Tarzana, CA · Member since 2017 · 1 post · 0 votes
Hello,
Is it normal to have a "contractor's fee" defined in % for a fixed-priced house remodel contract?
Additional Background
Contractor says there is a lot of "unknowns" in the project. When asked what happens if some parts of the work come it at a lower cost, he said that would be his profit and if it's higher, it would be his risk.
However, there is still a % at the estimate, labeled as "Contractor's Fee".
This is my first major remodel project with a GC, so I don't know what is standard. Is it normal to have a % markup as part of the fixed price contract?
Or is this some kind of trick because I don't know how it works?
There are in fact a lot of unknowns with the project, I just don't understand that if the items are already padded for his profit, why is there a % as well?
Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
9y
Balazs Sipocz What kind of unknowns? Usually, a lot of unknowns come from two things, inexperienced contractor or inexperienced client, or WORSE both are inexperienced! Do a detailed scope, firm fixed price / lumpsum. Stipulate the change order percentage, with receipts and payroll hours, etc. Done.
Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
9y
I can't speak for construction specifically, but a lot of times in fixed price contracts you want the contractor to have the chance for extra profit. IF the price is reasonable, that extra chance of additional profit if they get it done quicker/cheaper gives them incentive to hustle. If you remove that then you've also removed that incentive.... again this assumes the price is reasonable.
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
9y
It doesn't really matter how he formats it......it's a lump sum. It's never a good idea to enter into work with "a lot of unknowns", leads to arguments about extra work or the gc cutting corners. Your contract Should have a very defined detailed scope of what is included, and what is not. Unknowns, items not included, should be dealt with as they pop up, through mutual agreement, or find someone else to do them if you can't agree on price. Otherwise, the gc is throwing in money, either too much or not enough, for these unknowns.
Contractor · Scottsdale, AZ · Member since 2015 · 49 posts · 11 votes
9y
@Wayne Brooks is spot on. On my contracts, I detail what is extra (cutting into a wall and termites/mold, saw-cutting through commercial grade) which no one can see before hand...those are extra's. Get him to be specific and spell out what is an extra and what isn't. Having built for over 30 years, I do get surprised every now and then, but I have a pretty good idea of what to expect in a remodel and I spell it out...so should he.
Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
9y
Balazs Sipocz What kind of unknowns? Usually, a lot of unknowns come from two things, inexperienced contractor or inexperienced client, or WORSE both are inexperienced! Do a detailed scope, firm fixed price / lumpsum. Stipulate the change order percentage, with receipts and payroll hours, etc. Done.
Design | Build · Milwaukee, WI · Member since 2014 · 107 posts · 35 votes
9y
@Balazs Sipocz I have seen percentages for added for managing subs and the self-perform work. It is scope size dependent. Generally on larger projects ($5mil) and up, the percentage is 3-5%. Smaller projects have a higher percentage, I am closer to 7% on projects under a $1m.