Housing and Community Development

This message has been cross posted to the following Discussion Forums: Small Project Practitioners and Residential Knowledge Community .
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We're building our own home and expect wholesale pricing from the contractor, because the end product showcases both our work. Our contractor proposes marking-up his supplier's already marked-up prices, 'to receive deliveries, chase down missing parts etc.' Fair enough, or is it? Appreciate some feedback and thanks.


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Heather Johnston AIA
Principal
Heather Johnston Architect
La Jolla CA
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I would consider it fair...but no more than 10% markup, if you are both agreeing to the project being a showcase...and no profit/overhead on top of the markup... As both an architect and a contractor, I would consider that to be fair... ------------------------------------------- Tonya Dale AIA Principal 4D Designs LLC dba 4D Design-Build Kailua HI -------------------------------------------
Original Message: Sent: 11-20-2011 13:55 From: Heather Johnston Subject: Architect's Own Home/Contractor Pricing This message has been cross posted to the following Discussion Forums: Small Project Practitioners and Residential Knowledge Community . ------------------------------------------- We're building our own home and expect wholesale pricing from the contractor, because the end product showcases both our work. Our contractor proposes marking-up his supplier's already marked-up prices, 'to receive deliveries, chase down missing parts etc.' Fair enough, or is it? Appreciate some feedback and thanks. ------------------------------------------- Heather Johnston AIA Principal Heather Johnston Architect La Jolla CA -------------------------------------------

Be careful taking a discount.  Ethically, in my opinion, if you do take a discount from the contractor, you would be obliged to tell every client from here on that the contractor worked for free or a discount when you recommend the contractor.  If you don't, in my opinion, that is a bit unethical, since your recommendation would be tainted by the freebies you received.  I had my favorite contractor do some major renovation work on my house.  When he sent his invoice, he showed a 10% discount.  I paid him in full, including the 10%, and told him I wanted to be able to enthusiastically recommend him without reservation, and without having to tell clients he discounted his services to me.  He did fantastic work, and deserved both the 10%, and all the exposure and future work he received.
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Suzan Lami AIA
Lami Grubb Architects, L.P.
Pittsburgh PA
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Original Message:
Sent: 11-21-2011 00:17
From: Tonya Dale
Subject: Architect's Own Home/Contractor Pricing

I would consider it fair...but no more than 10% markup, if you are both agreeing to the project being a showcase...and no profit/overhead on top of the markup... As both an architect and a contractor, I would consider that to be fair...

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Tonya Dale AIA
Principal
4D Designs LLC dba 4D Design-Build
Kailua HI
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There is nothing unethical about engaging in a joint venture with a contractor, either continuously or project-by-project. Joint ventures can be extremely helpful in keeping both the architecture firm and the contracting firm going under the current economic conditions. They can help architects reach clients that would be unreachable otherwise.

Engaging in a joint venture while representing oneself as an unbiased, objective source of information about a partner contractor is unethical. But the OP didn't indicate that's what she's doing. Some architects are willing to pass up the few clients who need that unbiased relationship with contractors to reach the many clients who can benefit from a joint venture relationship.

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Sean Catherall, AIA
Herriman UT
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Original Message:
Sent: 11-22-2011 09:29
From: Suzan Lami
Subject: Architect's Own Home/Contractor Pricing


Be careful taking a discount.  Ethically, in my opinion, if you do take a discount from the contractor, you would be obliged to tell every client from here on that the contractor worked for free or a discount when you recommend the contractor.  If you don't, in my opinion, that is a bit unethical, since your recommendation would be tainted by the freebies you received.  I had my favorite contractor do some major renovation work on my house.  When he sent his invoice, he showed a 10% discount.  I paid him in full, including the 10%, and told him I wanted to be able to enthusiastically recommend him without reservation, and without having to tell clients he discounted his services to me.  He did fantastic work, and deserved both the 10%, and all the exposure and future work he received.
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Suzan Lami AIA
Lami Grubb Architects, L.P.
Pittsburgh PA
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Hello Heather, and bless you for supporting the US housing market in this time of need.  Regarding your builder, I would suggest what I have done in the past, which is, offer to pay your contractor on the same day he bills you, at your bank, with him signing a partial lien release for the work he has done (subject to clearing of your check) in the amount for which you are paying, notarized by a bank employee.  I would also suggest that you consider having your builder provide a partial lien release for each of his subcontractors in the amounts of their work to date (that will be harder to obtain).  That way, you would be protected from possible liens on your property for the amounts you are paying, and your builder gets paid on the spot, without having to wait for the mail or for you to issue a check by mail.  Most builders will appreciate the payment on the same day, and will likely have no problem with their partial lien release, but the complications of obtaining subcontractor partial lien releases will probably be met with resistance, because your builder probably will not pay them until you pay him (and even perhaps not for a while after that). 

Regarding what your contractor wants to charge you; that's really a bottom line decision between him and you.  If you think you can get a better deal somewhere else for equal or better quality of construction, you can always consider others, which is the basis of our free market system.  

Enjoy the build and your new house! 

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Rand Soellner AIA
Architect/Owner/Principal
Rand Soellner Architect
Cashiers NC
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Heather,  Most of the projects we work on with contractors, even the clients get the contractors usual 40% discount and there is no mark up at all.  At least that is the case when they are doing the job at a 15% fee.  It really depends on how your contractor is making his money.  Paying him a set fee or a percentage and giving you the full discount is fair to everyone, he makes his money and you get the best pricing.  Depending on the cost of the house, even the fee maybe be less than 15%, or maybe you just negotiate a set fee for the job regardless of the cost of the house, and you just pay the invoice amount for lumber, tile, or whatever.  The contractor should be giving you a REAL break if you select him for your house, it will turn into work for the both of you down the road.

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Thomas Wagner AIA
Thomas B. Wagner, Architect
Haddonfield NJ
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I recently did a major renovation on my own home.  I was the G.C. on the project.  Since I hired all of the sub-contractors and purchased all of the materials myself, I got tremendous discounts.  From my cabinet supplier to my solar panel installer - they were all happy to provide products and services at contractor prices and below. However you've hired a G.C. who will need to take responsibility for the supplies he buys, and it is only fair that he make a little markup on them.  I know first hand that it's a huge job to coordinate all the supplies and timing on a construction site -- and regardless of how good your G.C. is, there will always be suppliers who get something wrong or don't deliver on time etc...  Fixing or preempting those mistakes is very time consuming.  
Perhaps the only way to work with a contractor and get the big savings on supplies and sub contractors is to have the G.C. work as a Construction Manager for a flat fee.  You can let him assist with the takeoffs but you pay for the materials and sub contractors directly.  The only problem with this is that it's very time consuming and this level of involvement will interfere with your ability to run your architecture business.  
In the end -- for your business and your sanity -- if you have a contractor that you trust and overall you like his price, let him get his markup and keep your business running.  You'll both do better that way.

Good Luck,    

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Jason Taylor AIA
Managing Member
J. Taylor Design Group, LLC
New Rochelle NY
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A lot of potential mark-up savings have been cut out of the equation with direct buy companies and the economy. Still, some mfg's respond well - windows, lighting, and plumbing for example if you can contact the mfg or rep directly. Your local lumber yard & supplier can give you a decent discount - same as their high volume builders. That way you pay the material bills that your contractor doesn't have to. Your contractor might offer a bit of discount as well, perhaps a couple of %. Depends on how good a client you are, and how much you do yourself. For his subs and products - it depends. If you have a relationship with a fixture showroom, they should give a break, and warranty the parts. If you order on-line, you're on your own - you can save some money but can get burned on occasion. The 'showcase' angle might fly in certain circumstances - an eager young builder or if there will be terrific exposure, but I wouldn't bet on it.


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Christopher Vlcek AIA
Littlewolf Architecture
Great Barrington MA
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I think "fair enough".  My experience is that if you want wholesale prices, you need to go to the wholesaler, purchase the item, and see that it is delivered and that it is ready for installation at the proper time.  If the Contractor provides the materials, the Contractor needs to be paid for that part of the work.  You may be able to get a break on some product prices by talking directly to the product supplier, but if the Contractor is handling the delivery and coordination, there will be a charge, and that's what the Contractor's "mark-up" is for.  But remember, that the handling of the products (and cost) is the same, regardless of the purchase price, even if the purchase price is free.

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Richard Pugh AIA
Director, Facilities Standards and Specifications
Walt Disney Imagineering
Glendale CA
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Hi Heather,

My husband is actually a contractor so I have a bit of insight on this.  I think it really depends on your overall form of agreement with the builder.  I find that most sub-contractors and suppliers will offer an architect a substantial discount for work on their own home so it might make sense to simply pay for some items directly but that means you'll be responsible for ordering them correctly, getting them to the building site on time and chasing down any loose ends.  You may be able to come to an agreement with your builder where you pay for most expenses directly and simply compensate the builder for his employees work and his time on the project plus a percentage or flat fee mark-up that will compensate him for his coordination of your owner provider services and products.  

If you expect the builder to perform all the services he would perform for a traditional client then I would expect to pay him for those services....perhaps at a somewhat reduced mark-up if you have an ongoing relationship with him or he can reasonably expect to see additional work as a result of this project.  I would have the same expectations of any sub-contractors or material suppliers with whom you have relationships...otherwise, you are just another customer.  It really comes down to the kinds of relationships you have developed with builders, sub-contractors, manufacturers reps and others over the years....they need to believe that in helping you they will be investing in the opportunity to build your projects in the future.

Good luck....it's always exciting to work on projects for yourself and a great opportunity to see the whole business from the client's perspective.

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Michelle Plotnik AIA
Architect
Michelle Plotnik, AIA, Architect
Murphys CA
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Original Message:
Sent: 11-21-2011 11:52
From: Richard Pugh
Subject: Architect's Own Home/Contractor Pricing


I think "fair enough".  My experience is that if you want wholesale prices, you need to go to the wholesaler, purchase the item, and see that it is delivered and that it is ready for installation at the proper time.  If the Contractor provides the materials, the Contractor needs to be paid for that part of the work.  You may be able to get a break on some product prices by talking directly to the product supplier, but if the Contractor is handling the delivery and coordination, there will be a charge, and that's what the Contractor's "mark-up" is for.  But remember, that the handling of the products (and cost) is the same, regardless of the purchase price, even if the purchase price is free.

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Richard Pugh AIA
Director, Facilities Standards and Specifications
Walt Disney Imagineering
Glendale CA
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Peter Carlsen AIA
Carlsen & Frank Architects
Saint Paul MN
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It sounds as if you have gotten into cost of the work plus a fee.  You need to come to understand what you are paying the contractor.   We've found contractor's who will only charge five percent for this type of contract.  Buying "wholesale" would imply a reduced contractor's fee, but I doubt if he sees it that way.

We always suggest that our residential clients pay the subs and suppliers directly.  Each month you write a series of checks.  That way there is no question of lien waivers and the Contractor shifting money to pay for his old work and other bills.  When we built our house the banker insisted we do it that way.  The sad history of residential contractors going bankrupt , taking money from new clients and leaving them with nothing is not a legend, but fact.

Whatever you two agree is fair is fair. 

Personally, I'm a bit skeptical about the validity of your expectations ("We're building our own home and expect wholesale pricing from the contractor, because the end product showcases both our work").  By that logic, any client of mine could argue that they should expect wholesale pricing from me because their project will showcase my work.  Contractors, like architects, already expect that any project they do will showcase their work, and they shouldn't need to discount their services because of that.  

Still, there can be benefits to contractors of building a project that is well-designed and may get some good photos and press because an architect is involved.  Each individual contractor will decide what that's worth to him, and offer discounts (or not) accordingly.

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Michael Dowd AIA
Architect
Dowd Architecture, Inc
Portland OR
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