GC to Project Manger - the new agreement

[Todd S.]

I wanted to get some thoughts from the veteran flippers about the new structure my GC and I came up with. See the following: Previous Structure -GC bids job -I pay 30% at beginning, 30% halfway, 30% before final walk through, and the remaining 10% after punch out is to my satisfaction. New Structure -GC takes the time to get multiple bids from sub contractors. -GC is given revolving Home Depot credit card for material. -GC is paid $39 an hour for hours working on my jobs. -GC receives 10% of net profit to keep him vested in the outcome of the project. -All invoices from sub contractors come directly to me, in which I pay them directly (no mark up). -Material is paid directly by me (again no markup). So essentially he is working for me in the capacity of s project manger, but is not my payroll. Please provide your thoughts and opinions on this.

[Aaron McGinnis]

Originally posted by @Todd S.:

I am doing exactly that J Scott. He is well established and professional. I think the 10% of net profit for him will help keep him honest with hours as well.

If he's going to be honest about hours, he'll be honest about hours. If he isn't going to be honest about hours, not even 110% of the net profit will keep him honest about hours.

I understand your thinking in this kind of arrangement. I tried it myself when I was first starting out (The results were a disaster) - it's an attempt to gain control over a process you may not fully understand without spending the extra markup on a turn key service.

What you may actually be doing is handing over the keys to your business to someone who doesn't have a very strong incentive to make you successful. He will see the 10% bonus of profits as a nice carrot and nothing more - he will see his ability to bill you for an unlimited bucket of unaudited hours as his primary means of extracting money from you.

As an added bonus, he will have the opportunity to buy materials that you may or may not understand, directly from your pocket, with the repercussions from overspending being a [perhaps distant] future problem to worry about. (And historically, guys like the ones you may hire for this job have the future foresight of a mayfly. Friday's check means way more than a bonus check 5 months from now.

This may not seem like a big deal, but it is. If he buys 50x 2x4s, how do you actually know that all 50 of them went to your house and that he isn't building a shed in his back yard using 'accidental overpurchase" from your job? (This seems insane, but it has happened to me.)

And at the end of the day, if you are not profitable, I can assure you this person will not care. The hourly paycheck will become the totem pole he worships, not the bonus. 

Also - side note... In my opinion, you're better off not using Home Depot cards if you can possibly avoid them. You're better off with a proper business credit card with employee cards. The Home Depot/Lowes cards seem like a great idea, but they have terribly weak security and aren't all that rewarding at the end of the day. They also limit where you can shop, which is frustrating when you have to drive an extra 20 minutes past the lowes/menards to get to Home Depot instead.

Plus, the 5% only happens if the guy checking out asks for it to happen - whereas with a good business credit card you can reliably earn points on every transaction, which ends up being better in the long run than 5% on certain transactions.