Remodelers working with cost-plus contracts often operate with margins of 15% to 20%. That's low compared with fixed-price jobs. How can they charge less and still make money?
They can't, but they make up the difference by invoicing as direct costs some expenses that would be considered overhead on a fixed-price job. The biggest of these is supervision time, which includes actual hours spent by anyone -- the company owner, a production manager, or a lead carpenter -- supervising employees and subs. According to consultant Tim Faller, on jobs up to $125,000, about 10% of a lead carpenter's time could be billed this way. For large whole-house remodels, this number could grow to nearly 50%.
Also billable are hours spent by a production manager or company owner in on- or off-site meetings with clients, designers, or subs, plus travel time and mileage. Even travel charges for lead carpenters may be included for job-related business or on occasions when the lead is required to come to the office before heading to the job.
Office personnel are invoiced for all hours spent preparing invoices, handling payroll, paying bills, and answering the phone, to the extent that those activities are related to a specific job. Other line-item costs that would otherwise be considered overhead include builder's risk insurance; set-up and call charges for a jobsite phone; tool repairs and blade sharpening, plus the cost of blades and bits consumed during the course of the work; and rental of company-owned equipment, such as staging, at market rates.
Invoicing these expenses as direct costs reduces markup requirements by several thousand dollars, plus the project fee, which is applied on top. A complete list of reimbursable expenses for cost-plus work is included in AIA documents A111 & A114 ($8 each at www.aia.org).