- Posted by Brett M. Hill
- On January 3, 2008
A general contractor, Keever & Associates, Inc., contracted with an owner for construction of a barn and a residence pursuant to an oral cost-plus contract. The trial court found that the oral contract was for the owner to pay the general contractor the actual cost of labor and materials plus 10% for overhead and profit. The trial court found that sums paid for materials and rental fees directly by the owner in the amount of $115,266.43, as well as $15,000 the owner paid to a supplier for a deposit for materials, were not subject to the general contractor’s 10% markup.
However, the trial court held that the general contractor was entitled to recover $39,325 for the general contractor’s president “to administer the contract.” The Court of Appeals reversed the trial court’s ruling that the general contractor was separately entitled to an administrative fee. While the general contractor made the owner aware of its rates for other workers, the general contractor never discussed charging an administrative fee or a rate for that fee.
In addition, the general contractor did not charge the administrative fee at the outset of the project. He did so only when he felt he was expending too much time on the project. Finally, the president of the general contractor did not keep records of his time. His hours were estimated and/or averaged. This was in contrast to the evidence presented for the cost of other labor and materials for which there were time cards and receipts. In addition, an administrative fee was not an actual cost, because although the president of the general contractor expended time on the project, the general contractor did not pay him for that time.
The Court found that the administrative expenses paid by the owner were essentially additional overhead/profit for the general contractor, on top of the 10%, because the general contractor expended nothing to get it. The Court further found that it is a generally accepted principle that administrative time is not covered under a cost-plus contract. As to the contractor’s 10% markup on amounts paid directly by the owner for materials, the Court stated that it was not going to overturn the trial court’s determination that because these costs were paid directly by the owner, they were not actual costs to the general contractor. Similarly, the Court refused to overturn the trial court’s determination that the general contractor was not entitled to recover 10% of the $15,000 deposit for materials paid directly by the owner.