Many times clients come to our showroom to talk about their remodeling project and ask to do some part of the project themselves or buy the materials and have them on the job site for us to install. We try to understand exactly what role the client is asking us to perform. Here are the main three methods we consider:
FORMAL PROPOSAL METHOD (FIXED BID)
Contractor takes total responsibility for job and all risk factors.The remodeling proposals are based on the costs of labor and materials, company overhead and profit, and the amount of risk involved in each remodeling project. All these business costs are included in each formal written proposal. Barring any additional work or unexpected conditions (e.g. compromised subfloor and floor joist), the total charge for the project is stated in the formal written proposal.
COST PLUS METHOD
Contractor takes total responsibility for the job; however, the client takes total responsibility for the bottom line cost, which could be above or below the estimated cost. The contractor provides the client with a best estimate for the total project cost. Actual labor and material costs are recorded and based upon these total project figures: a 25-30% for overhead (industry norm for remodeling projects) and profit, which are added to the final job cost. The client accepts the risks and the final job cost could be more or less than the “Formal Proposal Method” listed above. From the contractor’s point of view, this method is best when the variables are not all apparent.
CLIENT AS CONTRACTOR METHOD
Client acts as their own general contractor and assumes full responsibility and risk. Client purchases all materials and contracts with subcontractors to complete every aspect of the entire job. The client has the responsibility to contract directly with all the tradesmen (e.g. plumbers, electricians, tile setters, drywall finishers, painters and finished carpenters) to complete the entire remodel project. The client accepts both the responsibility of the project outcome and the risk of the final job costs that could be more or less than the “Formal Proposal Method” or “Cost Plus Method” listed above. However, with this method the client will save the 25-30% overhead and profit that he would pay in the two methods listed above.