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Construction Cost discussions and advice. Participate in ongoing dicussions and get invaluable Construction Cost advice from people who are experts in their industries or start a new Construction Cost discussion.
PAKISTANI-1
( 3020 posts )

[40 Replies]
Scenario 1 (per square foot):

You agree a per square foot rate with the contractor. During the construction, the rupee undergoes massive devaluation. Plus there is inflation. Prices of construction materials goes through the roof.

Do you think the contractor will complete the house at the same per sq ft rate and take the loss himself? Of course not! Either he has already built in a big cushion/margin in the rate or more likely he will use cheaper materials to protect his margin.

Scenario 2 (cost plus):

You agree with the builder a percentage that he will get over the cost of project. So he charges you a percentage on every invoice and every payment for the project. He has to give you copies of all vouchers and receipts for every material he will purchase so you can do comparative price analysis. If he buys higher quality materials to increase his commission, then you also get higher quality house.

Which is the better option? What are the pros and cons of each?

    2421 days ago In Construction Cost
    Post Answer
    MAP's
    (47 posts)
    Dear sir,

    I am contractor and investor.

    1- if you are assuming that on low per square feet basis a contractor will be using good quality material and if the prices go up he will switch to low grade. You are mistaken here. Good quality is mostly avoided in this case.

    In per square feet basis the game is about the lowest cost purchase and maximize the profit.

    So I would recommend you to go for a percentage basis, but at the same time I must warn you there are very few in market who actually knows how to play on percentage, play in a way that the owner is benefited. Our company works on percentage basis I'll tell in detail how a real percentage thing rolls.

    If a contractor is working on percentage basis then he guarantees all his rates to be the lowest. A contractor gets discounts from certain companies that discount should be directly given to the owner not to be kept by the contractor for double profit.

    People working on % basis are to work in the interest of the owner only as the owner is already giving him a percentage for that. Basically percentage is for the options and ideas a contractor gives to maintain the quality and keep the prices low at the same time
    like foe example buying tiles for washrooms, a real percentage contractor would not go straight to the Spanish tiles rack, instead he would do a little mix and match of master and chines and Spanish to minimize the cost but no compromise made on quality.

    This formula applies on everything.

    All material discount labor rates for all workers (to be directly given to owner for benefit)

    I hope I have made some points clear here as to how a percentage basis should flow.

    Please feel free to contact me if you have any question.

    Regards,

    MAPS

    midlinke@dsl.net.pk
    03005344500
      2417 days ago 

      HT
      (1114 posts)
      AOA.

      I tend to disagree with the above post. Any owner thinking that the contractor would do as he has mentioned than that owner has something wrong with is head.

      Here is example:

      Expensive tiles @ Rs.100. Percentage agreed lets say 10% = Rs. 10 per tile.

      Cheap tile @ Rs.50 Percentage agreed 10% = Rs. 5 per tile.

      Now with full honesty the members can decide according to there experience which option would the contractor go for.

      Anyone thinking the contractor would go for the second option then I wish them very best of luck.

      No offense to Maps!

      There are honest people out there but I have not come across any one yet. Fingers crossed.

      Best way buy your own material and that's it. No point in discussing different ways. Doesn't matter how many times we discuss the outcome will be the same.
        2417 days ago 

        MAP's
        (47 posts)
        That's not so good man I wrote such a long message in response and it was sent for approval .. funny.

        Anyways

        H--T , for the offense, non taken, it's totally professional and healthy discussion here. Views are more than welcome.

        I wrote it myself that BEWARE; there are very few in market who are actually working with the original laws of how to deal in % basis.

        And yes you are right some contractors don't given in their creative and experienced ideas for saving instead they just target a higher prices shelf.

        Any contractor working on % should give in for saving as he is already getting percentage so his duty is to save as much as possible.

        Regards

        MAPs
          2415 days ago 

          MAP's
          (47 posts)
          Dear All,

          Non offense take H--T, it's a totally professional and healthy discussion man.

          If you go though my post I stated clearly that "I MUST WARN YOU AS WELL " that there are very few who actually work on real formula and properties of percentage that is benefiting the owner with the discounted prices received.

          I suppose you are in the construction business yourself and you know it very well that the rate and discount that a contractor gets, is impossible for a owner to get.

          A person working on percentage SHOULD give benefit to the owner. ALHAMDULLILH I am of the opinion that, as the % method is introduced to benefit the owner by the creativity and experience of the contractor, I fulfill it completely and and I am never short of work.

          and I agree with your statement that yes all contractors are not cheats working on per square basis.

          regards
          MAPS
            2414 days ago 

            PAKISTANI-1
            (3020 posts)
            Gentlemen,

            Let us suppose:-

            1. Owner and Contractor agree a per square foot rate with a builder in January;
            2. Pak Rupee suffers major devaluation against Dollar in March;
            3. Price of everything goes up due to rising cost of inputs;

            WHAT will happen?

            i. Will the Contractor absorb the reduced profit margin on the project?
            ii. Will the Contractor ask for increase in per square foot rate?
            iii. Will the Contractor use lower quality items to protect his profit margin?

            WHO will GAIN and who will LOSE?
              2414 days ago 

              Talib-e-ghil..
              (248 posts)
              Great last line H-T May Allah make us the real believers!
                2414 days ago 

                HT
                (1114 posts)
                @pk

                This has just recently happened i was constructing a house in phase 4 Bahria Town and cement prices went up. The estimate given was according to per cement bag @ Rs. 440 and the price went up to Rs. 480 to 490....In that case I did not ask for more money or increase. I started that project using Bestway cement and till the end I used the same.

                I lost about Rs.200,000/- there but still covered my expenses with no profit. The owner realised that and gave me his another house to build.

                There are contractors who start complaining but the fact is that they should not ask for more or use low quality material. BUT IT IS HAPPENING EVERY WHERE.

                The only thing is that we have very less faith in ALLAH. Have faith and trust me no one can ever be in loss.
                  2414 days ago 

                  A dba
                  (1 post)
                  @H--T

                  "I lost about Rs.200,000/- there but still covered my expenses with no profit. The owner realised that and gave me his another house to build."

                  Wondering how much was your margin on this project? You lost Rs 200,000 and borken even. Was that thin your margin really?

                  IMHO nobody in the construction world can survive of margin are like these. If you are sure then can I have your number:)
                    2393 days ago 

                    HT
                    (1114 posts)
                    I take what i charge no fiddling in the material or anything fishy and this construction business is not the only source of income i have + i make money of my own projects..and i am surviving very well :) all thanks to GOD
                      2393 days ago 

                      Prop Guide
                      (6961 posts)
                      Dear H--T, I am impressed, I might hire ur services for my home. Can I hv ur contact details? Thanks
                        2386 days ago 

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