The Scenario:
we started a condo conversion in san diego,ca with a contract for 1 unit and a 2 week deadline. 2 men were put on the job. 150 hours to completion. $6000. too low.
owning company requested a 1 week schedule, so the staff was doubled. not a big deal to us and there were actually advantages in scheduling (each man can do the same routine on a given day of the week – perfect). 150 hours to completion.
then came a rush to produce 2 units in 8 working days (” their crew would help” – they contributed 22 hours/150 hours each, or ~ 15%). done, but at an exhausting pace and requiring more supervision, coordination, and tooling). they needed to complete phase I to show progress and receive bank funding for phase II and III.
last week came the kicker. they want phase II and phase III (12 units) done by november 5. i challenged this and the messenger suggested that november 15 would be okay. this date was confirmed by the realtor in charge of sales. all units are sold, but to close escrow, they need conversion approval from the state (CA), now due november 15 at the earliest. that kind of red tape can actually take much longer…
now we happened to create a jump on phase II while on phase I, so we might be able to produce (our) 1/2 of phase II by their deadline by adding 2 more workman.
supposedly, our business people (who have close, personal associations with the principals of the owning company) started negotiating a new contract. Us guys doing the work are looking for incentives. i’m wondering if we are not monkeys in the middle of one friend simply providing a workforce for another at too reasonable a price (works out to ~$35/hr for our company/workman).
then we get the word that they are looking to complete phase IV (14 units) by december 5. LOL LOL LOL. we have a 2 unit jump on our 7 units, leaving 5 units/3 weeks. adding to 2 more workmen…
this owning company has “more conversions than you can imagine…” . i checked. they are for real. their expectations aren’t. they are depleting staff available for other obligations and responsibilities while increasing overhead (we’re hiring additional workmen). each new workman on the project has to be familiarized with his assignments and some have to be trained from top to bottom.
The Plea:
what guidelines can you offer for negotiating contract increases for meeting expectations such as these?
brian
Replies
special orders don't upset us......but do cost more.
Jeff
.......Sometimes on the toll road of life.....a handful of change is good.......
considerations would include additional supervision (more individual tasks to supervise at any given time and now 2 supervisors doing less hands-on and more checking around), tighter coordination (move from 4 to 8 workmen, increased consultation with owner's lead person and now foreman, additional paint sub contractor), employee incentives, additional equipment usage, set up shift in project management (from unit completion approach to assembly line approach), administrative costs (billing processing for a time/material job)...
what additional elements am i missing...
brian
Brian are you working around the clock on these.
ANDYSZ2
I can't speak for construction, but many service industries have standard 'rush' fees. A premium charge over and above your standard rate.
if we include the time that i'm now spending... pretty much. i'm filling the role of carpenter, tile setter, lead person, supervisor, project manager for our team. the way i had organized the project, it was a breeze to manage. up until now, work focussed on completion of a single unit at a time. 150 hours per unit.
to meet these new deadlines, i can choose to break the 8-man crew into two 4-man crews and maintain the same organization or switch to assembly line mode which i believe will be more productive, but harder for me to track hours/unit to know if we're on schedule. maybe switch to the (2) 4-man crew approach when my carpenter becomes proficient at these counter installs and my assistant becomes more proficient at tile setting.
if we're talking about the crew. no. strictly 8am to 5pm, M-F. steady pace. reasonable schedule until now...
in the last three months, we have acquired this account ("more conversions then we can imagine"), two Fortune 500 food supply company warehouses, maintenance for all hometown buffet restaurants in sd county, frito lay and coca cola warehouses, with more in the mix. so individuals get pulled off from this conversion to service these accounts, other projects, and regular accounts (our parent company is a property managemnet co. - our company services the smaller property accounts lacking maintenance staff). hasn't been too bad. yet. if a guy was pulled, it was possible to bring in someone else. currently, there is no one else to bring in, except maintenance staff. some of us (the tile people) must work a night shift from time to time on between closing and opening hours for the hometown buffet account. so literally around the clock between multiple accounts, sometimes.
supervision requirements for new workman became an issue when we brought in a maintenance supervisor and helper for a half a day to work unsupervised in a unit while we were taking care of inspections and punch lists. we had to spend 8 hours correcting mistakes of some relatively basic installations. normally, anyone new was working along side of us and got all the pointers and could be watched. switching to assembly line mode will require supervisors to break off to monitor substitute workmen in various units.
believe me. it gets intense...
it's just that i was working in the sanfernando valley (la) when the northridge earthquake hit. to rebuild freeways, contractors were paid 2x to complete restoration on short term schedules and supply and demand increased contractor's bids. in our case, supply and demand pertains primarily to human resources.
Edited 10/20/2002 11:07:11 AM ET by brian smith
Here's the deal as I see it Brian.
You're being used!
You may like it and be getting paid something for it but that the deal and why they keep upping the anti.
The bean counters are counting the beans while you are kept too busy to notice that a bean or two is falling into their pockets. If you can turn $12ooo in less than a week and keep it up, they can work the paper to be getting paid before the work happens leveraging the cash flow. They make bucks with none of theri own cash. It's a time honored management principle - get rich off someone elses work and someone elses money. If your production slows to a sane pace, they have to use their own cash or line of credit, costine them something.
If I supose you are turning them $48ooo/month at one precent interest savings/month, then they are gaining $480 by pushing you. Lost rental income also would figure into their figuring. You have to decide what to do about it. Add two percent to it minimum would just test the market but it seems to me that the extra supervision time and tooling costs must cost at least seven percent. Make your costs real and let them decide if accelerated scehdule is worth it.
I charge time and a half for accelerated, drop everything and do it now work. I figure my health is worth something..
Excellence is its own reward!
Somehow, I just knew that Piffin was a smartie. He just proved it - again! You are exactly right, and it's obvious.
Coming from you, great Master, that is a supreme compliment.
I am humbled..
Excellence is its own reward!
Oh, baloney Piffen. Thanks, but I'm a Master of only recognizing and hopefully correcting the many, many mistakes I've made in my now, 32 years in my own business. However, I'll still take the "spirit" of the compliment. It shows respect to a battle field experienced soldier.
Besides, you're one of the few guys who pretty well seems to grasp this concept called "business." I submit, that like myself, you are still learning as well. Never think you've become a Master because just then some member of the public will take you to the cleaners. Like a soldier in a war, always be on guard.
I've learned from you and from Napolean Hill. Thanks
I'm getting the theory but the application still takes work.
Like practicing at the range is not the same as when they're shooting back..
Excellence is its own reward!
It sounds like you are in a high growth mode. If it continues, you will need to change the way you have been doing business. You will need to hire on more supervisory and production people to keep up with the increased amount of work or you will have to hire subcontractors to do the actual work. In the latter case you will have plenty to do hiring and supervising the subs.
We like keeping our work load at a fairly steady level (for personal reasons) but sometimes an opportunity comes along that we don't want to pass up even though it means a lot more work than we can do ourselves. We use subs and don't quibble about their prices. We figure those prices and a healthy markup for ourselves and let the customer decide whether they would like to pay the premium.
piffen et al,
"I can't speak for construction, but many service industries have standard 'rush' fees. A premium charge over and above your standard rate..."
"I charge time and a half for accelerated, drop everything and do it now work. I figure my health is worth something..." that answers that...
"Lost rental income also would figure into their figuring..."
tenant's vacancy of units has been phased, and they aren't leaving soon enough. we are right on their backs at this point, since we've switched to assembly line mode...
"the extra supervision time and tooling costs must cost at least seven percent..."
i'm going to analyze this...
"In the latter case you will have plenty to do hiring and supervising the subs..."
"We use subs and don't quibble about their prices..."
been there, done that. can just imagine if i had 20 different subs, and the owner wanted to advance deadlines and were slow to pay. this alone is the basis for charging a premium and is a very useful perspective to view our performance by...
once we had a contract for a single unit, we should have brought in subs to give us estimates. (1)we would have had an overall price to compare to our own for this and future conversions (the last time i had done this was back in '85 - not useful figures for today), and (2)may have found those tasks that could have been done at comparable rates by subs to the ones we ended up charging, relieving some of the demand for staff manpower.
i just had no more energy left to analyze with an estimating program after setting up inventory and scheduling, besides performing the first rehab (with only one other employee). just would have been a third perspective to view the project by. maybe the least relevant, but part of the mix. when 21-42 units are involved here, and we seem to have a future performing such projects for the same and other owners, now is the time to make these determinations. i'm afraid that all that we have done is played emergency stop gap for this owner at a low price, setting the wrong precedent for any future negotiations with them...
great input guys,
O :-) brian :-)>
At least if you are recording and analysing your sheets, you can know what direction you are going and what to do about it.
Let them get your node too hard to the grindstone and you can be bankrupt before you know it. Study those figures you have. They'll talk to you..
Excellence is its own reward!
"i'm afraid that all that we have done is played emergency stop gap for this owner at a low price, setting the wrong precedent for any future negotiations with them..."
That is what was on my mind as to what you should do now . Of course only you of us know the situation of this in full detail . Imsure there are decisions to be made considering the importance of this customer. I agree with whats been said , but I know its a very important judgement call to change streams now .
I know, knowing your limitations is a famous statement . I like to know all my options , and keep as many open as possible . I love to be in the postion to be able to set a restriction and not care about its outcome, for I have many streams to flow down.
Tim Mooney
My brother was a fellow contractor before his death. This may be the reason I remember the following , but I use it every day , for Im an investor , before trades man . I always figgure the advantage and loss in every situation , so heres his quote :
"Its hard to find a better job while you are working your #### off on a bad one. Always, always , leave time for looking for a better one . Two good jobs with two waiting, enables us be decisive about the jobs we take in our future. Wouldnt that provide us with a better future ? I know it gives picks over the better jobs . "
I get from that quote that independence is gained ,
to also make judegment call decisions easier. .............
Tim Mooney
thanks piffin and tim. essence of it seems to be seeing the forest from the trees...
"grasshopper"
I once saw a sign in the shop of an older craftsman that read:
LABOR RATE: $ 30.00 PER HOUR
$ 40.00 PER HOUR IF YOU WATCH
$ 50.00 PER HOUR IF YOU HELP
You forgot -
$ 60.00 PER HOUR IF YOU TRIED FIRST AND COULDN'T
$ 80.00 PER HOUR IF ANOTHER CONTRACTOR TRIED FIRST AND COULDN'T.
Excellence is its own reward!