Question

Describe (in details) 5 factors, based on which contractors would specify their fees in construction projects.

Answer 1

contractors may specify their fee based on

Taxes.

General contractors pay a full range of taxes — federal, state, county and city — or fewer, depending on where they operate. In some states contractors are retailers, so they collect and remit sales tax along with paying their own revenue-based state taxes. If they have employees, contractors also pay their share of social security, unemployment and Medicare taxes for their staff.
Labor burden.

Payroll taxes, worker’s comp and other benefits add up to what’s known as the labor burden. That’s the overhead cost of having an employee working for the company. Those costs can include recruitment, training, taxes, medical coverage, paid time off, vacation, retirement and more. This “burden” can actually be a benefit to homeowners, who are able to hire companies with a fully compliant workforce that is well trained and feels well compensated with benefits.

Office and office staff.

Contractors may own or rent their office spaces, or even work from their own homes, but offices come with a panoply of expenses. Aside from the cost of the space, there are many bills to pay: utilities, phones, landscaping, security and more. When contractors have office staff, they can be underwritten by overhead or may have their time billable to projects, depending on their job descriptions.

Marketing.

Even contractors with a stellar reputation, a beautiful website and a six-month backlog need to market their business. Marketing almost always involves spending money, whether it’s on ads or sponsorships or other opportunities that get the name of a company out to potential clients Even though marketing may not strike you as valuable for your current project, if effective, it will ensure that your contractor stays in business in the long term. That means your contractor will be around to service your warranty, answer your questions and be onboard for the next project you plan. And it may be how you found him or her in the first place. Now that’s money well spent

Insurance

. General liability (GL) and other kinds of insurance (for tools, leased equipment, workers’ compensation etc.) is often considered overhead. Some companies list their GL insurance as a line item on their estimates, because it is tied directly to revenue, but many cover it in their markups. GL policies generally cover a contractor’s operations. It is also possible with many policies to list homeowners and their architects as “additional insureds,” giving them added protection under the general contractor’s policy.

Transportation.

Before building can be started, materials and people must arrive at your home. A contractor’s vehicles may be a part of that delivery process, and do everything from delivering materials to hauling away debris. Contractors may rent large equipment like backhoes and dump trucks (which require additional insurance coverage). Employees may even drive their own trucks for work, but contractors usually add insurance for those “non owned autos” working on their behalf, and sometimes pay employees by the mile when they drive for work. The upside for homeowners is that there is potentially a whole fleet of vehicles working for them, and many companies cover some or all of their costs with markup.

Communication.

Whether you hear from your contractor by phone, email, fax or snail mail, the cost of that communication is likely covered by the markup you pay. The list of communications tools contractors may use is long: computers and monitors, tablets, software and software updates, Internet service, office phones, smart phones, backup drives and backup services, envelopes and stamps. Having a number of ways to communicate and reach your contractor is essential.