We received this question from a contractor:
“A developer approached me and asked me for my service to install some roads with concrete paving and some utility piping alongside the road. I submitted my pricing of $53,000 to do the job and the developer said that my pricing is higher than the other three contractors but he wants to use my expertise. He would like me to submit a cost plus quote. How much percentage should I use?”
Why would a developer ask for a cost plus quote to replace a fixed price quote? Because he wants the very same work done at a lower price. If the price the contractor quoted was the price he needs to do the work, he can’t do it for less without losing money.
My guess is that the developer has used his version of a cost plus agreement in the past with other specialty contractors. He knows how to use it to beat them out of monies rightfully due. Depending on the wording of the cost plus document and the percentages agreed to, this is a real possibility.
It would certainly make me feel good if someone told me he wanted to use me and my company because of my “expertise”. This comment could easily tempt me to take my ego out of my pocket and do something I know could cause problems. While I’m sure the contractor has a great deal of expertise, if the developer was impressed with it he should be willing to pay for it.
Recognize that statement for what it is: flattery to get him to change his pricing.
And the developer has quotes from three other contractors? He obviously has little regard for any contractor’s time.
I explained to the contractor that it probably didn’t matter what percentage he used. If he added 30% to the cost, the developer would probably offer him 20%. And throughout the job, nickel and dime the contractor on every cost submitted.
One more thing that caught my eye. Notice that nice, round $53,000 price that the contractor quoted? Quoting a round number means your price is open to negotiation. It states, loud and clear, that you’re guessing at the price. Always quote odd numbers. You do not need the hassle of someone second guessing your numbers or wanting to negotiate. A firm fixed price should be a firm fixed price.
I hope this contractor chooses to not get involved with this project. If he gives in and agrees to what the developer wants, he’ll be doing the work the developer wants at the price the developer wants to pay throughout the entire job. It won’t be a winning scenario.
If you’re considering a Cost Plus job, I encourage you to read the article on our website listing the things that can and do go wrong.
Comments from Michael:
A great quote from Henry Ford: “It is not the employer who pays wages — he only handles the money. It is the product that pays wages.”
Gang, your product is the new home or remodeling project you’re building or helping build. Do you always keep your clients in mind?
- Return all phone calls the same day or by 9 am the next day?
- Show up for all your appointments and on time?
- Do you keep your jobs clean?
Every new home I’ve watched being built this year has had an ugly pile of junk in the front yard for the world to see. Prospective clients can see it, too, and they’re thinking to themselves, “Is that the way they’ll treat my home?”
- Do you keep a tight schedule and finish on time?
- Do you restrict the use of radios on the job site?
- Do you restrict the use of mobile phones on your job site?
If you think this doesn’t matter, remember that your clients are watching your workers yakking on the phone and are asking themselves, “Is that what I’m paying for?”
- And as a nice little extra, do you compile a before, during and after photo gallery of the jobs you build so you can present the owner with a start-to-finish photo album of their home or building?
It’s the little things that set you apart. Don’t overlook them.