The two usual types of contracts are "Cost of the Work with a Fixed Fee" (the Fee usually being a % of the Cost but it can also be a fixed dollar amount) and the other type is called "Fixed Price" or "Lump Sum" which includes everything in one price. "Allowances" are like small "Cost of the Work" contracts inside another type of contract.

A contractor doesn't usually like to let you buy materials because it then becomes difficult to determine his fee and it is very awkward for him to charge a % fee on purchases the owner makes (it feels like a tax).

Therefore, I suspect your contractor is suggesting that you use a Cost of the Work contract and to stipulate a fixed amount for the Fee that will be paid in monthly installments and have no markups. Then you could buy whatever you want as long as it is on a timely basis and it is coordinated with the sub-contractors.

This arrangement can get messy if the sub-contractors are not informed of what is in their contracts because they work for the GC, not for the owner. It is best to decide very thing up front before signing the contract. Doing it later can defeat any possible savings.

One other issue to consider if you are purchasing items yourself online or elsewhere. Its fine to do this if you choose but understand that for instance you buy the toilets and faucets and showerheads yourself The plumbers price may be a bit higher or at the least you have to understand if the product doesnt have the right parts or something is broke or missing you will pay for his time to go get them or replace them etc. Since they normally buy things for less than you can( normally) and marks it up as part of his profit and he is responsible for the warranty on the product.He is now losing that profit and will only warranty his work. This needs to be considered when going this route up front as Macv has suggested.

In today's economic climate I can think of no reason to buy anything yourself unless it is something that is not readily available to the contractor.

However, it seems that owners want to do it more than ever before and builders are more wiling to allow it because they want the job.

My theory about this phenomena is that homeowners see so much residential DIY and remodeling projects on TV and materials are so easy to find and buy on the internet that they tend to think of building materials and products as commodities like they would retail consumer products so they want to personally "shop" for the best price. Of course, the savings can often be an illusion because when a sub-contractor cannot mark up a product, he must add his profit to his price in some other manner ... it doesn't go away.

The homeowner usually ends up paying low retail rather than wholesale and pays the sub's profit too. And the owner only gets a warranty from the manufacturer. Manufacturers love to claim poor installation so a product failure can leave a homeowner holding the bag.

This is particularly irksome to me because in order for a client to get a fair price from large suppliers for things like light fixtures and windows I often have to intervene and assure the supplier that the homeowner is not "shopping" the job with the intention of making some other supplier match their low price (eg Home Depot).

I have always considered it unethical to charge a commission for this service but I'm starting to reconsider and unless I do that I will not allow my name to be anywhere on the order form.

I should add that I do believe in including a clause in the Owner-Contractor contract that allows an owner to supply an allowance item in order to prevent the GC from restricting the suppliers to his buddies ("sweetheart" deals) who might include excessive markups and even give kickbacks to the GC.

Thanks everyone for the input! We aren't going to buy major items, but ceiling fans, light fixtures, towel bars, etc are easy items for me to just get while browsing online. I realize if a light fixture doesn't have all of the parts it's going to be a problem, but that's fine. If I have to install it myself afte the fact, i'm fine with that. I'm not planning on buying all light fixtures, just one here, one there if I like them.

thanks again!

Ours is like this, kind of. Our general gets 10% on all orders (appliances, etc.). If we buy it ourselves, he does not charge the extra. This was contracted 2 years ago. Today, the builders around here are getting 5-8% (central California coast).

Best of luck. My biggest headache is trying to decipher his billing - he keeps putting things in the wrong category (cabinets under windows, etc)!

My contract is a combination of macv's post and is written as a fixed price contract, but within the fixed price there is a set fee for the contractor which includes the workmans comp insurance, a set fee for the construction loan carrying costs (separate from the contractor fee), a set fee for permits, and allowance line items for all of the materials and sub-contractors and who is responsible for that line items allowance.
For example the contractor is responsible for the lumber allowance and the framing labor allowance, if he goes over the allowance he put into the contract the overage is his responsibility. On the flip side, kitchen cabinets are my responsibility so if I "blow" through my contract allowance that is my responsibility and I can't go to the contractor and expect to get something for nothing.
Additionally we have also have an 80/20 split arrangement for every dollar saved on your allowance you get 80% and the other party gets 20%. So if he manages to save me $1000 on framing - he gets to keep $800 and I get $200 and if I save $1000 on cabinets, I get $800 and he gets $200.
Also screw-ups are the responsibility of the party that caused them. So if his hired subs screw up something its the contractors mess to fix, but also to be fair, if I hire a sub (I don't expect to but I did reserve the right to hire out my own painter and finish carpenter) and they screw something up that is my mess to solve.
Change orders were handled as cost of materials plus an hourly rate. The hourly rate was set at $80.00 (mostly to encourage me not to make changes!)
One stipulation I do have written into my contract is that I won't pay a sole proprietor sub-contractor an hourly rate, plus overhead, plus profit. They can bid as either hourly rate and profit or hourly rate plus overhead.

When your builder said "Fee Based Contract" he may have been referring to the type of contract I had for my custom home.

Up front the contract called for a fixed builder's fee of $x,000, paid out over the course of the build. Everything else was cost. If the best plumber's bid came in at $15K, then I paid $15k. If the builder bought a light fixture for $10 then I paid $10. If I bought a light fixture and gave it to him, then it's whatever I paid to buy the light fixture.

Like other types of contracts, there are pros and cons. Some of the pros are he had no motivation to push me towards more expensive appliances, etc,(like cost plus), I didn't have to worry about allowances, and I could truly decide that I wanted where I want to go expensive and where I wanted to go cheap. The biggest con is that I didn't know what the total final cost would be.

Of course I ended up over my expectation of costs, but it also means as a percentage his builder's fee was lower. Haven't done the final calculations yet, but it's somewhere in the range of 9%.

Hope this adds context.

Oops, hit submit instead of preview. The other pro is that I didn't really have to deal with change orders. E.g I didn't have to pick my countertops, floors, tile, and so on until it was time to install them.

We are in process of setting up a "fee based contract" with our builder. We've agreed on a set amount to complete the job. He will get paid in installments as things are complete (no "cost plus", etc...) However, I am not sure if I should let him make purchases using his established accounts (and give me itemized invoices for paymnet) -OR- should I set up my own account(s) with the building suppliers? It seems it would be easier to use his established accounts but I worry about purchases for my job being inter-mingled with another, if the builder will pass on credits/discounts/returns, etc... I am really unsure and looking for some feedback.

If the contract is for a set amount and you pay in installments as the work progresses and there is no "cost plus" aspect to it, there would be no reason for you to see invoices or even care what the GC paid for anything since you are not reimbursing him for the cost of the work.

Perhaps you are talking about Allowances. They should be kept to a minimum because they are miniature "Cost Plus" contracts inside a Fixed Price contract and can be difficult to control.

As for accounts, you will not be able to open the same type of discounted account as a builder unless he buys from a retail supplier and that's not good.

FWIW - I think lighting is one of those things that buying on your own can be a good idea. Electricians aren't supplying these things and getting a markup (at least around here). The markup is going to the lighting store - something you may not need (ie seeing the lights in person).

I will tell you that the lighting store had a very good tech support guy to help make the fans perfect after the electrician installed them. There was a remote and some trick to get it to work right that was not in the instructions. Only the lighting guy knew the answer.

So you can save money and expand your pool of products at the slight cost of less support. We also had a broken globe and we were on the hook to get that replacesd. A simple call to Pottery Barn did it but if we bought at the lighting store, they would have handled it....