Cost Plus vs Fixed Price Contracts, Part Two

(In the last post, we discussed the differences in Cost Plus and Fixed Price Contracts, including three things to consider when choosing between the two.  Now we will look at the last four points.)

Things To Consider:

1. It is obvious to see that the lump sum contract, if calculated properly, should contain contingencies for overages.  This would imply that a cost plus contract would save the client money.  Well, maybe… in the case of a very good, savvy builder who is also a good business manager.  To be accurate, the builder almost has to be able to predict the future.  Are material costs and labor costs going up within the next 8-10 months?  Then, those costs have to be adjusted for inflation.  What if the project stalls and ends up taking longer (for whatever reason)?  The longer the project is prolonged, the more it costs due to rising costs of materials and certain fixed monthly costs such as cleanup, infrastructure, etc.  So, if the project is fixed cost, the builder must pay these overages.  If it is cost plus, then the client pays the overages.  Why would a project stall, anyway, though?  Lots of things: really, really bad weather, the client’s daughter is getting married leaving little time to make selections, the clients are traveling in Europe, etc.  All of these have happened. Hey, wait!  You just said that the cost-plus contract situation isn’t compelled to finish quickly because the cost overruns become the client’s costs rather than the builder’s.  Hmmm….guess I did say that.
2. There is an obvious incentive in a fixed price situation for the builder to not only make his estimates for each line item but to beat them.  Is that a good thing?  Absolutely!  A more efficient job is better for the environment, better for morale, and better for the client.
3. Having said that, then there is a not-so-obvious incentive in the cost plus situation for the builder not to focus as much on controlling costs.  I hate to say it, but haven’t we just given the builder an incentive to let costs rise, since we are paying him a % of the costs?  Even without that, the most conscientious builder in the world will not be as focused on cost control and schedule because there are just a million little details to manage, and it is really hard to do this well.
4. Which of these two contract methods results in happier clients?  We think it’s the fixed price (lump sum) contract.  Trust is fostered in a fixed price situation because no one is worried about cost overruns (except the builder, but that’s his problem).  Our clients tend to enjoy the building process much more in this situation.   In addition, we enjoy it more.  The challenge of beating our own numbers and being able to delight our customers with an on-time, on-budget process is what gets us all up and out of bed every morning!  So many times, a client pursuing the cost plus situation is disappointed, even if they did save a little, with the feeling that they had to “constantly look over the contractor’s shoulder” to stay on budget.  Well, that’s understandable since the client was carrying the risk of cost overruns during the entire project.

So, all this being said, which one do we prefer?  Well, if you were to ask us what’s best for us, it’s cost-plus, especially during a period of price escalation, like we are seeing with rising gas prices now.  There have been many times that we fell WAY short of what we hoped to profit on a project because this caught us unaware. However, we prefer fixed price, primarily because it makes for a happier client in the end.  We don’t want to ask our clients to carry that burden of risk because it is our absolute GOAL for them to enjoy every day out there on the jobsite watching their home being built.  We want it to be care-free and fun!  We still do cost-plus, though, when asked.  Ultimately, the client is always right!

In the end, find a contractor you really, really trust…but “TRUST with VERIFICATION” (see my article on important research you should do on any builder you are considering in “How to Choose a Custom Builder“).  If you decide that cost plus is for you, then just understand that you are ultimately responsible for all cost overruns and make sure you have plenty of extra money to cover it.  There are all too many stories in the marketplace about cost plus jobs that never finished because they ran out of money….  Really, though, the trust issue is far more important than which style of contract you select.  A good, honest contractor will do a great job for you, and you will get much more value and benefit out of working alongside him or her than if you don’t trust them.

And this concludes my assessment and book (sorry about that) regarding the subject of Cost Plus contracts versus Fixed Price contracts.

Cost Plus vs Fixed Price Contracts: Points To Ponder

So, you have a little slice of your own piece of land in “Somewhere, USA”, on which you plan to build your dream home. You interview a couple of Builders only to leave confused about this subject: What type of contract do I want to use? Do I want to use a cost plus contract or a fixed price (aka, lump sum contract)?

Basic Pest Control Tips For Your Home

Here in the Austin area – just like any other area of the country – we deal with a variety of pests that try to invade our homes. However the two we are most familiar with, thanks to their destructive natures and sheer number of them in our area, are the scorpion and the winged carpenter ant.

The striped bark scorpion is the species of scorpion most often seen in Central Texas. While it is not usually deadly, like any member of the arachnid family (which includes ticks, mites, and spiders as well as scorpions), its sting is painful and can cause an allergic reaction in some people. It can survive without feeding for six months, and usually enters structures seeking water and shelter. Our local variety of scorpion is distinctly associated with dead vegetation, fallen logs, and human dwellings. It is common for this scorpion to climb trees and walls, and they often are found in the attics of homes. During periods of hot weather, scorpions may move into living areas to escape the high temperatures in attics.

The winged carpenter ant, while commonly mistaken for a termite, is second only to the termite in the amount of damage it can impose on a home. Adding to the confusion is that it is not uncommon for both the winged carpenter ant and the termite to swarm at about the same time. However, it is vital that they be identified accurately, because control measures differ greatly for the two insect groups. Carpenter ants are social insects that live in colonies, primarily in wood. They hollow out wood to build their nests, making their galleries and chambers velvety-smooth as if a carpenter had sanded the surfaces. Their tunneling in wood and foraging for food and water lead to their “pest” status in or around homes.

Carpenter Ant vs. Termite

The first line of defense against any pest is to control the environment, making it as uninviting as possible. In the case of these two pests, many of the suggestions are the same.

• Remove all trash, logs, boards, stones, bricks and other objects from around any buildings on your property. Because the scorpion is nocturnal, during the day it hides under stones, in piles of rocks, in cracks in masonry, in wood piles and under the bark of trees.

• Keep grass closely mowed near structures. Prune bushes and overhanging tree branches away from the structure. Tree branches can give scorpions – and other pests – a path to the roof.
• Store garbage containers in a frame that keeps them above ground level.
• Never bring firewood inside the house unless it is placed directly on the fire.
• Plug weep holes in stone or brick veneer structures with steel wool, copper mesh, pieces of nylon scouring pad, or small squares of screen wire. (Steel wool will rust when wet, so it should be used only on dark-colored facades.)
• Keep window screens in good repair. Make sure they fit tightly in the window frame.

Beyond the environmental control, there are also insecticides that are effective for controlling many types of pests, including carpenter ants and scorpions. Carbaryl (Sevin ®), chlorpyrifos (Dursban ®), diazinon, propoxur (Baygon ®), or any of the synthetic pyrethroids (permethrin, cypermethrin, cyfluthrin, etc.), lambda-cyhalothrin, deltamethrin, propoxur, or bifenthrin. Look for products containing these active ingredients, and them around the foundation of the house and up to 1 foot above ground level on the exterior walls. Also apply pesticides around doors, window eaves, and other potential points of entry. Indoor treatments should be directed at potential points of entry, corners, cracks, and crevices where scorpions hide. Follow directions on the package for dosage, mixing, and application methods, or call a pest control service to do the work for you.

Our thanks to the Texas A&M AgriLife Extension Service for providing much of this information!

Chef Brad at Silver Whisk

Chef Brad at the Silver Whisk Grand Opening on April 7th, 2011, shows us how to make homemade pasta in the new state-of-the-art Silver Whisk Cooking School, designed and built by SL Jenkins Construction (sister company to Jenkins Custom Homes).

Jenkins’ 2010 Parade Home Scores Big With Visitors!

The good reviews keep pouring in from the visitors to 301 Bisset Court, the newest Jenkins creation! Guests were overheard saying “This is my dream house” and “This one is by far my favorite”. But don’t just take our word for it! Below are some of the video testimonials captured at the home over the weekend:

Top Remodeling Tips

Remodeling your home has become all the rage these days but before you turn your playroom into a home theater, here are some things to consider:

Prioritize

When you begin to dream about all the projects you would like to tackle in your home, they may all seem like top priorities. However, if you write them all down and give them time to settle out, some will naturally rise to the top of the heap. The same is true for your spouse – there are some things that he or she would rank at the top of his or her list that may not coincide with your list. In the end, though, it makes sense to make sure that the top priorities of both partners is represented.

Budget

Once you have your plans clearly mapped out, price the entire project. You may be surprised at how quickly it becomes cheaper to build a brand new home than to remodel your existing home! But by planning it all out ahead of time, you can be careful not to let the cost spiral out of control. And remember – when pricing the project, think past the drywall and paint and consider what you will need to decorate the room when it is finished. Include this in the cost so you don’t end up without the necessary draperies or furniture to complete the room. Also, by doing the leg work in advance, you can research cheaper alternatives.

Phases

Sometimes, it makes sense to divide the project into separate phases so that it is more manageable. By laying everything out on paper, then breaking it up into smaller projects, you can save yourself a lot of hassle and better manage the overall costs.

When considering a remodel project for your home, think about your budget and weigh that against what’s most important to your family. Once you are confident that the project or projects you have chosen represent what really matters to you and your spouse, relax! Making decisions is the hardest part, but taking your time and working everything out on paper first will save you time and money – and heartache – in the long run.