By Michael Stone, www.markupandprofit.com
I was in Canada recently working with a company to resolve some issues. I mentioned to a subcontractor involved with the company that every construction-related business owner should read at least an hour a day on a subject related to their business. Without a moment’s hesitation, he asked, “Why?”
Because not one of us has lived long enough to know everything they need to know about business, to make all the mistakes possible or learn all the ways we can be scammed by dishonest clients. You can learn them yourself, or you can learn from the experiences of others.
First example: Let’s talk about “surprises” on jobs.
One of my favorite sayings is, “Surprises aren’t!” When a surprise shows up on a job, almost always it could have been spotted before the contract was signed. Many people believe the proper way to handle surprises is with language in their contracts that says the client has to pay for the surprises. Or to do all jobs using a time and materials contract. Why put yourself (and your client) through all that?
Instead, let the client know the whole picture and the total investment upfront so there aren’t the disagreements and hard feelings that a surprise can generate. A simple way to get the whole picture of what a job will consist of is to use a Demolition and Discovery agreement It is an agreement that gives you the ability to tear a job apart to get a better understanding of what is going on in the home or building so you can compile an accurate estimate before you write the contract. The agreement protects the homeowner with projected range of repairs and a “not to exceed” amount.
Partway through a job, the homeowner approaches you or your job superintendent and says, “Your salesperson said that we were going to get _____ done and I don’t see it.” Or, “Charlie and I talked about putting steps from the new deck down to _____. Where are they?”
Now, what is the normal first reaction? You got it, the customer is always right. “That darned Charlie, always promising stuff that costs us a lot of extra money and never puts it in the contract.” What’s a better response? “Mr. Customer, I will make a note of that and I will talk with Charlie today when I get back in the office. If he OKs the change I will do it, no questions asked. If Charlie disagrees with that change, then we will both be back here tomorrow morning at 9 am and we will get this resolved with everyone in attendance, is that fair enough?”
You will know immediately if Charlie made that promise or if the customer is simply trying to work you to see what they can get for free. If they are trying to work you, they will say, “Ah, just forget it, it is not worth the hassle” or something similar. If Charlie really did promise something, you’ll get a chance to talk to Charlie and hold him accountable for the change. Real simple.
Third example: Cost Plus Contracts
The biggest single problem with Cost Plus contracts is that there is no clear definition of Cost Plus. I have read comments from a few contractors that state their definition should cover the subject, but I don’t think any of them would hold up in court. Avoid Cost Plus unless you like to do battle with your customers. And can afford to lose.
Education is critical.
Keep yourself informed. I brought up these three examples because I continue to hear from contractors and home or building owners about these issues more than almost any other topic.
Why take the chance? Read, learn, and get your game together.
Michael Stone has more than five decades of experience in the building and remodeling industry. He wrote the book Markup and Profit; A Contractor’s Guide, published by Craftsman Book Co, and Profitable Sales, A Contractor’s Guide. Michael can be reached by e-mail at firstname.lastname@example.org, by phone at 1-888-944-0044, or on the web at www.markupandprofit.com