Time and material, or cost-plus contracts, first appear to homeowners as a blank check for disaster when contemplating a remodel. Unknown conditions and unscrupulous reputations create boogies that make any Halloween night seem tame.
As part of the decision or after deciding on a builder, the next important bullet point is the type of agreement that will set the tone for the relationship throughout the course of the project and possibly far beyond. The consequences are potentially huge and indefinably dynamic.
A fixed price contract is the first most obvious choice for the owner who expects to purchase a remodel like a shirt off the rack. For the agreed price of X dollars, a list of details is established to be completed satisfactorily before payment is issued; no surprises and only negotiated pain. While it is clean and seems risk free, the line in the sawdust, unfortunately, has less obvious drawbacks.
With little room to cope for a surprise behind wall number two or unpredictable conditions of weather and sub schedules, the contractor, no matter how conscientious, may be forced to make compromises to minimize the damaging effects to his own best interest. The fixed price forces a focus on profit over quality that may not be apparent until paint peels or the floor finally squeaks in alarm a few years later.
Conversely, if all goes well, the homeowner ends up paying much more than it actually cost.
A contract based on the actual cost with a mark-up for the contractor’s efforts may feel like an open wound about to bleed profusely, but with proper bandages applied, often ensures a completed project with a more balanced result. Better than a win-win, the contract that pays for what it actually costs can create a trust between the parties that makes an ordinary project brilliant.
A time and material contract shows every invoice for materials and sub-contracts, adds an agreed upon percentage for the contractor’s risk and warranty, and charges labor at specific rates per hour. Bills are presented weekly or twice monthly and due immediately, providing full transparency and continuous opportunity to re-evaluate the relationship at each juncture.
In this version, an honest relationship is critical and attention to detail ensures a good outcome. The builder makes every decision on quality first and cost second while the owners are able to tweak the design without constant stressful and time-consuming re-negotiations.
Assuming there is not the luxury of an unlimited budget, the builder is not forced into the position of always saying “no” to changes or having to seem like a “nickle and dimer” having to revisit the contract at every new idea. It is important, however, to regularly update owners on the effects of apparently small changes that can actually change the bottom line significantly.
Trust the Process
The most important concern in a time and material contract for the owner is that the labor cost will be out of control. Owners can be quickly consumed by the minutia of pennies and lose sight of the dollars saved by efficient planning. Animosity can brew while the carpenter whistles merrily along.
It is easy to be swept up in a day of counting coffee breaks and judging production on the basis of over-heard conversations. Idle stances may disguise industrious calculations and a casual huddle may not show the hours saved in scaffold building afterward. After two days of absence, the quality of doors painted in a dust free environment is missed in the lack of apparent activity.
Accountability & Communication
With today’s software and text messaging standards, there is no reason to leave customers or builders in the dark as the process evolves and questions arise. Fears can be quickly and easily laid out for solutions.
Programs like Quickbooks, the industry standard, can easily tabulate every nail and hour on or off the site. Microsoft Project and other CPM software present a schedule and chart the deviations and delays. A spreadsheet comparing the estimate to the actual costs with projections to finish can keep anxiety under control.
Ultimately, the kitchen table still reigns supreme at the end of the day where a cup of coffee or cold beer keeps the conversation human and on task, focused on the facts. The ability to speak openly as partners on the project makes all the difference to the quality as egos and ownership are dormant and the goals are aligned to make it the very best it can be.