I just completed a project that was performed on a Cost-plus-Fee basis. The total project cost came in under budget (barely). The agreement provided a budget divided into various disciplines (i.e., General Conditions, Concrete, Wood & Plastic, Thermal and Moisture, Finishes & Electrical). Each item came in under the budgeted amount for that category except one, and the one that didn’t was substantially higher (by a couple of thousand dollars). The question is this: is it appropriate to make an issue of the one division that was over budget even though the overall project came in under budget? I would note that the specific area that exceeded the budget was Project Management, with nothing in the project history that would specifically justify the increase (IMHO).
I'm specifically looking for a source that I could cite for reference in making my case.
It depends on what the contract says. Usually the contract defines what is and isn't reimbursable labor, and documentation requirements to justify/verify costs. The contract should also determine whether the owner has a right to an audit to verify that the reimbursable costs are in compliance with the contract, and the contract should define the procedures that must be followed to perform that audit, and the ramifications.
If this is over "a couple thousand dollars" on a project that is overall under budget, the owner's legal and auditing costs to dispute contractor's costs may not be worth it even if the contract is on your side.
That's the risk of cost plus fee: the budget isn't a guarantee, it's just a non-binding opinion. In the end costs may come out higher or lower than budgeted. In theory the owner can come out ahead on cost plus fee vs. GMC, because the contractor doesn't need to inflate the fee to cover his risks associated with all the various reasons that actual costs can exceed budgeted. But the trade off is the owner assumes those risks. As long as the contractor can establish that the costs were incurred, and the costs are of types that aren't explicitly excluded by the contract, then no it's not appropriate to make an issue out of any budget line item - though you can try and see whether it gets you any sort of good will discount.
You could think about it like you're ahead, and would be even if you'd come in somewhat over budget, compared to if you'd gone with a guaranteed max price contract, because that probably would have had 20% to 30% more markup on all categories to cover contractor's risks. What's your motive for wanting to make a case over it? Is the owner unhappy?
You know what jliffgens -- sometimes you gotta spend money to save money. Maybe the PM just worked extra hard to bring the project in under budget and didn't understaff the PM function to scrimp on OH.
NO -- it is NOT "appropriate to make an issue of the one division that was over budget even though the overall project came in under budget."
The "thing" in "the project history that would specifically justify the increase" was that the overall project came in under budget. IMHO, the PM did his job. Quit whining.
To those of you who've left sincere advice and/or constructive criticism, I thank you. I should have made it clear that the amount charged for Project Management was eight times the amount included on the schedule of values provided in the budget. Does that change the equation any? Also, having done more research on the subject, there is clear evidence that the GC is "double-dipping", that is to say, charging hourly for administrative time typically considered as overhead and generally covered by the percentage fee. I welcome advice from anyone who has an opinion regarding this practice.
Rough math using your numbers says they estimated about 5 hours and used about 40 hours? Having spend most of my career on T+M residential design/build projects, PM is one of the hardest things to estimate. How much hand-holding will the owner need? How clear are the architect's details? How many consultants are involved? How many surprises are found during construction? How much time does it take to get subcontractors to show up? How much time does the owner spend nit-picking invoices and asking questions? Those items all fall under PM and are hard to predict up front. If the total project is under budget I would be thankful for that. I prefer fixed price projects where the contractor takes on the risk for this kind of line item. On the other hand, if the project really went as smoothly as you imply, there's nothing wrong with asking for justification of a line item being over budget.
Was there a GMP stipulation in the C+F contract? There always is, and it's why it is pushed by GC's. I would also assume there was no open bid, and GC was on board from early process.
As an Architect, this is none of your business. At least not directly. Cost plus fee is a contract between owner and builder. Not you. Also this delivery method is meant for owners experienced with construction industry, but now it's pushed on literally all projects. The only time you should be worried is when GC wants to go far above GMP and they can only do so through change orders that are necessitated through designer's incompetence. Or that's their take, at least.
In this case they built something under price and decided to push the cost up to GMP price because why not. Owner got exactly what they thought the price would be.
Aug 6, 17 7:45 pm ·
·
Block this user
Are you sure you want to block this user and hide all related comments throughout the site?
Archinect
This is your first comment on Archinect. Your comment will be visible once approved.
Cost-plus-fee contract issue
I just completed a project that was performed on a Cost-plus-Fee basis. The total project cost came in under budget (barely). The agreement provided a budget divided into various disciplines (i.e., General Conditions, Concrete, Wood & Plastic, Thermal and Moisture, Finishes & Electrical). Each item came in under the budgeted amount for that category except one, and the one that didn’t was substantially higher (by a couple of thousand dollars). The question is this: is it appropriate to make an issue of the one division that was over budget even though the overall project came in under budget? I would note that the specific area that exceeded the budget was Project Management, with nothing in the project history that would specifically justify the increase (IMHO).
I'm specifically looking for a source that I could cite for reference in making my case.
1 Featured Comment
The OP is an architect I've personally known for 20+ years.
All 12 Comments
It depends on what the contract says. Usually the contract defines what is and isn't reimbursable labor, and documentation requirements to justify/verify costs. The contract should also determine whether the owner has a right to an audit to verify that the reimbursable costs are in compliance with the contract, and the contract should define the procedures that must be followed to perform that audit, and the ramifications.
If this is over "a couple thousand dollars" on a project that is overall under budget, the owner's legal and auditing costs to dispute contractor's costs may not be worth it even if the contract is on your side.
That's the risk of cost plus fee: the budget isn't a guarantee, it's just a non-binding opinion. In the end costs may come out higher or lower than budgeted. In theory the owner can come out ahead on cost plus fee vs. GMC, because the contractor doesn't need to inflate the fee to cover his risks associated with all the various reasons that actual costs can exceed budgeted. But the trade off is the owner assumes those risks. As long as the contractor can establish that the costs were incurred, and the costs are of types that aren't explicitly excluded by the contract, then no it's not appropriate to make an issue out of any budget line item - though you can try and see whether it gets you any sort of good will discount.
Jaffe's First Law: The value of a service is inversely proportional to it's degree of completion.
Welcome to Archinect, J!
couple thousand dollars seems like peanuts... what was the total budget?
Does the Owner care that the PM fee was over budget? Or are you just looking for a fight?
Whole project under budget... higher by 2k in pm fee... who cares... seems like a good job delivering the project on or slightly under budget to me.
You could think about it like you're ahead, and would be even if you'd come in somewhat over budget, compared to if you'd gone with a guaranteed max price contract, because that probably would have had 20% to 30% more markup on all categories to cover contractor's risks. What's your motive for wanting to make a case over it? Is the owner unhappy?
The OP is the owner, looking for justification to screw somebody.
The OP is an architect I've personally known for 20+ years.
In that case, refer to my previous post.
You know what jliffgens -- sometimes you gotta spend money to save money. Maybe the PM just worked extra hard to bring the project in under budget and didn't understaff the PM function to scrimp on OH.
NO -- it is NOT "appropriate to make an issue of the one division that was over budget even though the overall project came in under budget."
The "thing" in "the project history that would specifically justify the increase" was that the overall project came in under budget. IMHO, the PM did his job. Quit whining.
To those of you who've left sincere advice and/or constructive criticism, I thank you. I should have made it clear that the amount charged for Project Management was eight times the amount included on the schedule of values provided in the budget. Does that change the equation any? Also, having done more research on the subject, there is clear evidence that the GC is "double-dipping", that is to say, charging hourly for administrative time typically considered as overhead and generally covered by the percentage fee. I welcome advice from anyone who has an opinion regarding this practice.
Typically cost plus is just that, the budget is pretty much irrelevant.
How clear is the contract?
Has payment in full been made?
Did you approve the payments?
What is the amount of the overcharge?
What state are you in?
Rough math using your numbers says they estimated about 5 hours and used about 40 hours? Having spend most of my career on T+M residential design/build projects, PM is one of the hardest things to estimate. How much hand-holding will the owner need? How clear are the architect's details? How many consultants are involved? How many surprises are found during construction? How much time does it take to get subcontractors to show up? How much time does the owner spend nit-picking invoices and asking questions? Those items all fall under PM and are hard to predict up front. If the total project is under budget I would be thankful for that. I prefer fixed price projects where the contractor takes on the risk for this kind of line item. On the other hand, if the project really went as smoothly as you imply, there's nothing wrong with asking for justification of a line item being over budget.
Was there a GMP stipulation in the C+F contract? There always is, and it's why it is pushed by GC's. I would also assume there was no open bid, and GC was on board from early process.
As an Architect, this is none of your business. At least not directly. Cost plus fee is a contract between owner and builder. Not you. Also this delivery method is meant for owners experienced with construction industry, but now it's pushed on literally all projects. The only time you should be worried is when GC wants to go far above GMP and they can only do so through change orders that are necessitated through designer's incompetence. Or that's their take, at least.
In this case they built something under price and decided to push the cost up to GMP price because why not. Owner got exactly what they thought the price would be.
Block this user
Are you sure you want to block this user and hide all related comments throughout the site?
Archinect
This is your first comment on Archinect. Your comment will be visible once approved.