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There are two ways of billing and pricing jobs:
Flat fee (or fixed bid) for everything including labor and materials for the work. This method is fine for simple jobs like building a deck or siding a house.
Time and materials or cost plus. In this method, we bill for actual costs—materials, employees (including insurance), subcontractor’s bills, etc, and add a percentage, usually 20%, to cover company overhead and profit. More complicated projects involving multiple building trades may end up cheaper and higher quality if done cost plus.
Why would cost plus be less expensive?
If you had a project that involved months of work and a dozen subcontractors, an exact bid would usually be estimated on a worse case basis. For example, if we were digging the trenches for a concrete foundation, worse case would be if we dug down six inches and hit solid rock.
If we allow for worse case for all the aspects of the job the bid will probably be higher than necessary. In contrast, with cost plus, you pay for only the actual work done and materials purchased.
It is usual to estimate a ceiling for the project, then keep track of costs and work on cost plus.
Why would cost plus be higher quality?
In a flat fee job, a greater percentage of the intention is to keep the work under bid so there is some profit at the end. With cost plus, every person working is looking at doing his part of the work well.