Is a 25% project management fee high?

sawallisSeptember 21, 2013

We've started to collect bids for a kitchen, dining and master suite remodel and I want to get opinions on whether the 25% project management fee I see on the first bid is reasonable because I don't have anything to compare it to at this point. It covers "time and vehicle, equipment and communication expenses of the PM plus overhead expenses." Thanks in advance for sharing your thoughts.

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It depends on the size / scope / cost of the project.

    Bookmark   September 21, 2013 at 2:09PM
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Is this in addition to the contractors fees for labor?
Is this for a designer?

    Bookmark   September 21, 2013 at 2:18PM
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The total quote is $170k (including the mgmt fee), which is higher than we were expecting. It's a total gut of existing kitchen, dining room and master suite areas, with the space being reconfigured. It is not a large house and it's about 1000 sq feet of area that's in scope. We have separately engaged an architect and that fee is not included in the $170k. The bid is itemized by type of expense and it appears that all labor (other than the project manager himself) is already included in the other line items. This firm typically does design and build, but since we are using an outside architect I do not expect to use the design side as much as their normal client. Also, all materials costs including new windows, roofing, tile, flooring, countertops, appliances, etc. are included in the base on which the 25% is applied. This is a rough estimate at this point and we know they are being conservative in some areas, but I'm trying to understand if the basic formula of including all of these expenses x 25% is reasonable. Thanks!

    Bookmark   September 21, 2013 at 2:38PM
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Sophie Wheeler

It's pretty typical of a design/build firm to have 24-40% fees. They are always on the higher side. You pay for the privilege of one stop shopping. If you want less fees, you've got to shop with the smaller firms, and be willing to do some of the footwork yourself on some things.

    Bookmark   September 21, 2013 at 2:51PM
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Well, $40,000 - $50,000 because it may not come in on budget ... how long is the project going to take?

Do you know what kind of equipment they are referring to?

    Bookmark   September 21, 2013 at 2:54PM
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Hollysprings - Thanks for the sanity check on the markup %. I guess if we pay that type of markup, I should expect that they'll be very active on the design aspect. Otherwise, I agree it would be better to go with a firm that doesn't provide or charge for those services.

Snookums2 - I know, I'm afraid of scope creep and this bid is already over the top of what we had budgeted, which means we have to make decisions now on how to make cuts to allow us some breathing room. They estimated 4-5 months. We cannot live here during the project, so have to consider additional living expenses as well... I do not know what equipment they are referring to, but will add it to the list of questions. I also want to understand from them whether I am allowed to source my own appliances, tile, etc. if I am not using their services to help pick them out - I have a hard time believing their trade discount is greater than the 25% markup I'd pay on top, but maybe that's an incorrect assumption.

    Bookmark   September 21, 2013 at 3:16PM
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Are they giving you their trade discount? Is the 25% fee based on their discounted price, or full price? If you haven't done so already, take a look at the two "Huge general contractor overrun" threads that ran here recently ... they may be helpful to you when you are finalizing your contracts. Everything should be crystal clear to you and spelled out in the contract.

    Bookmark   September 21, 2013 at 3:29PM
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I just got quoted 33K for labor and partial materials on our kitchen renovation (no cabinets and counter tops). There was a $2500 supervision and cleaning fee. I am also paying around 4K for the services of an interior designer.

    Bookmark   September 21, 2013 at 4:28PM
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That is a typical fee for big guys where I live, Seattle, WA. The fee is charged on EVERYTHING!

When you do this type of project, it is really important to talk to prior customers that have done 'similar' scope of projects at a 'similar' quality of materials and workmanship. That is something I have learned over the years having spent much on my projects.

As an example, someone that is spending 50K on custom cabinets should not be talking to a homeowner that spent 10K on RTA cabinets. The expectations and the level of craftsmanship will differ significantly.

Good luck.

    Bookmark   September 21, 2013 at 5:37PM
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If the contractor is a value, it is impossible for his fees to be too high, no matter the percentage.

Let's say he's the highest of all you bidders, but you've spoken to his last four customers and they all rave about him. What's that worth to you?

You want to give a new guy a chance? How lucky do you feel?

    Bookmark   September 21, 2013 at 10:00PM
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Thanks everyone. I have a long list of questions for the contractor and will ensure all is clearly spelled out in the contract, whether we go with him or another firm. I appreciate the feedback.

    Bookmark   September 21, 2013 at 11:58PM
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it may be regional, but 25% is extremely high in our area! ... !2 to 15% is the norm here in So Cal.... it could be the current market, but that has been the norm for many years around here

    Bookmark   September 22, 2013 at 12:40AM
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I'm in the LA area and we built a large guest house last year. The GC fees were 20%. Our market went down a bit, but has shot right back up. As far as construction during the recession, the GCs did not cut their prices, but had more availability to get the job done when you needed them.

    Bookmark   September 22, 2013 at 1:04AM
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I can't speak to the 25% management fee but we are nearing the end of a big project that included moving walls, moving & repacing cast iron pipes & other plumbing in our walls & ceiling, removing a wet bar, gutting the kitchen, laundry room & powder room, closing a wall to the dining room & removing & replacing all our floors on the first floor. We had a "scope of work" contract that included everything. Anything they were not sure about, they discreetly opened the wall and looked at. Our cost has been exactly what was quoted (except for the upgrades that we requested). I don't know what the management fee was but we got multiple bids and this one was not only competitive but it was very specific. Our contract included cabinets, countertops, appliances, electric, plumbing, drywall, flooring...everything and best of all, no surprises.

    Bookmark   September 22, 2013 at 2:21AM
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Our contractor outside a big city in the Southeast charged a flat 15% over costs. He didn't do estimates. Very much to the point, he only did high quality work, was very well established in our county and got the best prices for materials, got premium service from the vendors who appreciated his business, brought top-quality crews, kept to schedule, and had a very good reputation with the county building department.

We got lucky because we were new to the area and he didn't advertise. He didn't have to.

In your position, I'd be wondering
1. Obviously, what's standard in that area.
2. What this particular 25% buys.

    Bookmark   September 22, 2013 at 6:55AM
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