Cost Plus Pricing by GC? Anyone hear of this?

[Bill Dengler]

Im looking into working out of state renovation with a GC. I really like his work, ethics and how fast he gets back to me. I am looking into a foreclosure that needs alot of work and he said that he can do Cost Plus with me. Meaning, I pay actual cost for material that he gets, including his discounts (he gives me actual invoices to pay) and he just puts a percentage on per job. He said he like this because it guarantees him a profit. I thought if he gave an estimate and I paid him that would guarantee a profit, but Im not a GC. I never heard of cost plus. It sounds good but I figured I would check in with the BP community to weigh in on this.

[Andrew Taylor]

@David Nisbett Cost plus is a common arrangement, but for your first project with a given GC I'd recommend cost plus with a "not to exceed" clause. Problem with CP is that the contractor has no incentive to keep costs under control (other than a conscience, which is hard to gauge without several projects under your belts together). Proper etiquette in this arrangement is for the GC to be honest and for you not to question his mark-up - including (and maybe even especially) the mark-up associated with subcontractors. Subs require relationships and management skills; if they didn't, you'd schedule them yourself. If you nickel and dime him on every invoice, he's going to nickel and dime you on every invoice. Reasonable percentage could be anything. Most common is probably in the 15-20% range, although I've worked for more and less.