How Much Does a General Contractor Cost?
General contractors are project overseers and they typically bring together the people needed to complete a job. They hire each sub-contractor and add a mark-up percentage to the sub-contractor's cost. Many general contractors also have their own crew of laborers, for which they charge an hourly rate. Typically the contractor' s crew will be general carpentry trades people, some who may have more specialized skills. Exactly how a general contractor charges for a project depends on the type of contract you agree to. There are three common types of cost contracts, fixed price, time & materials and cost plus a fee.
Each contract type has pros and cons for both the consumer
and for the contractor. While you, as the consumer, are obviously
interested in the pros and cons for yourself, understanding
how the contract affects the contractor also provides valuable insight.
Fixed Price contracts are just what
like they sound like. The contractor bids your project for a specific
price and that is how much it will cost...in theory. For small, simple
projects, you can probably count on this contract to work for you and
for your contractor. However, for larger and more complex projects, the
final cost is likely to be higher.
The reason that the cost will probably increase is
the high likelihood that there will be changes to your
project. Some of the changes may come as a result of changes you make
and enhancements to the project, but some changes result from the unexpected.
Through no fault of your contractor, unexpected problems will likely
crop up. Things like a wall being opened up to reveal termite damage
or pipes that can't be easily relocated or an interior wall that turns
out to be load bearing.
So what happens when the unexpected happens. The contractor
will draw up a "change order" listing the additional work and
materials required and a price to complete the work. While the builder
may have been a low bidder on the original contract, they don't have
the same incentive to give you a bargain price on change orders. That
isn't to say that they are going to rip you off, but you need to keep
an eye on change orders and evaluate whether they are reasonably
priced before approving them.
the contractor have built these unexpected but likely complications
into the bid? Yes and no. Asking a contractor to bid the unknown isn't
really a reasonable expectation. Furthermore, in creating a bid, they
are competing with other builders and don't want to add on costs that
another builder might leave out of their bid. Therefore, bids generally
reflect best case scenarios.
Shouldn't they be required to do the
work for the original bid? Maybe, it depends on the specifics of the
contract. In some cases, the contract might specify that the work be
completed, and all reasonable means shall be used to do so. However,
what is reasonable? If an ancient burial ground is discovered under your
house, that shouldn't become the builder's burden. If the builder breaks
a window on the job-site, that is a cost for them to absorb. But what
if asbestos is discovered? Asbestos can be expensive to remove, who should
bear the cost? Generally, some such occurrences are routine and the builder
should incur the cost. However, if the problem is extraordinary, exceeds
routine work or requires substantial additional work, it is probably
the burden of the homeowner.
With a fixed price contract, the builder can incur cost
overruns, which they absorb. When that happens, some contractors may
be tempted to cut corners in order to complete the project and still
make a profit. Some corners being cut may be the use of lower cost materials, or rushing a crew to complete work more quickly (and possibly not quite as well). An example of material quality substitution is the use plastic pipe instead of copper. Copper is superior but more expensive. If your contract doesn't specify copper, then the contractor may substitute reasonable materials. Finally, any changes, deviations, or modifications
from the original plan will result in a change order and additional cost.
Time and Materials contracts establish a schedule of
hourly charges for the laborers, a mark-up fee for materials and a mark-up
for all subcontractors. Ideally, the subcontractors will provide fixed
price contracts and a detailed "scope of work" for the work to be performed.
In this scenario, the builder will complete the project as described
and will incorporate any changes requested or required to complete the
project. If you add work to the project, the price goes up accordingly.
The mark-up is the profit for the builder. If the scope
of work increases, the cost for the work increases and the mark-up is
applied to the additional expense. The problem with this contract is
that a builder may not be motivated to work as efficiently as they could.
Additional hours spent working come out of your pocket, not the builder's.
Cost Plus contracts are similar to
time and materials contracts except that instead of a mark-up applied
to every dollar you spend, the builder has a preset fee. Their profit
is fixed, and the more time they spend on the project, the lower the
percentage return for them. For instance, if their fee is $1,000 on a
$10,000 project, they make a 10% profit. However, if the project ends
up costing $20,000, their $1,000 fee yields only a 5% profit. The builder
is motivated to get the project completed, but overruns don't hurt them
so badly as with a fixed price contract; they don't have to cut corners.
Choosing the right contractor: There
are honest people out there, there are greedy ones and there are dishonest
ones. Most people fall into the first category, some into the second,
and a few fall into the last category. Whatever contract you use, you
will probably do fine as long as you avoid unscrupulous builders. You
may not be able to avoid a greedy builder, but by keeping a close
eye on costs and being ready to get bids from another contractor you
can probably avoid spending too much. A cost plus contract may not
save you money, but it probably favors you and your builder equally,
and for that reason may be your best choice.
But how much does it cost? The builder
effectively increases the cost of the project by a percentage over what
the sub-contractors charge. If you hired those subs directly, you could
save that percentage. However, the general contractor's oversight can
also save you money. The contractor can make sure the subs are doing
their job completely, properly and for a reasonable cost. The contractor
can make the project go more quickly by virtue of their experience (over
yours and with you hiring subs) that can save you money. The contractor's
familiarity with local building codes, building inspectors, sub-contractors
and access to lower cost materials can all work to save you money. So,
how much does a contractor cost, anywhere from 5% to 25% of the total
project cost, with the average ranging 10-15%. However, it is possible
that a contractor may save you enough money, time and frustration, that
they pay for themselves.