Do you generally think of contractors as trustworthy? Well, you’re not alone if your answer was a resounding “NO”. The issue with the client/contractor relationship is that one thinks the other is trying to get the best of them. That's just not the way I want to start any lengthy, and expensive relationship. I think the trust gap is probably the biggest hurdle to tackle in most endeavors, including the one I'm presenting today.

My Situation:

I recently got approached by a very dear friend who asked me to do a full renovation (design & build) of his bathroom. I'm an architect, and I've done some supervision work, but never a FULL design and build. So, how do I go about this? How do I charge one of my best friends for a job I've never done before? "Just Google it"? Well, I did; but here's a distillation of that lengthy process for whoever might come across a similar situation.

My Options:

There are many pricing models I came across during my search, FP, FFP, FFE, FPI, LS, T&M, CR, and on and on. The one that grabbed my interest was the Cost-Plus Contract, basically, it is a method in which the contractor (or seller) provides a list of the direct costs that the project has incurred. Let’s take the aforementioned bathroom renovation as our example, in this case, the costs would be the tiles, the ceramics, the vanity, the subcontractors (tiling, plumbing, electric), etc. So I would present the client with the direct invoices for all of these costs - and here comes the ‘plus’ part - then I’ll add my fee on top.

Now there are a few issues that come to mind. Firstly, if the contractor is just going to add a fee on top of his costs then there is no incentive to keep the cost down. Second, the client has no way of knowing upfront what their project may cost them and it might far surpass the allowable budget. But there are ways to mend these two problems by adding a few “fail safes” that make the terms much more favorable for the client.

Now before telling you what the decision I came to in my case was (just skip to the end if you want that part) I have to explain the pros of the cost-plus model. First, the level of transparency required between client and contractor will allow the client to totally see where their money is going and how it’s being spent. Second, with projects with uncertainties (like a renovation project) the contractor can avoid over-quoting a price too much because of fear of hidden costs. With the added “fail safes” this is only going to get better.

So, my mind went to the issues and how to fix this type of contract and make it favorable for both. I think there are a few things that if included in the cost-plus model make it the best choice for what I’m doing:

  • Make is a cost-plus-a-fixed-fee
  • Give a detailed breakdown of the scope of work and specs (no surprises)
  • Give a guaranteed maximum (again no surprises)
  • Set up incentives for under-budget or under-time work

Maybe this is just my inexperience talking, but I really think the more transparent nature of the cost-plus model is great and can help build good trust between client and contractor. It might work for smaller projects (like what I’m doing) but might get too complicated once the projects get larger. In my situation, I’m going to use a cost-plus-a-fixed-fee contract, build in a detailed breakdown of the scope, a guaranteed maximum, and the added incentive of finishing under budget or under time.

I’ll update this post with what my first client thinks about it and how the work went in regard to the contract and payment.

The Update:

This whole write-up and thinking process went out the window the moment I presented it to my best friend, he wasn't worried about all these details, all he said was:

"Just start the project, and invoice me in the simplest way possible, don't make things more complicated than it has to be before you even start"  

So I scrapped the idea, I'll revisit it maybe for later projects, but for now, I will take on this project with a simple fixed price split into a payment plan that works for both of us :).

Sources:

https://ak-law.ca/different-types-of-contract-pricing-models/

https://buildingadvisor.com/project-management/bidding/cost-plus-bids/