Construction Fixed Price vrs Cost Plus is about this Architectural firm’s perceptions of Contractor Construction contracts and how one is probably much better for you than the other.
If you are a millionaire, retired school teacher, law enforcement officer, or a billionaire, the words this Architect has never heard with legitimate clients are: “Money’s no object.” In other words: everyone wants a good deal. A good value. Not cheap. Value. Good and durable materials installed properly.
Well, when you pay a Contractor with his preferred method of contract, he’s always going to want you to pay him with a COST PLUS contract. Do you know what that is? That’s where he pays his subcontractors and material providers whatever they ask for (no matter how much they want), then your GC (General Contractor) piles on another 10%, 20% or more (that could be his secret), then socks it to you with whopping invoices. This is one of the best kept and dirtiest secrets of the custom home construction business. Essentially, you pay your Contractor whatever he says you owe him. Does he/she really care how much his/her subcontractors charge? Not really, or actually, the more the better for them, because they will tack on a hefty percentage of whatever they get charged, then pass the entire amount on to you. You get stuck with the big bill.
Now, you’re thinking: “Hey, that’s not fair!” But you know what, there may be collusion going on in some areas. Collusion is where there is a spoken conspiracy or even unspoken knowledge about certain practices in a given geographic region, wherein many of the providers collude (or discuss and agree) on certain practices that inhibit fair trade. This is typically hard, if not impossible to prove, as discovering evidence of such agreements and discussions is nearly impossible. But the actions of many of the providers become painfully obvious, when you may be searching for a Contractor to treat you fairly when you want to build a project, like a new house or renovation.
For instance, the Senior Staff Architect at this architectural firm just spent 7 months trying to find a fair deal with General Contractors all over an area in western North Carolina. He interviewed over a dozen GCs within 20 miles of his new family house project, where he and his wife are to spend the rest of their lives. But without fail, every one of those GCs demanded a Cost Plus form of contract. Once again: that means what: you don’t know how much it’s going to cost you, in terms of hundreds of thousands or millions of dollars, until you’re done building it. This particular wannabe homeowner simply couldn’t afford to take such a risk. He wanted a fixed price.
What were the reasons for the dozen GCs demanding a Cost Plus contract? Mainly, they would say: “there’s never enough detail in the Architect’s drawings and no specs, so we have so many unknowns, that we can’t get stuck with and can’t price up front.”
And that may very well be the case with some/many “residential designers” or some other Architects of houses (skimpy sets of drawings and zero specifications), but this particular custom house Architect had 38 sheets of drawings and specifications (24″x36″) for his project. There are lots of details, specs, structural plans, electrical layouts, even 3D imagery including a YouTube 3D video 360* around the project. Very little unknowns, if anything. So: the GC typical excuse for demanding Cost Plus didn’t exist. So then what did these dozen GCs say: “Well, that’s what we’re used to doing and that’s how it’s going to be.”
However, our Architect refused. He said: “No sir, that’s Not how it’s going to be.” But he was concerned. There seemed to be a conspiracy of high-priced collusion, whether spoken or not, going on in his area of the world. What to do? He thought, finally, that he would use a “spiral” principal, wherein he would continue searching and interviewing GCs from farther and farther away from the den of iniquity in which he appeared to find himself (whether real, imagined or whatever, he had no proof other than his experience that 100% of the GCs around him would only go Cost Plus). So, the Architect reached out on the Internet, farther and farther away: 15 miles, 20 miles, 22 miles…Finally at around 25 miles, he found a GC with whom he was not familiar and who had never done a project in his area.
Yes! That was the one. That GC had significant commercial and custom residential experience. They loved the detailed drawings and specifications. And they were okay slightly expanding their service zone to undertake a project at that distance from their location. As a matter of fact, they were so gung-ho, that the Architect began introducing them to his other clients, helping them also obtain better deals. How: because they agreed to go FIXED PRICE with the construction contract.
This Contractor, honest and open-minded, was eager to undertake the Architect’s project. It is now under construction, for an amazingly low cost of $166/HSF (Heated Square Foot). For the record, most of the other custom house projects being built in this corner of WNC are going for around $250 to $350/HSF, which is about double what the Architect’s custom designed house is actually being constructed for. Continued below:
How about that? It took the Architect over 7 months to find the right Builder (a Licensed General Contractor of good character and who didn’t mind providing a fixed price for a detailed set of documents for a mid-level house in the mountains). And the new Contractor had about 20 references from happy clients for whom they had built projects.
Now then: this Architect did things that not everyone might want to do. His floor plan was virtually identical to the multi-million $ houses he designs for clients. So there’s not much missing there. However, he did make some value-oriented choices for materials: much of the outside has prefinished dark brown industrial metal siding (which means about $14,000 of exterior painting won’t be necessary (ever) as there is on most mountain homes every 5 to 7 years forever). The windows are vinyl framed (but are in a handsome tan color). The interior walls and ceilings are drywall (and so are many other mountain houses). The walls are 2×6 (guess what: many other million $+ houses are 2×4). The roof framing is prefabricated roof trusses (so are many other mountain houses, or they may be stick-framed, which wastes both material and especially labor). The roof is high-quality Kynar painted standing seam metal roofing (which would be an upgrade for most other mountain houses). Hey: this isn’t sounding bad; it’s sounding pretty good!
There is a 2-1/2 car garage (most other mountain houses may not even have a garage or a 2 car only). There are large timbers at the front and rear porches (which many other mountain houses have). The design style is referred to as Mountain Modern (most other mountain houses have either no particular style, or cutesy cottagey). There is a giant 78′ diameter motor court with center landscaped island in front of the house (no other mountain houses under $5M have such a feature). The kitchen has double stainless steel Whirlpool appliances (some higher end mountain houses spend large amount of money on “name” designer brands like Wolf and SubZero, which along with many other high end brands, may tend to have more questionable reliability ratings than the more common brand, according to Consumer Reports). Wait: did you catch what was said: DOUBLE appliances: 2 gas ranges, 2 ovens, 2 microwave/exhaust vent hoods, 2 sinks, 2 dishwashers, for LESS than the cost of the appliances in most mountain houses.
Appearance is nearly identical to the higher priced appliances. Glass areas: the glass in the windows is Identical to the glass in Marvin and other expensive doors and windows. And the Architect’s house has about twice as much glass in width and height as most other mountain houses. The Architect’s house is up for a design award.
In other words: the Architect’s house will deliver probably a more enjoyable, more durable and lower maintenance house for half the money. There’s another benefit: NO CONSTRUCTION LOAN WAS REQUIRED.
Now then: did the expensive other Contractors Cost Plus contracts for million+ houses do better? No. Actually worse.
Moral of the story: find an experienced Architect that will provide thorough and detailed documentation for your house, so you can obtain a Fixed Price Contract Contractor, so you can pay less than the Cost Plus Contractors. Pay your Architect to help find the Fixed Price Contractors in your area (or just outside of it). It should be worth the wait and extra effort.
Material note: if you would like to have other materials that require more maintenance, like wood (inside and outside), our firm does this on most client projects. Our Staff Architect simply could not afford the initial cost or the ongoing maintenance costs. And if you prefer more traditional styles, our firm normally designs client projects in that manner. Once again: our Staff Architect could not afford that and needed to simplify. Why: because one of the definitions of insanity is: keep doing the same thing and expect different results. In other words, because our Staff Architect knew that normal costs for traditional materials and styles were significantly more expensive, he opted for a simple design with less costly prefinished materials. The result: half the cost. No loan. Low maintenance. Same floor plan. Larger garage. Larger site features. More enjoyment for much less cost. However: this firm can design more traditional houses for clients that have more robust budgets.
UPDATE: people reading our website posts may not believe this new information, but it is 100% true. After we last posted this online article, we had some naysayers voice their objections. Without naming names, because we believe this person was telling the truth and we really don’t want to get him (or her) into trouble, we had a phone conversation with them. We asked them about what, if anything they objected to in the article (above). They started by saying that they certainly didn’t engage in any shady practices and we believe them. They have a good reputation. And after some discussion, they said they actually do more Fixed Price contracts with their clients than they do Cost Plus. We thought that spoke volumes about their integrity. Now then, here’s the kicker. Rather meekly, we said that without any evidence other than our own personal experiences in this market trying to bid our own project as a Fixed Price and being refused by EVERY GC we contacted (they all insisted on Cost Plus with no good reasons, as we had very detailed documents signed and sealed by ourself, a licensed Architect), we intimated that what we experienced FELT like collusion. We shivered, making this comparison, waiting for this local Contractor to get angry and start yelling at us.
But… that didn’t happen. No siree. Quite the opposite. He sighed, then said that he actually had overheard other local well known Contractors talking after local NAHB meetings about that they wanted to start charging their rich clients $400/SF for their construction projects in certain high-communities locally, but they didn’t want to be perceived as the “bad guy Contractor”, so could everyone else start charging that price also? To which others agreed.
I couldn’t believe my ears. THAT IS COLLUSION: a given group setting a price based on actual conversation among Contractors to artificially set the price in a given area just because they could get away with it. Incredible! We were dumbfounded. We had, before this revelation, SUSPECTED such a thing, but didn’t really think this had been formally agreed to during a Contractor situation, like a local GC meeting. And here was one of their own, revealing this information. He said he couldn’t remember exactly who said what, only the gist of what he overheard others saying during a break in a meeting, so pursuing this will result in nothing. And we do not intend to pursue that. Instead, we intend to correct it, by offering honest services of ours and those of Contractors with integrity.
Before this, we were like a blind person figuring out what an elephant must look like, by feeling their way around it. And so, with our experience of being told “No” to Fixed Price contracts by every GC with whom we asked to bid our modest project (and with outstanding documentation), that led us to conclude that perhaps there may have been some sort of discussion or agreement between them to only offer that type of arrangement (Cost Plus) and furthermore, to agree on certain prices ranges as being the minimums and larger amounts as the norm for certain neighborhoods. But we were merely guessing.
And so: now we have discovered the reality: it appears to be true! Like Woodward and Bernstein and Watergate. And we can tell you what we’re going to do with this bombshell: nothing.
That is, other than this humble website post, revealing what one Contractor confided in us as the reality of what’s going on around here.
And: we suppose we’re going to keep bringing in our Ace in the Hole: the honest GC from out of town that’s building our own house project for about 1/3 less than the local GCs. We’re also turning our Clients on to them: the only nearby (but not defined as “local”) Contractor that will offer a Fixed Price contract to our Clients. If other Clients demand to use the other local GCs that charge an arm and a leg, we guess that is their unfortunate decision. They’re grown-up adults and if they want to squander their money, that’s their choice, foolish as that may be. But for those that would appreciate a better value, we will keep introducing our “good guy Contractors” to our Clients that want more bang for their buck, based on our detailed documents. That’s they key to obtaining a good Fixed Price contract from a GC: having excellent and well-detailed architectural documents (and structural engineering).
But it’s interesting. This will probably go slowly. Few people will read this and even fewer contact us and ask us to design their projects and have our ace Contractor build their job. Most people think they know the score and are able to make wise choices because they are such good judges of character and their neighbors used thus and so, so they will too. Unfortunately for them: not when nearly all of an entire geographic region has the situation agreed to as being in the Contractor’s best interests rather than the Owner’s. And right now, it appears like HOME ARCHITECTS is about the only way out of this dilemma. It took us going through it for ourselves to discover what’s going on behind the scenes. The result: our obtaining pricing about 1/3 less than the going rate in these parts, for an award-winning project. If any of you reading this want to experience a breath of fresh air in terms of Contractor pricing based our great designs, give us call and let us help you.
Others of you used to business as usual, using those whom have been doing it forever, enjoy being charged too much for the construction of your project based on skimpy documents. We are not going to participate in that. There seems to be no end of both licensed and unlicensed people in this area producing skimpy documents for a custom house: 3 sheets? 7 sheets? 12 sheets? How can that possibly be enough to PROPERLY define a quality project. And NO specifications? So where does the GC get the quality of the materials? How about: himself? And how much does the Owner know about these choices? So what does it take to properly prepare a set of documents for even a modest custom house project? Do you really want to know? You do? Okay, here’s what we did (and we consider this to be not as detailed as we would have preferred):
G1: Title Sheet, Permitting Authority information, overall main 3D image of project.
G2: Index of drawing sheets, Project Notes regarding organization.
G3: Project Location Map, Abbreviation notes used definitions, Drafting conventions used.
G.4b: Multiple 3D images of project, from various angles, making it obvious to builders what the project is too look like and how the main geometry goes together.
A2.1: Overall Survey (showing what’s at the project site Before construction begins)
A2.2: Intermediate Survey (blow up of the survey showing the immediate project area).
A2.5: Intermediate Site Plan (showing site work overall)
A2.6: Detail Site Plan (showing detailed site work at and around the proposed house).
A3.1 1st Floor Plan (1/4″)
A3.2 2nd Floor Plan (1/4″)
DETAIL PLANS (because 1/4″ scale doesn’t show enough detail)
A3.1d 1st Floor Plan (1/2″)
A3.2d 2nd Floor Plan (1/2″
A6.1: Front Elevation
A6.2 Rear Elevation
A6.3 Left Elevation
A6.4 Rear Elevation
A7.1 Middle House Building Section (Front to Rear)
We wish we had done a few more sections, but we felt we had to cut some corners. We wished we could have had more time to do a Transverse Section and a section through the Pantry & Garage.
Many Architects have very complex and detailed scheduled for Finishes and Doors, with 1 or more sheets for each of these. We used to do that also. However, we have refined new ways of doing things that allows us to handle this more efficiently on many projects, but instead other more compact systems we insert into our specifications. We can’t do this on all projects, but this job was only around 2,200 HSF. So here we are cutting some corners, trying to make the set as compact as possible.
A11.1 : Kitchen Cabinetry
A11.2: Cabinetry in various spaces
Once again: we wanted to show ALL the cabinetry, but we cut some corners, because this was for ourselves and we know the Contractor. Can’t/shouldn’t do this on most jobs. And so here we are trying to compact the set of document, for those thinking the set is too large. No it is not.
A12.3d: Garage Entry Sill
A12.6rail-1-b: Guardrail Details (not to be confused with Hand Rails: they are NOT the same)
A12.6post: Wall base, wind posts, post bases, shear wall, bracing, bracketry.
A12.6brace: Deck Bracing
A12.6cab: Cabinetry Typical Details
A12.7c: Flashing Edge, Soffit, Wall details.
A12.7x: Rear Door Flashing- Window Wall Section Details
A12.8a2: Window Section & Wall Details-Rain Screen
A12.8b2: Window Details: Flashing Tape & Flashing Sequence (which other local GCs have asked us to give them so their crews properly install theses systems and we did so).
A12.8d-4: Door Detail Thresholds
A15.1: Specifications section 0-7
A15-2: Specifications 8-17
Note: this is extremely compact for a custom house design: houses are much more detailed than most commercial projects and deserve better documentation.
EG.1: Electrical Systems Legend
E3.1: Electrical 1st Floor Plan
E3.2: Electrical 2nd Floor Plan
Unless of course, you’d prefer an Electrician making these choices for you than your Architect.
S3.1F: Foundation Plan
S3.1: 1st Floor Framing Plan
S3.2: 2nd Floor Framing Plan
S3.3: Roof Framing Plan
Total: 38 Sheets 24″ x 36″.
Anyone doing it in less sheets for Clients cannot possibly be including the same information.
And, as Paul Harvey used to say: “Now you know the rest of the story.”
We will leave you with one final saying: don’t be “Penny wise and pound foolish”.
This means: don’t cheat yourself by only paying your Architect to produce skimpy documents.
The little you think you saved there will come back to haunt you in the HUNDREDS OF THOUSANDS OF DOLLARS, IF NOT MILLIONS, when your Contractor insists that he has to compel you to sign a Cost Plus contract instead of a Fixed price, “BECAUSE THERE ARE TOO MANY UNKNOWNS.”
There won’t be many unknowns, if you compensate your Architect to produce detailed documents.
And well worth it. That will help you obtain a Fixed Price contract, so you’ll know what you’re going to spend on your new house project Before the construction begins.
You have just been shown one of dirtiest secrets in the construction industry. And knowing how pervasive things are with respect to doing business as usual, we suspect that this information will likely have very little impact on how things are done around here.
Except with our Clients. They get to enjoy much better construction value from our detailed documents.
tags: cashiers, lake toxaway, highlands, glenville, sapphire, sevierville, timber frame, post and beam