Brad asks: On remodels, are supervision costs typically included in contractor’s percentage fee or are these billable?
Steve Bliss, of BuildingAdvisor.com, responds: There is no definitive answer to your question as different contractors handle this issue differently. Some bill for all supervisory time, some bill for only specific types of supervisory time, and some bill for none and cover it under overhead.
The critical thing is that the contract clearly spells out which costs are reimbursable – and which are not. In my experience, the most common approach is for contractors to bill for time they spend on the job site, whether swinging a hammer or supervising, but not for time spent in their office or elsewhere. This time is usually paid for as overhead.
The logic is that if the contractor were not on the job site doing supervision, then he would be paying a job super, project manager, or lead carpenter to provide supervision and would be billing for their time. Small contractors who spend time on the job doing supervision while also swinging a hammer certainly charge for their time on the site at whatever rate they bill their own time. They may charge a different rate for carpentry work vs. management time, whether spent on or off the job site.
The question gets a little more murky with time spent off-site doing necessary job functions like tweaking plans, meeting with suppliers, or attending meetings with the owner. Some contractors distinguish between regular meetings and discretionary meetings called by the owner to, for example, revise the plans.
While some contractors try to charge hourly for some of these off-site management tasks, this is not a popular concept with customers, who may view this as “double dipping”. That is, it looks like the contractor is getting paid for this twice – once in the markup and again as a billable hourly charge.
Whatever approach is taken, it should be spelled out clearly in the contract. For example, the Contractor’s Legal Kit, created by my colleague Gary Ransone (www.constructionlawhelpline.com ) includes a cost-plus contract that says the contractor can bill for “Contractor’s or Contractor’s supervisory personnel performing off-site coordination activities or off-site job-related meetings directly related to the progress of the work…not to exceed __ hours per week.”
The widely used AIA contract which tends to be more owner-oriented, says that “expenses of the Contractor’s principle office other than the site office” are not reimbursable, but the contractor can bill for “costs necessarily incurred by the Contractor in the proper performance of the work”. Since this leaves a lot of wiggle room as to what are considered billable charges, this needs clarification when the bid is submitted to avoid disputes later.
My personal feeling – as both an owner and former contractor – is that clients would rather pay a higher markup or management fee than get billed for off-site management hours. In cases where all or some of the contractor’s management time is billed as a separate line item, it should be treated as a special category and not marked up like regular trades labor. The contractor should simply charge a reasonable supervisory rate that covers his time and costs. If he also spends time on the job swinging a hammer, however, it is reasonable to mark up that labor like any other carpenter’s.
Markup (for overhead and profit) on cost-plus contracts typically ranges from 10% to 25%, depending on the size and complexity of the job. Remodeling markup is generally higher than in new construction as remodeling is often more complicated and takes more management time.