It is unreasonable.

He has too scheduale, oversee and warranty all those subs. That is what the "plus" is for. Otherwise you should just be your own GC and sub all the parts.

If you are paying the subs directly then you are the general contractor and the "local builder" is a consultant hired by you to schedule and oversee the work. Whatever you agree upon is fair so ask him. Be sure to use appropriate contracts with the subs and carry the appropriate insurance for your increased liability for the project. You could really get hurt if you don't.

If you pay the builder the actual Cost of the Work plus a Fixed Fee (% of the cost paid, a fixed sum, or a combination of the two) and he then pays the subs, he is the GC and he is responsible for the work of the subs.

What you are describing is more of a Construction Manager arrangement so you could use that type of agreement because it makes the responsibilities of the parties clear. It would be wise to get professional assistance if you are using an arrangement you or the contractor have not used before.

Cards89,

I don't think it will fly. We have a cost+ quote (with a Not-to-Exceed) and here's how we did it:

-We are paying straight labor rates, with no upcharge.
-10% upcharge on all materials and subs

The other two cost+ bids were charging 10% on both material and labor so we feel like it worked out pretty well.

mdev
Could you please give an example of paying straight labor rate?
Yes he will be more a paid consultant mainly to get the house under roof; and many of the subs I will oversee myself such as plumber, electrician, cabinets, flooring, paiting.

So- our situation may be different because we have a contract with a builder that is handling the entire project...

We are paying the builder what he pays his employees-laborers, skilled craftsmen, etc. which is our market is $36-$40/hour. Seems high but all the builders have rates in that range. That keeps the builder's people working, but they are lean with regard to profit margins. Builder is taking care of the whole construction job except for the traditional areas that are sub'd out like, septic, plumbing, electrical, excavation, painting.

mighty.....I don't understand the reasoning by your definition. If the GC is doing 'all' of the work and the owners are 'only' writing cks ....how is the GC not the GC?? That seems fair if the owners have a construction loan(can draw as needed) The GC takes complete responsibility of the construction of the house.
I know of several GC's in our area that charges a flat fee to build a house.....whether the house will cost $250,000 or 1 mil. Same fee. All customers must have a construction loan. GC has no outta pocket money....well....gas. I won't do that. To me, that's just not a very good business practice.(They will probably change this now that the housing boom has come to a....dead end!)
Now if the owners were O/B....then I would call the GC a construction manager.....making sure the O/B don't totally sre@ everything up.

having a construction loan does not mean that the owner is paying the subs directly...
we had a construction-perm loan and never paid a sub directly nor did we ever contract with a sub directly.

Compensation is the essence of any contract. If you pay the subs then they work for you no matter what the contract says. What is the advantage to you of paying the subs directly?

I ran into this arrangement on a dormitory project for a university and I warned them that they would not be able to hold the GC responsible for cost overruns but they wanted to avoid paying sales tax. It cost the university a lot more than the tax to finish the project because the GC successfully claimed that the direct payments voided his obligation to limit the cost to the Owner to the Guaranteed Maximum Price.

A Construction Manager contract would probably work fine for you but they are usually written for large jobs with professional oversight so it would take a bit of work to modify a standard contract and I don't recommend making up contracts yourself even with the help of a lawyer.

In a Cost of the Work contract the Owner reimburses the General Contractor for all project costs plus a mutually agreed upon fee. The GC has contracts with the subs and therefore he is responsible for their work and must pay them and that cost is included in the cost of the work. An Owner paying the subs directly is not a feature of this type of project delivery method.

If this is your primary residence usually you can act as your own contractor, sign contracts with the subs, pay them directly and hire a builder to supervise the work as your agent.

mighty.....basically these GC's that did this....built the house at 'his'(actual GC cost) plus his flat fee. He would follow up with his subs to make sure owners paid(He used the same subs over and over again) Crazy way to run a business I know.....The customers came out so good that several of them had the GC build them 3 houses over the last 6 yrs and they now have their house paid for!

Mightyanvil,
The reason for paying the subs directly is that there have been several cases that O/B have had GC's not pay subs after they completed the work, even after payment was matriculated from O/B. I plan on making sure all subs cary liability and w/c ins. I will carry a general bulider's risk policy.

We are in the midst of a remodel and are acting as our own GC but have contracted with a construction manager to oversee the project. He is coordinating all of the subs, handling the daily issues that arise, and acting as our advocate and advisor relating to the project.

We are paying him a 12% fee of any bills that we pay as we pay them. For example, we had a foundation bill due so we payed the foundation sub and then paid our cm his fee.

Time will tell whether this was a smart move on our part or not. So far, it has worked out.

Sandy

busybme
Are you guys going to pay him 12% for materials that you purchase for your remodel such as lumber, windows, flooring, etc?

By paying the subs directly and/or supplying materials yourself you are releasing the builder from his traditional responsibility for materials and the work of the subs and that is a major part of what a builder's fee is for. You should be hiring the builder as a consultant for a smaller fee to advise you, help you find materials, coordinate the work of the subs, inspect the work and represent your interests on the site.

A fee for this kind of service should not be based on the cost of the work because it becomes an accounting nightmare and owners quickly forget that it is only a method of determining a fair fee amount and begin to think of it as a tax on everything they put into the house. Offer the builder a flat fee with a bonus if the cost of the work is below a certain amount (plus or minus changes).

You say you are doing this to avoid the risk of a builder default but making up a hybrid contract could leave the responsibilities of the parties unclear and the contract unenforceable and that could cost you too. With a poorly written contract the owner always pays when things go wrong.