Estimated reading time: 2 minutes, 16 seconds
In 2005, when I was just starting Levco, remodeling here in Boise, Idaho, a potential client asked to do a cost plus contract (Cost Plus means you present the actual bill and mark each one up a specified percent) on a whole house remodeling project. I was excited about it because I had no idea how to estimate correctly.
The idea of a true Cost Plus contract sounded great, because it essentially decreased my risk. What could possibly go wrong?
My brother Maurice had sent me a book written by Michael Stone called Markup and Profit and in it Michael discouraged the use of this type of contract, so I was fretting in a coffee shot at 9:00 AM and my meeting was at 11:00
I had the brilliant idea of calling Michael and, to my surprise, I found Michael’s phone number in the back of the book, and he answered the phone himself!
After explaining my situation briefly, he quickly said, “No problem, but you must be aware there are going to be two people ticked off at the end.”
“Oh” I said, “only two … I can live with that,” I thought. That was when he told me who the two people were. “The only two people that are ticked off at the end of a cost plus contract are the
- #1, The Client
- #2 The Contractor
Freaked out again, he helped make some contractual adjustments to solidify my position in the deal, and then off I went to my meeting.
I later met a contractor in town who uses the cost plus system and likes it. His biggest complaint with the system is that it requires a tremendous amount of photocopying. He went on to say that it is a fair way of working, and he swears by it.
My experience was not so good. Toward the end there were many accusations of being in the bathroom too long and working slowly on purpose, and you can guess the rest. We did eventually complete the project and it turned out well. Another lesson, learned I suppose.
Levco does do not provide a Cost Plus option any longer. My projects are all bid, which is the price for the scope of work specified. Change Orders not notwithstanding, I charge the bid price.