You wouldn’t buy something without knowing the price, right?
That’s why most products, including typical new homes, are sold at an exact fixed price (FP). With FP homes, the builder has already determined their costs and has a strong incentive to control them.
But custom homes and remodeling projects are a different story, which is why construction project management is a game-changer. Builders can’t predict every resource and material cost upfront, so they often use a Cost‑Plus‑Fee (CPF) contract.
Under this structure, the builder provides an estimate and agrees to a lower profit percentage. In return, you agree to pay for all actual project costs, including construction overruns, no matter how high they climb.
In a typical market, CPF deals can work. But Florida is not a typical market. It’s “inverted”.
There’s more construction work to be done than there are available labor and materials. Meanwhile, material costs are rising, and labor shortages persist. Then there are the yearly hurricanes, causing further delays and difficulties for Florida builders.
These forces weaken the competitive dynamics that usually help control costs. In this market, even fixed‑price jobs are vulnerable to overruns. But CPFs, the risk shifts entirely to you. You’re now exposed to all cost escalations and delays in a market geared to exploit those vulnerabilities.
That’s the injury. The insult? You’ve left the fox to guard the henhouse. A builder isn’t contractually obligated to control costs, and actually earns more profit as your project gets more expensive.
Now, the value of understanding and utilizing construction project management becomes more evident.
The fox doesn’t raid the henhouse out of malice. He does it because it’s the easiest way to get hens. Similarly, most builders aren’t trying to take advantage of owners. But when faced with supply‑chain issues, labor shortages, and scheduling chaos, cutting into your budget and timeline becomes their path of least resistance.
Even if you like and trust your builder, assurance is not insurance. A builder will always, ultimately, prioritize their own interests.
So who’s really in your corner? These are reasons why having trusted project management services for custom construction builds makes a difference.
The reality is, if the farmer knew the danger of allowing the fox to guard the henhouse, the farmer would hopefully have made another (and better) choice. The problem is, the farmer doesn’t know, which is what the fox counts on. So what does the farmer do? Get a guard dog.
That’s where Owner’s Representatives come in. They work with your team, but solely for you. An owner’s rep ensures that cost, schedule, and quality timelines stay on track. This is how owners can avoid construction cost overruns and project delays, and ensure that they’re making the best choices for their build project. An owner’s representative acts as an expert friend working both with you and for you to save you valuable time and money on your build.
Owner’s reps don’t just serve homeowners. Anyone planning to build anything can benefit from having an expert on hand to guide them through relationships with builders.
Don’t leave your investment unprotected. With CPF contracts, you’re buying something without knowing the final cost. So, before beginning your next custom construction project or while assessing your current one, ask yourself:
The honest answer? Probably not.
With 25+ years of local experience, Naples Custom Home Cost Consulting (NCHCC) offers project management and Owner’s Rep services created specifically for Southwest Florida’s unique market. We keep builders accountable without undermining their work and look for opportunities to create equity by adding value to your home.
The earlier in your timeline you contact us, the more we’ll help you save. While getting in touch before signing a contract is best, we’re happy to step in at any point before your project is completed.
Protect your investment. Gain peace of mind. Let Naples Custom Home Cost Consulting work for you as your trusted expert. Contact us today to find out how we can help you with your custom project.
Key Takeaways:
“When the cat’s away, the mice will play.” That saying applies to your construction project, too.
When you’re in town, your Builder is on their best behavior. They are responsive, attentive, and even proactive. But when you head back up north? Meh…not so much.
When Owners with ongoing Construction Projects leave town, their Builders become lax. Their “sense of urgency” fades. Communications slow. Timelines get fuzzy. Corners get cut. And somehow… The costs keep climbing.
Builders in Florida struggle to be diligent to begin with, and the circumstances in the local construction market don’t help.
Labor shortages have always been a problem. As fewer tradespeople enter the workforce and more of the skilled workers age and retire, the problem will only continue. Highly skilled professionals are already rare. That means there are even fewer qualified Subcontractors – both available and able – to perform the “high-end” work that is so prevalent in Southwest Florida.
The “high-end” work is done primarily under Cost-Plus Fee Contracts. The “high-end” work most Owners have Contracted for and expect. How can you know where your Builder stands in this Subcontractor market?
Builders, too, struggle to find and retain professionals for their own companies. Quality Administrators (Estimators and Purchasing Agents, in particular) are scarce. Consequently, poor or inconsistent communication and weak, confusing reporting are the norm. Builders are competing for all of these resources. How good is the service your builder provides you? How accurate is the information?
When navigating the market, Builders must consider all of the projects they have underway. How can you be certain they are prioritizing YOUR Project?
The Industry is also highly networked – from the Builder through the smallest Subcontractor. There are longstanding relationships in place before you came along, and those are intended to still be in place long after your Project is complete. Builders foster these relationships to try to maintain their leverage in this “inverted market”.
In doing so, they become averse to obtaining competitive bids from different Subcontractors for the work to be done. How can you be certain that your Builder is doing all they can to control the costs that ultimately get passed on to you?
To try to compensate, Builders will hire Subcontractors at a premium. If they really fall behind, they will “throw the kitchen sink” to get your job completed – including additional manpower and overtime. Whatever it takes, with little regard for the costs of doing so.
Cost tracking, “buy-out”, reporting, and administration are difficult and labor-intensive. Multiple jobs are constantly being juggled. That means that some projects must be a lower priority than others. If it is THEIR Project (a Fixed-Price Contract, Model, or Spec home), you can be sure that it will be a high priority. Yet most Owners have Cost-Plus Fee Contracts that absolve the Builder of most of the risk.
Given all these circumstances, how can you be confident that all that can be done to manage your Project is being done?
With their Clients away, Builders are further empowered – and naturally inclined – to take the actions and tactics that they too often do. Most local Builders aren’t actively trying to take advantage of Owners. They didn’t “stack the deck” – it’s all they can do to “play” the multiple hands they have!
The problem isn’t what they are doing, it’s what they are NOT doing: providing clients with diligent, thorough, and accurate Project Management. They intend to and try, but performing that work is hard, and they aren’t proficient at it. They have no obligation to do it to any measurable extent. Lacking motivation and given the circumstances, it’s understandable that they struggle with it. For most Builders, “it’s not personal, it’s just business.”
That said, owners are still highly susceptible to being taken advantage of. Ultimately, Builders must – and will – put their best interests ahead of yours. And who pays for all of the Project’s costs, no matter what they end up being or how they come to pass? Owners do.
Owners can’t really know or control the level of effort a Builder puts into managing their Project, but NCHCC can. By allowing NCHCC to “push back” against the prevailing circumstances, Owners can be empowered….
As your Owner’s Representative, we stay local—your eyes, ears, and boots on the ground. We make sure your Builder stays engaged. Far from being “anti-Builder,” NCHCC actually helps Builders by facilitating the process. We keep your project moving, your budget in check, and your Builder accountable even when you’re miles away. Your peace of mind shouldn’t require you to purchase plane tickets.
Knowledge is power, but it’s also security and peace of mind. In construction and project management, nothing could be truer. Many owners, real estate investors (REIs), real estate agent or others working with builders may not have all the knowledge they need to protect themselves and their projects from the many different risks involved. If you don’t know what you’re entitled to, how could you know to ask for it? Without knowledge of your rights, how can you defend them?
Fortunately, that kind of expertise and the knowledge owners need to understand and properly manage their construction projects is available. With help from NCHCC, property and home owners ensure they are getting what they are paying for and the home they envisioned, too.
Key Takeaways:
Well, that’s exactly what you’re doing when you sign a “Cost-Plus-Fee” (CPF) or “Cost-Plus” Contract for your custom Construction Project! Left unchecked, you will overpay for the work. Not you “might” overpay with cost-plus-fee contracts, you will. But you don’t have to. Naples Custom Home Cost Consulting offers expert Owner’s Representative Construction Services to Clients anywhere in FL, including unparalleled project management.
So, you’re considering a proposal from a Builder for a project. How do you know the pricing is accurate? Maybe you have multiple proposals that vary considerably. Why is that? How do you go about comparing them?
Most custom construction projects are built this way. CPFs are used because many unknowns preclude builders from determining a total, hard cost for the work, so they can’t offer a Fixed-Price. With a cost-plus-fee contract, the Builder agrees to construct the project for a certain, lower Fee (usually a percentage of the actual total costs) than what they would typically charge. In exchange for this concession, the Owner agrees to take on the cost-risk that the Builder normally would.
The Owner, then, is responsible for all of the Project’s costs – no matter what they end up being or how they come to pass.
Each Builder has the same motive – to be awarded the Contract. They presume that price will be the Owner’s deciding factor. Because of unknowns on custom jobs, each Builder is afforded considerable leeway when compiling their numbers. Therein lies the Owner’s problem:
Cost-plus-fee contracts not only empower Builders to provide incomplete pricing (too low), they actually incentivize them to! Why risk losing your job by providing you a complete, accurate Cost Estimate that will be higher than what you’ll get from competitors? Since the cost-risk lies with the Owner, Builders can’t be held accountable for their Estimates. Further, with CPFs, Builders usually have little to no formal obligation to control the Owner’s costs. And why would they try when, in fact, they make more money the higher the costs are! Indeed, with cost-plus-fee construction contracts, the more expensive the job, the more money Owners will unnecessarily overpay!
So, how can you know the legitimacy of any estimate you’re considering at this point?
The answer =you can’t. That is why, when you contract for a custom construction project, you are buying something without knowing how much it costs!
This is when you need to bring in a home building consultant: NCHCC!
How does NCHCC control construction costs and save you money? We perform the diligence that Builders don’t (because they don’t have to). They are reactive, we are proactive. We apply unique insights acquired over 25+ years of firsthand construction experience in FL to provide diligent Owner’s Rep services to clients working on, or considering, a project. As cost drives the entire process, we’ve developed – and now offer – a complete slate of cost Management-specific services that no other home building consultants do. Our specialty? Reconciling the contracts and estimates that Builders propose so that you avoid cost pitfalls and are empowered to make well-informed decisions.
Already signed a Cost Plus Fee Construction Contract? Project already underway? We can be brought on to any Project, at any time, just about anywhere. It’s never too late to gain – and maintain – control of your Project’s costs.
Investor that has, or is considering, a Spec home or renovation of an existing property? At NCHCC, we make you money by saving you money! By adding value to the job, we increase the equity in it and, therefor, your ROI.
The goal is always the same: build the Project for the lowest cost, as quickly as possible, and without sacrificing quality. At NCHCC, we strive to strike the optimal balance between Cost, Duration, and Quality on every Project, without undermining Builders. Let us solve the equation on yours.
Know where you stand before you sign a Contract or take a stand if you already have. The sooner you call NCHCC, the better!
Complete Scope of Cost Management Specific Services to ensure you DON’T OVERPAY for your Project!
| Invitation-to-Bid + Written Specs | Contract + Budget Analysis |
| Monthly Statement Reviews | Real-Time Project Cost Audits |
| Final Cost Consulting | Final Cost Reconciliation |
| Typical Builder Project Cost | Net Savings with NCHCC Cost Management |
|---|---|
| $1,000,000 | $80,000 |
| $3,000,000 | $180,000 |
| $5,000,000 | $550,000 |
Custom home remodeling and new custom home construction projects involve many variables, moving parts, different parties, and a range of factors (e.g., scope, size, location, etc.). That makes it easy for property owners to get lost in the construction maze. NCHCC helps home and property owners throughout Florida successfully navigate their way through it.
Contact NCHCC to make sense of CPF contracts and take control of your new custom home or custom remodeling project. Yes, cost-plus-fee structured contract options will always have less certainty. That is by design and inherent to the process. That doesn’t mean, however, that they should also be a complete mystery.
Take the mystery out of the cost plus fee construction contract and add savings, more certainty, and the control owners deserve with NCHCC by your side.
Key Takeaways:
There are three primary variables involved in any construction project: cost, duration (schedule), and quality. The overall goal for any home construction project is generally the same: build it for the lowest cost, as quickly as possible without compromising quality.
This is where the benefits of working with an experienced and trusted Owner’s representative can make a difference. These services help settle an owner’s worried questions.
Like, what is “the lowest cost”? How can one know that a job could have been done faster? Define “quality”. Cost, construction timeline issues, and quality are all concerns that need to be addressed.
Without clear answers to these questions surrounding construction cost control, one can’t definitively determine if they have fallen short of, met, or exceeded the goal. How close one comes to meeting each of these three conditions of the goal, then, is a matter of opinion – it is subjective.
Cost, Duration, and Quality are all intertwined. For example, a high-quality product will require more time to build than a project of lesser quality. The work can be done faster (e.g., expedited construction timeline), but at a premium price, etc.
Schedules can be defined, but are notoriously difficult to maintain and track. Quality is dictated by the Plans and Specifications, which themselves vary from project to project. There are established minimum standards, so Quality can be better measured, but not universally. Ultimately, Quality is perceived.
But two things are certain:
1) No one involved wants the construction to take any longer than it has to, and
2) No one wants a low-quality product.
The result? Cost is pushed to the forefront. It can be measured easily and by almost everyone. It is flexible, affecting Cost. Cost then affects Duration and Quality down the line. Cost stands apart because it controls and can itself be controlled. Cost trumps Duration and Quality. It serves to drive the entire process, including the construction timeline. How it is managed will determine whether a Project is successful or not.
The overall goal is always the same: build the Project for the lowest cost, as quickly as possible, and without sacrificing quality. It is like a math equation. And it is construction cost control that will dictate the outcome of that equation.
By definition, Custom Construction projects are subject to change. And do they ever! Constantly, in innumerable ways. Changes to a project’s Scope of Work act as added variables to the equation, complicating it and commonly throwing it out of “balance”. Custom construction timelines, therefore, require a level of diligence that most Builders struggle to meet, much less maintain.
At Naples Custom Home Cost Consulting, we are Project Cost Management EXPERTS. We strive to strike the optimal balance between Cost, Duration, and Quality on EVERY Project. By balancing the equation and seeing it through to a solution, we deliver results that best serve each client’s unique goals and needs.
Completing a home construction or remodeling project demands the ability to effectively balance the construction equation. Overspending, lengthy construction timeline delays, and subpar quality aspects of construction can all result in falling short of the project goals.
Construction project management is the answer to balancing the construction equation. From construction cost control measures to adhering to proven standards and relying on years of experience, companies like NCHCC help owners meet their home construction goals and build the home of their dreams.
Each one of the three primary factors in the construction equation must be properly managed. Improper or poor management of cost, the construction timeline, or quality leads to less-than-ideal finished projects. That is why it is necessary to effectively solve the construction equation, and why the right partner makes a difference.
Let NCHCC “do the math” for you on your Project by contacting us today.
Key Takeaways:
Any given construction project requires some combination of materials, labor, and equipment to complete: this is its “Scope of Work”. Builders will ascertain a Scope of Work (SoW) from the information available at the time—plans, material selections, job-site visits and meetings with the owner.
Next, they will cost the SoW and propose to perform the work for the owner under some form of contract and for some form of compensation. Ideally, the SoW is detailed and clearly defined.
When it is, builders can estimate the cost of the work more accurately and clarify exactly what they will propose to do. Their confidence in the information and their ability to perform the SoW empower them to take on all (or most) of the cost risk for the project and offer to do the job for a fixed price.
But custom construction projects are, well, custom. At any given point, they are subject to change. Put another way, at no point (before completion) is a custom project’s SoW completely and exactly defined.
Architectural and engineering plans are developed to define much of the Scope of Work for the project, but must often be adjusted to compensate for the actual circumstances in the field.
Architects also determine and specify many of the means, methods, and materials to be used in the building. However, they also want to allow for some flexibility, so some information is noted but purposefully left vague.
Other information—such as exact material selections—is not specified at all because it is unknown at the time, so it can’t be included in the builders’ estimated cost to build a home. Furthermore, changes—whether required or desired—inevitably and continually occur throughout the construction process.
All parties involved could take the time to determine and specify all of this unknown information, but doing so isn’t practical. For most owners, “time is of the essence”; they want to get their projects started and completed. So, to “fast-track” the project, builders become involved during design and development, working to price the job based on the information that can be determined at the time.
However, since the SoW for a custom construction project is never really 100% final, a builder can’t determine an exact cost for the job. Because they can’t determine an exact cost, they can’t offer to build the project for an exact fixed price. Simply put, a builder’s cost to build a custom home will always be undetermined until the project is complete.
A Cost-Plus-Fee (CPF) or Cost-Plus Construction Contract is a common agreement between owners and builders for custom construction projects with so many variable costs. CPFs are designed to accommodate such ever-changing jobs. However, CPFs shift most of the cost risk from the builder to the owner. This seismic shift completely changes how the project is priced and proposed by builders to owners.
With a CPF, it is understood by all involved that the owner is responsible for all project costs and that the actual costs for the builders to build a home will vary based on what the complete Scope of Work ends up being.
However, most owners take for granted that, even though the SoW is ill-defined, the pricing presented by one or more builders is more or less accurate. After all, these are reputable builders who’ve completed many custom projects—right?
Even a complete set of plans from the best architects will lack a considerable amount of information. Much of the SoW is still “to be determined.” Without this information, each builder is left to “fill in the blanks” (or not) themselves when pricing the job.
Generally, builders provide owners with a cost to build a home that reflects the available information at the time. However, they should also account for the unknowns, especially those they could reasonably discern using their expertise.
The problem? They don’t—or at least not very well.
Some builders do try to provide clients with good estimates for construction costs, but each builder approaches this differently. This inconsistency is one of the major reasons why the pricing that owners receive from different builders is often incomplete and varies significantly, further complicating matters for owners.
So, why don’t builders provide better estimates to clients? Do they lack the personnel or expertise to do so? Maybe. Are they unable—or hesitant—to invest the time required to develop a thorough estimate for a client who might not contract with them if the cost for those builders to build a home is too high? Possibly.
Most clients will want to contract with the builder offering the best overall pricing. A builder competing with others for the same project is often tempted to quote a low price.
These incentives encourage builders to keep their pricing as low as possible, and at this stage, they are empowered to do so. Including low budget amounts for parts of the SoW—or excluding them altogether—is an easy, justifiable way to provide a client with a “competitive” estimate.
Are builders purposefully using bait-and-switch tactics? Ultimately, no one except the builder can know for sure why they fail to provide clients with the comprehensive, accurate estimates they could and should.
The builder’s stance? They claim the cost to build a home that they provide can only be as good as the information issued to them for pricing.
The solution? Provide them with more, better information to determine construction costs.
How? By developing detailed, thorough written specifications.
NCHCC will develop a custom set of written base specifications for your home to supplement the plans during the bid process. These base specs will reference the project plans and reflect the job’s location, existing conditions (for remodels), and size. To realize the full value of written specifications, they must be done during the Pre-construction phase before contracting with a builder
NCHCC’s written specifications assure the project is built to the appropriate quality standards. We will seek and incorporate your input, too. Finally, we will ask the architect to approve the base specs to ensure they align with the Scope of Work as they see it.
By packaging written specifications with the plans being sent to builders for pricing for an accurate cost to build a home, you ensure that the pricing submitted is much more complete and consistent than it would be otherwise, allowing you (or NCHCC) to better assess it. The specifications can then be incorporated into the construction contract to ensure your home is built to meet them.
Written specifications provide everyone involved with clear, detailed information. Information is power. Empower yourself and your team to succeed by ordering NCHCC’s written specifications for your construction project!
There are many factors to consider when building a home, and custom home construction projects are the most complex of all. It is those complexities and the fact that plans for custom home builds are ever-changing that necessitate cost-plus fee contract structures. While these types of contracts allow for the fluidity inherent to custom home construction, they also open up an array of risks for owners paying the builders’ cost to build a home.
Although there is a general understanding by owners that cost-plus fee contracts are likely to change in cost and scope, there aremeasures that can (and should) be taken to increase the accuracy of each project’s cost estimate. This is where the value and benefits of written specifications can make a definitive difference in the time, cost, and quality of the project.
Learn more here.
Key Takeaways:
In Florida, property owners seeking to build are stymied by ever-increasing construction costs in an unresponsive construction market. Builders only make things tougher by offering one-sided contracts with high fees added on top of unreliable cost estimates that always prove to be too low.
How, then, can owners push back and make their projects more viable and equitable?
Simple: by significantly lowering those construction costs. And the secret to doing that…is being an Owner-Builder. Few people know about this legitimate option, so let’s start there.
What is Owner-Builder construction? Property owners have the right to remodel or construct a home that they will live in without having to hire an overly expensive builder to do it. An Owner-Builder takes advantage of this approach to maximize overall construction savings from the cost to build a home. They can maximize their savings by working with an owner-builder consultant who helps them navigate the process.
For most, this represents a significant amount of money—money that could be put to better use. The savings might be used to help offset the property’s purchase price or pay for upgrades to the project, thus increasing their home’s equity as well.
However, with reward comes risk. Owner-Builders enjoy complete control of the project, but they must legally take on all of the risks and responsibilities that a builder typically would. Maybe they have some experience in the construction industry. Maybe they just enjoy the process. Maybe they’ve simply done the math and concluded that the benefits outweigh the risks.
What is the cost to build a home? The answer to that question depends on many factors. As an owner-builder, you have more control over those factors.
The value is there. Indeed, the more expensive the project, the more substantial the potential cost savings. Still, Owner-Builder construction is about more than just meeting legal and insurance requirements. Owner-Builders are tasked with managing the entire construction process.
To be successful, they need help from someone with ethics, experience, contacts, and clout. Someone to protect them by mitigating the risks and helping handle their many, varied responsibilities. In short, Owner-Builders need someone they can TRUST, so they pay a fair cost to build a custom home.
As an Owner-Builder consultant, we build that TRUST by advocating for, and presenting clients with, the many choices they have, advising them on the differences between those choices, and guiding them through the entire construction process to see a project built that meets THEIR needs—whatever they may be.
We offer a complete set of services to assist owners—help that other builders don’t offer. We can be hired as an Owner’s Construction Manager and, if they choose, perform all of the same functions that a full-service builder would, including managing the actual construction of the project for them.
To help manage the costs to build a custom home, we can call on a deep network of industry-wide contacts—across ALL price points—developed over 25 years in SWFL: a deeper “bench” than any other firms have.
Owner-Builder construction offers owners the greatest potential upside. If they have the fortitude, NCHCC can help them realize that potential as their owner-builder consultant.
Owner-builders are usually well aware of the benefits that come with doing the project themselves. That being said, they must also understand the risks inherent to such an endeavour.
The potential cost savings when building a home as an owner-builder are considerable and the project is often ‘personal’ to the owner. For those who choose to build as owner-builders, the benefits go far beyond the potentially sizable savings commonly afforded to owner-builders.
From making decisions on everything from materials, design, and style, to managing contractors, timelines, expenses, and more, owner-builders must wear many hats. This is why owners choose to work with owner-builder consultants, and there is none better than NCHCC. Reach out for a free consultation before you start your new custom home project.
Key Takeaways:
If you were to buy a new, typical home to be built, you would purchase it at a certain Fixed-Price. Let’s say your home will cost $100,000.
For that $100,000, you – now the “Owner” – get a defined home built to defined plans and specifications. For example, your house will have wood-framed walls, a metal roof, and tile floors.
Builders can offer you a Fixed-Price because they are building a defined product. They determine the cost to build it and add in a figure for their overhead and profit. Traditionally, that figure is about 18%.
So, the Builder expects your $100,000 Project to cost $82,000 to build, and that they will earn about $18,000, or 18%, overhead and profit. To keep it simple, let’s suppose that the calculation looks like this:
| $82,000 + $18,000 = $100,000 |
Now, if it ends up costing more than $82,000, the Builder loses profit. If they manage to do it for less than $82,000, they make more profit. Whichever the case, the Builder is obligated to construct your home, as per the plans and specifications, for that Fixed-Price of $100,000 – not a penny less or a penny more.
This is the “risk/reward” system that drives Builders to do everything they can to control THEIR construction costs. With Fixed-Price Contracts, the Builder, not the Owner, takes on the risk for all of the Project costs – no matter what they end up being.
If, however, you were to build a new, “high-end” custom home or remodeling project – like those common in Florida – the work would almost certainly be done under a Cost Plus Fee Construction contract.
“Custom” homes and remodeling projects are complex and (usually) large. The plans and specifications for them are always changing. They are never really “final”. Still, most Owners want to get their Projects done as soon as possible. They have a budget in mind for the Project and believe that, ultimately, it will cover the total cost of the work.
So, at some point during the Pre-Construction phase, preliminary plans for the Project are issued to as many as 3 or more Builders for pricing, even though the Builders lack the information that is needed to properly price the work at the time.
As they lack final plans and specifications, none of the Builders can be certain what the ultimate cost to build the home will be. Since they can’t determine a definite cost, no one can offer to do it for a Fixed-Price. Instead, they will propose to do the work on a “Cost-Plus-Fee” basis.
Each will offer to build your home for a lower overhead and profit figure – or “Fee” – than the typical 18% they would expect to make on a Fixed-Price job. Say, 16%. 13%. Sometimes even less.
In exchange for the lower Fee, the Owner agrees to bear the risk for all of the costs of the Project, instead of the builder. Sounds reasonable – right?
The issue isn’t the Fee, it’s with the Project costs. The problem? The owner doesn’t know what they are! Builders may provide them with “preliminary” cost estimates, but none of them are accurate, because they can’t be. As the information necessary to construct the Project is still incomplete, so are the estimates. In short, estimates from Builders for Cost Plus construction contract jobs are invariably much too low because they CAN be.
The tables have been turned. Not only is the Owner now responsible for all of the Project costs, they can’t know, for sure, at this point or at any point over the entirety of the construction process, what the true costs are or will be! Now, the calculation looks like this:
| $????? + $????? = $???????? |
With Cost-Plus Fee Contracts, the Owner, not the Builder, takes on the risk for all of the Project costs – no matter what they end up being or how they come to pass.
Inevitably, Budget Creep (in tandem with “Scope Creep”) begins. Project cost increases seem to sneak – or “creep” – up as the work moves along, often as small increases, over time, over several cost line items. By the time the owner realizes their costs have spun out-of-control, it’s too late.
Owners with Cost Plus Fee Construction Contract agreements are exposed to a higher level of risk than they may think, especially in the “inverted” Construction market. They can’t know what their Project costs are, or will be, with any certainty, at any time. They can’t know from or control how hard their Builder is really working to manage their costs for them.
Naples Custom Home Cost Consulting CAN know all of these things and offers a full range of Construction Management Services to assist clients, including contract compliance and cost audits. When hired as an Owner’s Representative, we work to prevent Owners with Cost-Plus Fee Contracts from unnecessarily overpaying for their Projects by mitigating their risk and “pushing back” on their behalf.
In addition to the many unknown costs of materials, expenses, and labor, cost-plus fee contracts in the Florida market are also prone to other avoidable construction costs. Fortunately, owners can act to mitigate these risks by hiring a company that specializes in doing exactly that: NCHCC.
Owners with the cost-plus-fee construction contracts trust NCHCC to help them avoid financial pitfalls an manager their risk by acting as their owner’s representative. We perform contract compliance audits, cost assessments, and other project management to protect every owner and their investment. Before signing that contract, talk to an owner’s representative at NCHCC. You’ll be glad you did!
Key Takeaways:
In a typical market, there is a certain number of construction projects – both new homes and remodeling – to be built each year. In most areas, there are usually a few major Building Contractors (BC’s) that do the majority of that work. Within those areas, there are usually several established and qualified Subcontractors – or “Subs” – representing each Trade – like Carpenters, Roofers, Painters, and Plumbers – readily available to perform their “Scope of Work” for the BCs.
This work is highly desirable to the Subs because it is consistent and well-planned. But, since there is only so much of it, there is then a “demand” from the Subs for the work. They must compete to “earn” it from the few BCs. This isn’t so for Florida custom home builders.
Typical Subs strive to do this by:
The Subs that successfully earn the work are usually well-established. They have adequate and experienced staff for both administrative services and fieldwork, who have been employed for a long time.
In a typical Construction market, there are more Subcontractors available to do the work than there is work to be done. This creates a “demand” for the BC’s work that drives each Sub to do all that they can to earn it. Most notably, Subs know that they MUST submit competitive pricing to even be considered for the work.
Then there is another part of the story, more centered around Florida builders, where even simple tasks like finding a qualified contractor are anything but simple.
Florida is an atypical Construction market, and a market where Florida custom home builders thrive. There are consistently many more construction projects to be done – both new homes and remodeling – than in most other areas of the country. Here, there are several different Building Contractors (BC’s) vying for that mostly “high-end” work.
However, in Florida, there are NOT enough established and qualified Subs, representing each Trade – like Carpenters, Roofers, Painters, and Plumbers – readily available to perform their “Scope of Work” for BCs, mostly because there are not enough qualified people available in the local labor force to staff them.
The Florida custom home builders work in an “inverted” market– there is more work than there are qualified Subcontractors available to do it.
Here, the “demand” is FOR the Subcontractors!
Building Contractors must compete for THEIR services.
Building Contractors must seek THEM out.
The typical market is “turned on its head”.
In Florida’s Construction market, the “tail wags the dog”!
Remember how simple tasks, like finding a contractor, are anything but in the inverted market? Well, this is why.
Here, Subs do NOT need to strive to “earn” work that will mostly come to them anyway. So, Florida custom home builders deal with subcontractors who:
Highly skilled professionals are particularly rare. That means there are even fewer qualified Subs available to perform the amount of “high-end” work there is – the work usually done under “Cost-Plus Fee” Contracts.
Often, Builders doing “high-end” work need these Subs more than the Subs need the Builders. These Subs are even more empowered than the rest. Some can “pick and choose” the work they take on. Many can all but dictate their terms – like price and schedule – to the BC. BCs have little leverage to negotiate and often don’t even try to.
The inverted market “lowers the bar” for the entire construction industry.
In the inverted market, there is more work than there are qualified companies to do it. The market forces that usually drive competitive pricing and high quality are all but absent, making it difficult for Florida Custom Home Builders to control Project costs. This leaves Owners finding a contractor exposed to high pricing and poor service, and opens them up to the risk inherent in Cost-Plus-Fee Contracts.
Naples Custom Home Cost Consulting offers a full range of Construction Project Management Services to assist Clients. When hired as their Owner’s Representative, we strive to control their Project costs and maximize value, while always keeping the “big picture” in mind. We work with – not against – Builders to navigate the “Inverted” market and achieve our shared goal: successful completion of the Client’s Project.
The Southwest Florida construction market is somewhat reminiscent of the Old Wild West. With subcontractors running loose, with little or no recourse for their actions, and a seeming absence of authority to stop these unscrupulous gunslingers, the SWFL construction market can often feel wild and unruly.
Fortunately, property and homeowners have options, and most importantly, they don’t have to go it alone! That is where the benefits of having a hired-gun like NCHCC owner’s rep services can make a difference. NCHCC’s expert owner’s representative services can help owners tame Florida’s Wild-West-like inverted construction market and work confidently with Florida custom home builders.
Cost plus fee contracts are common for custom remodel and custom home construction projects, but they don’t have to feel like a showdown at high noon. Owners struggling with finding a contractor can beat the SWFL construction market and overcome the challenges of an inverted market by protecting their investment and new custom home construction projects with NCHCC. Get a free consultation now.
Key Takeaways:
The easiest question you can ask if you’re planning to start a construction project is this: do I need an owner’s representative for my custom home project?
The answer: Yes!
You wouldn’t buy something without knowing how much it costs – right? That is why most things, including typical new homes, are sold for an exact, “Fixed-Price” (FP). With FP homes, the Builder has determined – and has a strong incentive to control – what their costs are for the project.
But Custom Homes and Remodeling Projects are different. Builders can’t know exactly what resources will be needed for the job, so they can’t offer a fixed price. Instead, they will propose to do the work on a “Cost-Plus-Fee” (CPF) basis.
With a CPF Contract, the Builder provides the Owner with an Estimate of the job costs and agrees to accept a lower Profit percentage than usual. In exchange, the Owner agrees to pay for all of the Project’s costs – regardless of their final amount or the manner in which they are incurred.
This feeds into our question: “Do I need an owner’s representative for my custom home project?” Let’s think about the market.
CPF deals work in a typical construction market. But Florida is not a typical market. It is “inverted”: there is more work than there are resources available to do it. Unprecedented Material cost increases and Labor shortages exacerbate expenses. These are also reasons to consider Owner’s Rep Construction services, but more on that later.
All of the market forces that drive competitive pricing and high quality are weaker in Florida’s construction market, which continues to push costs up. This means that Project cost control is challenging on every local construction Project, whether the job is an FP or a CPF.
With a CPF deal, however, the Owner (you), not the Builder, is exposed to all the delays and cost risks in a market that exploits those exact vulnerabilities. That’s the “injury”. The insult? You’ve left a fox to guard the henhouse: a Builder who isn’t obligated to control your costs and who actually makes MORE money the higher the costs are!
Builders must compete for said resources. The Fox doesn’t raid the henhouse with ill intent toward the Farmer; he does it because chasing down hens otherwise is difficult. In fairness, most Builders, likewise, aren’t actively trying to take advantage of Owners.
Compromising an Owner’s time and money is simply the easiest way for them to navigate the “inverted” market and compensate for their own poor Project Management. How will you know how much of your time and money is being compromised?
An owner might feel a little guilty for considering our central question of “Do I need an owner’s representative for my custom home project?”, Wouldn’t that make the builder think they’re not trusted?
Owners typically like their Builders. They rely on them to act in “good faith” to manage costs, but assurance is not insurance. All Foxes Builders must, ultimately, put their best interests ahead of yours. So, who’s really in your corner? The answer is – Owner’s Representatives.
Owner reps work with the Team, but solely for you, ensuring that your needs for the Project (cost, schedule, quality) are met. With 25 years of first-hand, local experience, Naples Custom Home Cost Consulting offers a full range of Construction Project Management Services to assist Clients, including Owner’s Rep Services that no one else ever has or can.
We take every opportunity to create equity by adding value to your home, and we know how to keep Builders in check without undermining them. Yes, owner reps providing construction services work with the builders, while still prioritizing the owner’s best interests..
With CPFs, YOU ARE buying something without knowing how much it will cost. Are you really on a budget? Schedule? Is your Project being managed as well as it could be? Hint: it’s not. It’s everything you won’t/can’t know about your Construction Project that, now more than ever, will cause you to incur considerable, but unnecessary, costs.
So, finally, “do I need an owner’s representative for my custom home?”
Yes, just like a farmer needs a guard-dog for the henhouse.
In a market that strongly favors contractors and builders, property owners and homeowners need someone in their corner to ensure their needs for the project – cost, quality, and schedule – are met. From cost control and project management services to ensuring a project’s cost, duration, and quality are kept in check, owners need an owner’s rep to serve their construction project’s best interests.
NCHCC uses their expertise to empower owners to make more informed decisions. Owner rep services save money, prevent costly delays, and provide peace of mind during their custom remodel or new custom home construction.
To level the playing field and combat the inverted SWFL market, owners rely on trusted owner representative services. Working with an owner rep is like hiring a guard dog to protect the hen house. Enjoy savings and peace of mind. Contact NCHCC for a free consultation and to guard your investment.