless customers. Then you hear stories that some poor kid died because he couldn’t escape fire from just finished basement, because it didn’t have egress window. You can bring this logic to your customers and some will follow some will not. They have different priorities, in ideal situation you just structure and organize for one breed, but that’s often not real. Or simply you may get slow and take on any job, underestimating perhaps, then fighting for the money. If you are a bigger company, you have similar problem just different magnitude. You may spent week on estimating job but you also remember that you have to keep your subs busy before they leave you. So you may switch to smaller projects, less extensive in estimating phase, but this on other hand requires different business paradigm, market and sets of skills. I mean, remodeling, or construction business in general is so complex and differential, with so many different problems and solutions, that each situation is quite unique. I did personally run projects base on both types of agreements: fix price and cost plus fee, and many of them financially succeeded and some failed. Sometimes it is caused by misinterpretation of the contract documents, even though it’s clear who is responsible for what. IMHO the message is: there is no one, same cure for every business. Both type of agreements have benefits and risks, it’s just up to you which way you feel more comfortable with.

  • John Yurko

    Hey Bob,
    Great blog, great post.
    I agree on the Cost + model, and prefer it with one slight mod, that most GC’s in my area agree is a good middle ground: Cost + Fixed Fee. The perception is there, right or wrong, that a Cost + percentage could cause the GC to not work as hard as possible to control costs. If you negotiate a contract where the GC gets a fixed fee (based on a standard percentage, say 15%), then he knows he’s getting his money even if the project comes in under his estimate.
    Cost + works well if the contractor is a known, trustworthy, well-referenced outfit, and if the client has some risk-tolerance. It has the potential to deliver the project at the lowest possible total cost. It allows for a limited set of drawings, too, if the owner is open to the architect and/or builder doing on-site design & problem solving. Most GC’s self perform only about 20% of a job anyway, the other 80% is bid out competitively to the subcontractor community. And I can’t agree more with benefits of the team framework.
    Stip-sum contracts still have their place, especially if the client is the type that wants a fully detailed set of drawings, and has little or no risk tolerance.
    Your commenters were right on about the ‘transparency’ issue and about spelling out in the Cost + contract what exactly are costs to the job, even with gray-areas such as cellphone minutes and admin. overhead. And I ALWAYS stipulate that all receipts submitted as ‘costs’ include a jobsite address. If it doesn’t, don’t bother submitting. You don’t want the GC ordering 6 loads of concrete, one of which gets delivered to his in-laws for a new sidewalk. This type of thing rarely happens any more with reputable GC’s, but it’s at least a way to establish from the beginning that paperwork must be in order.
    Also, it’s a good idea to require lien releases from all subs and GC as a condition of payment thru the job. This has saved me and the owner many times.

    • Mark

      stipulated sum contracts are great for many retail projects such as Wal-Mart or Home Depots, where the construction is formulaic and the owner has built many of the same/similar projects before so the drawings have are generally 100% complete.

      Outside of this, cost plus contracts are generally the way to go. Cost + Fixed fee is a great model as well as it encourages the GC to do everything right the first time. However, this model can also work against the GC if the owner adds a considerable amount of new work (i.e. adds a new floor to the building) to the original contract.

  • Paul Hamtil

    Great posts on the two types of bidding processes! I could not agree more that a cost plus scenario promotes a higher level of collaboration and teamwork from the inception of the project. Generally, this promotes greater success in the execution of the project, and a better opportunity to keep to the budget. I like the idea of the final budget proposal being relatively “firm” on cost, as the risk I see from cost + is that if you do not have a manager, such as you described your role, the cost could exceed the expectations of the client and begin to cause resentment and hardship. Setting a good, clear budget course at the beginning is critical.

    From my perspective as a contractor, another drawback to competitive bidding is that not all architects are created equal either. Your process of vetting, project builder selection, collaboration with, and supervision of contractors is not practiced by all architects. Some have no real process at all but drawing plans. This scenario might be:

    A client approaches an architect about a project, a budget may or may not be discussed, construction plans are drawn, and then the client begins to solicit bids. When the bids start to come back high, the client is forced to then revise the plans they may have already paid for producing/ duplicating, abandon the project, or keep soliciting bids until they find the price they are looking for. A bad situation for every party involved, and a case for early collaboration.

    Final comment to the subject of markup. As some may believe, there is no standard markup in the construction industry. Markup can vary, and should, based on factors such as sales volume, overhead, profit, and what type of markup a contractor is using. I would never allow anyone to dictate what I can charge for a project, for what we must charge to run a sustainable business and what the public thinks we should be allowed to charge do not always align.

    • Great points Paul, I appreciate you adding your perspective to this conversation. We do see different markups from different contractors, the ironic part is that the difference isn’t normally between the skill level of to different contractors, but rather the project types they work on – renovation/ remodel projects typically see a higher percentage markup than new construction.


      • Mark

        Makes sense that contractors charge a higher fee for remodel/renovations. They are riskier and often times smaller in project value but still require a similar amount of management hours to run the project.

  • Hey Bob, (take that the Southern way)

    You forgot to explain the “plus”! How much is that again? 🙂


    • FYI – I would always take “Hey Bob” in the Southern way.

      Overhead – as I’m sure you are aware, is a slippery thing and depending on how the contractor presents his information , you might not actually know a) what your paying overhead on or not, and b) how much actual overhead you’re paying. Most of the contracts I see, the GC’s have a percentage markup for overhead AND profit lumped into a single percentage number and once all the receipts are added up, that “multiplier” get added. The one moving part on this process is whether or not the GC has broken out a superintendent fee mixed in as a line item cost (expense). If so, I generally position myself so that any direct expenses from the GC and south of the tally line so the owner isn’t paying overhead on the superintendent fee.

      • Francisco Garcia

        You’re a great resource Bob. Thank you for your posts. As an Architect and Contractor, this is how we break down direct costs versus overhead and profit in the construction phase of our projects:
        Direct Costs:
        Payroll (including worker’s comp & employer taxes for field workers and for administrative/accounting/recordkeeper)
        Disposable tools (like skilsaw blades)
        Subcontract Labor
        Permits & Inspections (building/parking/special inspections)
        Permit revisions
        Water & worker safety
        Disposal fees
        Parking permits
        Cell phone usage that is job-related
        Liability Insurance
        Office rent & utilities
        Tool repair & maintenance
        Vehicle Maintenance, Insurance, & Registration
        Business Licenses
        Office supplies
        Software (quickbooks, excel)
        When it comes to Architecture operations, the list is different.

      • Crumpets

        Great article. Just little confused about this one. The superintendent is billed to the client hourly but not part of the contractors overhead and profit fee?
        Also, does the contractor still put tasks out to tender for competitive pricing under cost plus?

  • Mark Mc Swain

    Getting that interaction between the parties can be vital for bridging that imporatn gap between SD and CD.
    This, because, it’s possible to set into motion explicit design intent in SD, that winds up being an issue in CD–or, worse yet construction. This is particularly true if a detail was selected to express the design in an economical way; but the material selected dose not behave in all the ways the design is expressed. These can be serious “gotchas” as well as minor ones.

  • Serge

    Hi Bob,

    From my perspective of someone who will be building a modern home in Colombia, the “pure” Cost Plus model advocated in this article has some downsides:

    1) Our architect is located in another city and cannot select a contractor where our house will be built. There is an assumption in your Cost Plus method that you (the architect) pre-selected a contractor to work closely with him, presumably based on past (good) results. This is not always possible. We need to find and evaluate contractors. That due diligence process is best realized once we know the main characteristics of the house. For example, most Colombian houses are built with bricks and contractors usually do not work with subs specialized in steel work. Selecting early in the design process a contractor with a sterling reputation in building brick homes would have been a waste of time.

    2) In my experience, in boom periods (certainly the case where we live, not precisely true for the US from what I read), contractors are busy and thus not willing to spend time helping with design matters, unless they are guaranteed the job afterwards. We tried to involve a contractor early on in the project but couldn’t guarantee he would get the contract. He promised a lot of advice and delivered few. This is fair enough, especially since many projects are abandoned during the design phase.

    3) Contractors have their preferred subs that they work with, which could be anywhere on a price/quality chart. During a first contact with a contractor, it’s hard to determine whether we’re dealing with someone who devotes time and attention to select high quality subs that are reasonably priced, or goes for the best subs in the business, be damned whether they charge a premium. We want to select a contractor that fits the profile of our project (i.e. quality with no extra bells and whistles).

    Based on the above, we’re implementing a hybrid contractor selection model:

    a) We’re pre-selecting 3 or 4 contractors and have showed them the information available about our project, to make sure they are interested. We have reviewed their portfolio of projects to validate that the construction techniques they used match what we have in our design.

    b) Our architect is preparing a detailed set of plans including an estimated bill of materials. We have spent over a year in the design and are trying to make sure it is as thorough and complete as possible.

    c) Once the design is complete, we’ll share it with the pre-selected contractors and will ask them to show us some completed and under construction projects. That will be their and our opportunity to see whether we want to work together. We’ll also interview existing clients.

    d) Following that due diligence, we’ll ask each contractor to submit a standardized bid for our project, letting them know in advance that the contract model will be Cost Plus (what in Spanish is called “administracion delegada”). What we want to know is whether we’re dealing with a contractor who knows his job or not. For example, we already have a good idea what our green roof will cost, and any contractor bidding a much higher / lower price would raise a red flag.

    e) We’ll review the bids and make our choice.

    f) The construction process will kick off, on a Cost Plus model, with the winning contractor. He’ll manage his subs and submit requests for funds as well as present receipts for expenses in complete transparency. He’ll negotiate discounts with providers, passing along any savings. For his work, the contractor would get a typical 15% administration fee calculated on the project costs.

    That’s mostly theory so far, rooted in a market that is probably significantly different from yours, Bob. All contractors very heavily lobbied for a Cost Plus contract – it’s their clear preference. Having seen houses completed under Cost Plus and other types of contracts, Cost Plus seems to deliver superior quality, while any owner-managed construction yielded Frankenstein-type results.

    Kind Regards,


  • Artecohome

    Built our Texas Modern (Austin architects) two years ago. As homeowner we formed our own building company in order to facilitate the construction loan and control the process. Since architects were not local and not able to be on site, we hired a contractor to supervise, obtain subcontractors, and attend to schedules. We paid all subs through our construction company, assisted in supervision (two eyes are better than one), and stayed connected to the project daily. This was wonderful, but very time consuming. My wife and I have built several homes and she has quite a bit of construction knowledge which made this possible. Couldn’t agree more with the cost plus method. Down side is that when building a home with local sourced, energy efficient goals, the contractor supervisor had better know his subs well and be flexible with finding alternatives. The project took two years from completed architect plans to final move in. For a 3500 square foot home, this took a lot of patience and not a good idea for everyone. Would I do it again the same way? Yes, absolutely, but I would be very careful in picking the construction supervisor (contractor).

    • As I was reading your comment, I was thinking in my head “Wow, that would require a considerable amount of time for them” … and then you wrote that it was time consuming! It’s very impressive that you took this path, I can only think that it took a tremendous amount of faith in your abilities – both raw problem solving skills and that you would be able to find and dedicate the amount of time to manage your own project. Is it safe to assume that that’s part of the reason it took two years to build a 3,500 house? (I hope that didn’t come across nasty, I didn’t intend it to be).

      Most of the projects we work on have full time on-site supervision – partly because I get to work on homes where the scope and expense justify that sort of commitment from the GC, and partly because the required level of coordination and execution demand that sort of on-going daily attention. It’s clearly a function of the budget but it’s hard to argue with the results of having a common point source available 100% of the time when people are on site building.

      Glad to hear the process was so rewarding – I love to hear it when people finish the construction of their home and don’t fall into that group of folks that only have horror stories to share.


      • Artecohome

        Thanks Bob. I always enjoy your posts. Not being an architect, but having worked with several over the years, I have gained a tremendous respect for you guys. To take a program, a piece of land, two want-to-be homeowners who usually have no clue what they want or need, city and national building codes, mechanical and structural limitations, financial constraints and be able to envision an aesthetic structure is truly remarkable and a testament to the human spirit. And yes it is safe to assume that the long time it took us to build was due to our in ability to be on site the whole time. But we were very very attentive to details and we had what I would consider some of the most professional and skilled subs available. A large part of the time spent was vetting the subs, which as I’m sure you know meant traveling to visit their previous work and talking to builders and architects in our area. But the house is very well done with few regrets and to a standard we could have only hoped for. Every day I wake up and look around me and think what a wonderful talent we found in our architects.

  • Both posts are excellent Bob! To add one other disadvantage to the “Bidding”
    process: many of the best general contractors have a steady stream of work and
    are not interested in playing the bidding game (a game usually played without
    pay for the 2 – 3 weeks of work to develop our bid).

    If many of the best refuse to play – who’s left playing? Those who are playing are usually good at bidding – not necessarily good at delivering the services needed.


    • That is an excellent point – one that I didn’t get into. Many of the very best contractors that I am fortunate to work with have stopped bidding work altogether … AND they have a waiting list of people who are willing to wait and pay them their fees to use them. Shouldn’t that be telling us something??

  • William J. Martin

    Very thorough and nicely done ! However, your post does not address the negatives of this contract form for the client … I have worked with both contract forms and I prefer the competitive bid contract form. With hundreds of successful projects done this way, my clients consistently prefer competitive bid and only in very rare cases has an adversarial situation developed. Perhaps this is a regional difference, I am in the Northeast US. btw, I am a big fan of your blog, you have great insights !

    • Thanks William! I would love to hear your take on the negatives to the Cost Plus – I haven’t experienced any myself (at least none that are intrinsic to this type of contract) and since I try to keep things inside my personal bubble of experience, I was trying to see the down side to the client. All I could come up with was if the architect and contractor were overly focused on protecting one another from on-site mistakes – and since I view that as borderline criminal activity, I didn’t think it was specific to this contract type. What has your experience been?

      • William J. Martin

        Call me Bill … I am no “prince” … I preface this by saying this could be a regional difference … As I see it, the big difference between a cost-plus contract and a competitive bid contract is that it shifts the financial risk to the client. Cost-plus contractors will generally not commit to a fixed construction cost, nor will they commit to a fixed timeline for construction. My clients overwhelmingly want to be able to plan financially for a fixed construction cost and fixed timeline.

        At the request of some clients, I have bid the project out competitive bid and also sought cost-plus contracts for direct comparison to eachother. The cost-plus contractors came back with longer construction timelines and higher construction cost “estimates” as compared to the competitive bid contractors. (Cost-plus contractors did not know about the other bidders) Keep in mind that these are fully specified plans including finishes, moldings, fixtures, etc.. I have found that clients do not want the risk and uncertainty not having a fixed price and fixed timeline… at least not in this region…

        • Mark Mc Swain

          That makes sense to me, in that DD/SD/CD design-competitive bid-build is not that much different from DD/SD/CD design, cost+ bid-build.
          I cannot speak to Bob’s experience, but, in my own, using DD~SD Cost+ Bid CD-build can achieve some very good effect.

          This is distinct from “pure” Design-Build, which is DD (bid/price) SD (bid/price) CD (execute contracts). Which can be just a bit more informed as a process–but requires either extraordinary transparency between parties, or being all “in house’ together.

        • Bill, you bring up some important points. But we may be confusing the terms “bidding”, “fixed price” and “Cost+”. As a GC, I’m happy to offer a “Fixed Price” or a “Cost+” agreement to the customer. What I’m unwilling to do is participate in the “bidding process” to arrive at a “Fixed Price Agreement”.

          Your point about “risk” is right on the money. When we present a proposal for a project, we present it as Cost+ with the option of converting it to a “Fixed Price” agreement. The fixed price is the estimated cost in my Cost+ proposal PLUS XX% (based on the estimated risk involved). In Cost+ the customer is at risk (also potentially in a win position if the project comes in under budget). With a Fixed Price agreement, I’m at risk.

          Regarding commitments to cost and timeline, there are other factors to be considered. Consider the GC’s abilities to play nice with the team, to communicate well, to solve problems, to deliver the end result as imagined and designed, to be flexible and to make the building experience as positive as possible. Unfortunately, fixed price agreements (whether their arrived at by bidding or not) do not lend themselves to these additional items. Fixed price agreements (produced by the bidding process) are in direct conflict with these items.

          It’s interesting that in your “estimating” experiments pitting
          Cost+ and Fixed Price proposals head-to-head, Cost+ was higher. Based on the way we think about the risk factor, I would have assumed just the opposite. I guess you would have had to build both ways to see the actual results vs. the estimates. It’s also possible that Cost+ GCs are accounting for all the additional factors they expect to bring to the project, while a fixed price GC plans to just do his job for his pay.

          Regarding your point about clients not wanting uncertainty
          in cost and timeline, I have found that (when given the option) they seem to split about 90% for Cost+ and 10% for fixed price.

          You may be right that regional economics may be a force here.

      • Mark Mc Swain

        I’ve noticed that there can be “push back” from subs invovling the transparency of Cost+. Which is vexing, since most subcontracts are executed as (T & M = cost) plus a fee–so, it’s a misunderstanding of terms.
        From the GC side, there can be “push back” in that they will have had experience of people thinking “cost plus” means “exact price of materials and labor with no mark-up at all, and maybe a 1-2% ‘tip’ at the end, if we’re happy–and we won’t be.”

        This can make them shy. GCs who have settled into a CM-at-risk model will not want a strict cost-pluss contract, but, that’s grist for a different post.

  • Excellent post Bob! In my world (design) cost plus seems to be the most popular and a characteristic of a successful project. When people get into bidding, though I still tell people they have to start with a Scope of Work for any contractor they want to entertain a price from, cost+ is the fair and honest way to price a project. People invariably will pic the lowest price if given the choice. Cost plus is the fairest way for both the contractor and the homeowner. “Teamwork” is the hallmark of a successful project. Cost plus keeps the guessing game out of it and the assumption someone is trying to screw over someone else out of the picture.

    • Thanks Lisa!
      As long as everyone respects what the other is bringing to the table, this process is almost always a smashing success. It’s when people start creeping outside their scope that collaboration starts to break down as people start to “protect their turf.” But that situation isn’t specific to this sort of cost model but rather the dynamics of a multi-headed team made contractor, owner, architect and/or design professionals.

  • I like your system as that is the way it should be done – teamwork & advanced planning. It is amazing how many architects wont bring builders in from the start (and the trades) & it tends to lead to more problems & less creative solutions. This is getting to be more imperative when one starts building high performance homes.
    I must also forewarn others there are a few other takes & ways of doing Cost+ & it isn’t always pretty – though a lot depends on who the players are

    • This system has worked extremely well for me and I just assumed it was the format and not specifically my way of handling the process. More and more people have been writing in saying that this process sounds great but it wasn’t how there cost plus process was handled both in terms of processing paperwork and the collaboration between the interested parties. It may seem out of sorts but I like to think if I am recognized as the design professional by the contractor, and they are recognized as the construction professional by the architect – and both allow the other to provide input on how they think things should be done in their areas of expertise – that things go really smoothly … and every client recognizes it.

      • And therein lies the issue – there are some great Archi’s out there, just like a lot of good contractors – the catch is most of the times we only see, hear & remember our dealings with the bad ones.
        What you wrote is how things should work, unfortunately not everyone sees it that way. Big kudos on both pieces Bob as you pretty much nailed it how it should be

      • Selh05

        Hi Bob,
        I certainly wish you were in NC as we are in the middle of a cost plus fiasco. We hired a Design build team with 1 owner being the architect. They are charging cost plus 25% here. This was known to be a reputable firm but they have not managed their subs and the labor hours have far exceeded what they should be for a fireplace remodel and bar area. We are getting invoices with no hours, the crew leaving for large amounts of time to work on the firms other projects. We had a scope of work and good faith estimates for cabinetry, electrical, plumbing, etc. So far everything is significantly over budget (ex: $6500 estimate for cabinetry and not one bid has come in under $12000). We also had a good faith estimate of $29,000 and the project will end up being closer to $40,000. This was simply adding walls for a new bar and building out the fireplace with bookcases. It was supposed to be a small project. I could build a small house for this price!

        • It breaks my heart to hear stories like this. On all my projects – even the cost plus projects – there is a bid budget that is prepared before any work is actually undertaken. For example, the $6,500 estimate wouldn’t be an estimate, someone would have bid to do that work already so these sorts of surprises don’t happen.

          I am not a big fan of the design-build process for the simple reason that there isn’t a checks and balances process in place to make sure that the owners best interests are represented along the way.

          Sorry to hear this isn’t going well, this should be a period of excitement and anticipation, not dread and anger.