Well, you don’t really negotiate. Either you sign or do not.

Do you have a 'detailed' list of how you want something to build? You need to go and make a 'very' detailed list of how you want it built, materials, size, etc, etc.............(I don't mean what is required by code) Then get a cost plus fee quote. What siding you want, what flooring you want, detailed fixtures for baths and kitchen...etc...etc.....

Get a lawyer. Given the current market situation and your inexperience, you need professional guidance.

Do you own the land?

5% sounds silly low.

If there are changes in bids, there should be no increase in markup.

In Raleigh, I built recently with cost + fixed fee. There was a $66k fee and that represented the only money the builder made (unless there was some dishonesty or kick backs that I didn't realize).

I have seen people pay similar or higher amounts and then a supervisor hourly fee is also added on. This would be an employee of the builder and was doing typical builder supervision. This needs to be clarified prior to signing.

Now, with a similar contract, I had a builder ask if he could just do the trim labor with his supervisor since they couldn't find a reasonable bid. I said sure - and he took that trim labor money into his pocket. (This was 2010 - not the current market).

There is a relative shortage of everything now and western NC is worse than most in regards to competent labor and builders. Think hard about your decision.

thanks David. we are considering a lawyer for this as well. we are having our budget walkthrough today and we will ensure to ask for bids and ensure they match the budget line item. we will clarify the fixed fee is a set $ or % of the overall cost estimate (and hopefully will not change with additional cost throughout the project). these guys are very reputable here in Western NC and everyone from RE agents and loan officers recommend them. we will definitely consider moving forward carefully. thank you!

thanks Robin! we have a very detailed list of everything we want. this builder endured that we worked with the cabinet guy, appliances and plumbing fixtures, countertops, flooring, tile, etc. and even specific patterns or designs and sizes of tile even to get the most specific labor bids. they wouldn't let us move forward until very few of the budget line items were bids, not estimates/allowances.

they do have a clause in the contract for 25% markup for labor burden but only for self completed work.

Keep in mind that the price of all of those bids can/will change in the current building environment.

Hi, Hu,

A cost-plus contract typically includes the stated mark-up on all materials and labor--whether direct (builder's employees) or sub-contract labor. I may get hate mail from other builders, but in the current environment, I don't think applying the same mark up to escalated prices for either is appropriate if the client is assuming the risk of a cost-plus contract.

You may wish to propose a cost-plus-fixed-management-fee contract based on the proposals you have at current prices. The issue with that arrangement, in this builder's opinion, is with regard to changes in scope. So you might have a fixed-management fee applicable to the approved plans and specs and a negotiated mark-up for changes in scope like finishing a basement shown as "unfinished basement" in the approved plans, for example.

Irrespective of the form of contract between us and our clients, we believe we have a role as financial stewards on their behalf. That's how we've built our brand equity. Our brand equity is worth a whole lot more than a couple of percentage points of mark up on a project. I don't think we're alone in that.

If you'd like to create an incentive for the builder to come in below the estimated cost of a cost-plus contract you can include some form of shared savings. Those savings might be shared equally between builder and client or not. The downside is that it may tempt the builder to use lower quality materials and trade labor to achieve the savings in which case it won't serve you well.

Best wishes for a successful project.

So most of our initial fears were put to rest after a lengthy and detailed budget line item walkthrough.

However we do have some questions regarding the contract and fee. Curious what others have seen or charge themselves (if a builder).

The fixed fee they said normally is 16-18%. At the end of the day they came in around 13.5%. this is a cost+ fixed fee. Any additional cost over the agreed estimate will be paid at cost.

Only their own labor (if/where they use it) will have a +25% markup for overhead and labor burden.

We were able to see all of the subs bids and even have them named in our line item budget.

However we still are looking for more info on what are good protections for us on things like negligence or costs incurred due to reasonably avoidable delays. There's a clause that we waive all rights against delays even if negligent. The only item I see on the contract is if the builder stops building for 30 days straight we can leave the contract with no penalty (e.g. builder can't keep our deposit) but we still are stuck.

I'm not sure I like the ideas of 'fixed cost' or lump sum contracts because I feel the negatives outweigh the positives in the market rates rising... Builder could cut corners or worse not finish the work and cause costly litigation.

I know many don't like cost+ but I feel they're making their money regardless of the market. There's just not a huge incentive for them to fight for bids as we end up paying the subs.

Anyone havs additional thoughts on clauses or things to look for?

Their incentive to control costs is to avoid working for no OH&P if the costs exceed the original agreed upon Budget amount (I dislike the word "estimate"). Its not as effective as a Guaranteed Maximum Price but its better than no limit.

I'm curious how the costs above the Budget will be billed and how changes in scope will be handled. Its a new approach for me.

The Contract Time provisions sound weak.

Will the cost of their management and supervision personnel be a fixed amount separate from the cost of the work? How will delays affect that cost?

Its impossible to judge a contract without reading all of it.

I HIGHLY recommend you sign nothing until you vet the contract through a CONSTRUCTION LAWYER. The couple of hundred dollars it costs for the lawyer will save you in the long run.

Even putting delays in a contract are futile for things like 2020 & 2021 (so far) as these are nothing enforceable as it is not a fault of the GC or realistically anyone else. Falls under the heading of POOP HAPPENS........................