How Cost Plus Contracting Works 

Thank you for this. I’m a new GC in FL and this is helpful. I’m grateful for your time

Thanks Jake, two ways this video lifted a huge weight off my shoulders… 1st, hearing someone with a lot of experience admit they can’t catch or plan 100% of possible mistakes helps me have confidence while talking to homeowners that being a builder doesn’t mean you have to be Jesus! And 2nd, this is the exact way I’ve been building and pricing builds. I’m under contract as cost plus but I don’t calculate GC fees on my own crew other than what I would mark up as if I was subcontracted for another builder. My crew is essentially another subcontractor for fill in jobs. This way I can choose to have my guys do things that I know can do better than me working with new subs or new concepts. And the client sees some price benefit maybe allowing more time to have me do something right. I still make the same in the end but can save the client. Tell me if I’m wrong but in an ideal world, If I had employees that could effectively accomplish every job on a build from start to finish And keep them all busy with efficient work flow throughout the year, I would make mark up in every scope of work. Jake, I am actually quoting a new build for a high efficiency home in northern Wisconsin with a slab less slab like you had in a previous video and talking with warmboard about using their system as the top layer of subfloor. Perry at Extreme Panel is also quoting a design to help me compare costs with ZipR.

Great series of videos. I like this better than fixed fee. In shopping for a builder for a custom home we were told that because of the uncertainty of the cost and unavailability of materials and labor a year or so out - that some builders will add as much as 50% to their estimated costs. We know in some cases that this has got to be true. So I can see how cost plus this would be an advantage to a builder in a competitive environment and also to the homeowner. The homeowner does share some of the risks - but should get a better idea of what the house is going to cost up front and would almost certainly end up paying less in most circumstances. It does not do the builder any good if the client runs out of money and the house is left unfinished and am sure the bank would not see the humor in it. I also wanted to comment on your video concerning having to pay fees up front. I had to smile at your statement "I don't spend money on your job without knowing that the money's going to be there." When we went to build our first home the builder (recommended by the realtor who sold us the lot) skipped with our 10%. I called the bank and they said that we were now "owner/builders". It ended up fine for us as I am sure we got a much better built home than he was going to do. But our lesson was "I don't give you any money without knowing the builders going to be there".

Cost Plus is the best way to go as long as there is complete transparency. This is where BIM (Building information modeling ) becomes invaluable in heading off surprises such as framing errors and under estimating.

Been living in my current home for 20 years. I noticed that the plans specified 5/8” drywall. My house has 1/2” drywall. I discovered other plan to actual inconsistencies. I bought this house as a spec home already under construction-fixed price model. I bet the builder made off with a killing. I learned my lesson. In the health insurance industry and managed prescription drug benefits. I always contracted with 100% transparency. I want to know the price of everything that I’m buying and then a separate line item for labor and an admin fee. so I prefer the cost plus model as long as there’s honesty and integrity and not gamesmanship. The right to audit in my opinion is important component to maintaining that integrity. It is a trust, but verify model.

How do you talk your subs into giving you a fixed fee bid on a project when you are prividing a cost plus estimate? Sounds like your subs are assuming the risk on the job. If your subs run over budget do you compensate them and pass it on to the customer in the "plus" portion of the estimate?

How do we know that the subs numbers a builder shows us is not marked up? We are talking to a builder that does cost plus so I’m curious.

How is the cost plus percentage calculated? The way I would calculate it is not how our builder is calculating it 😬 Thanks!

Cost Plus puts the burden of the project cost on me, and I have no control over how you are spending my money. Fixed fee puts the burden on you the contractor to build the project per the specs and plans. You are the professional and you should be able to quote a fixed fee on projects you have been doing for 25 years.