Recently I served as moderator for an open-mic session that consisted of local AIA chapter members asking questions to a panel of three residential architects and three custom home builders. It was a successful forum and generated a lot of interest and good will among the two groups.
I was especially interested in one of the questions from the audience pertaining to stipulated sum (fixed-cost) vs. cost plus methods of contracting. Since this is an issue more associated with construction than with design, it’s not an everyday point of conversation among architects and it was interesting to hear the panelists’ varying opinions. The audience followed up with questions to which the panelists responded with experiences relating to actual contracts and clients.
The first architect to respond was a seasoned and notable residential architect associated with luxury homes of high design. His predilection for cost plus contracts was somewhat expected, I think, but his explanation was enlightening and substantiated one of my theories about cost plus: Owners are going to experience significant sticker shock with this more open-ended contract method.
The reasoning behind his preference pertained to his commitment to fluidity of design. While he is committed to providing complete, well-documented plans and specifications to the builder, the architect also enjoys every opportunity to refine his design during construction. He views cost plus as a more flexible operating system that allows him to tweak the design without dealing with the hassles of change orders inherent with fixed cost contracts.
Personally, I think the reason clients are drawn to cost plus is because they think it’s going to save them money. They don’t take into real consideration the concept of contingencies and being responsible for both the good and the bad. The rule of the game is “owner beware” because even with complete drawings, clients are still exposed when the entire team’s fluidity is at the cost of the owner’s wallet.
On the other side of the table, we had a young builder with about five years of experience who is very professional and espouses all the right tenets. He shared with the audience that all of his construction contracts are cost plus, which he favors as an opportunity to be an open book to his clients. It also relieves him of explaining the process again and again, but most importantly it becomes a shelter from the risk of underbidding projects. He doesn’t have to provide exacting bids or costs for which he might not have the necessary historical cost information.
Some of the architects and builders in the group favored fixed cost. Their comments related to keeping the client unburdened from making decisions they’re not prepared to make. They felt that it’s better left to the professionals and is in the best interest of the client in the long run. It keeps management tight, the budget under control and assures no deviation from plans unless by change order signed by the client.
I feel that fixed cost requires architects to do extraordinary jobs in documenting their projects, and requires builders to have solid knowledge and experience from which to take risks. Clients should come to expect an extensive set of drawings with no allowances, and everything selected and costed prior to construction. In this way the contract is performed as per highly detailed documents and there are no issues left to interpretation. Everybody is well protected and there are no unwelcomed surprises.
It has been my experience that no matter how deep the pockets, clients do not fully understand nor accept the concept of contingencies. I’d much rather risk making less margin and keep a good relationship with my client than have to explain every overage and wage war for payment. I think it goes back to putting your client’s best interests at the forefront. Keep the client out of your books by providing fair and proper management; You’ll both be happier.