Another contractor and I are working together on a project this Fall and it’s a great learning experience. Our strengths are complimentry, so the division of duties has been a relief for us both. The best part is, I get to see how another business works, which often makes me examine my own business practices.
For example – concrete forms. I have my own forms (handed down from a friend when he went out of business), the contractor I’m presently working with does not; he always rents forms.
This job we are doing together is a pretty large time and materials remodel, over 100K, with a couple small additions. So we will be renting forms, and charging the customer the rental fee, which seems fair to me.
Would it also be fair to charge the customer the price of the forms rental, purchase as many forms as possible for that ammount, buy the rest out of pocket, and keep the forms at the end of the job? Then, on the next job, take the same approach? The customer would be paying the same as if we had rented the forms, so it wouldn’t cost them anything extra, and we would accumulate forms through the years.
I’m not asking if it’s smarter to own forms or rent them. I’m asking if what I propose would be fair to the customer. Does it seem shady? Manipulative? Reasonable? What say you? I hope to hear from homeowners and contractors alike.
Thanks – Jim
Edited 10/5/2002 11:38:32 AM ET by jim blodgett
Replies
Jim , of course, I don't know how to run a business, really, but I don't see anything unfair here. In accounting terms, aren't these two different concepts (entities, transactions)?
One, you charge fair rental for the use of your business' forms. Nothing wrong there.
Two, you use money your business makes to invest in capital (am I right the forms are capital?) It doesn't matter where the dollars come from, particulary, does it? Sure, the two transactions are related, but I don't see anything unethical there. It wouldn't bother me if I were your customer and knew about it. I'd figure I was buying the use of your business' forms, not buying the forms themselves.
"I don't know what you could say about a day in which you have seen four beautiful sunsets." --John Glenn
I would think it fair to be charged rental value for any item, and I wouldn't need to know the wheres and why-fors of ownership or rental. But if another contractor ever told me that his price could be lower because he had amortized his equip and could afford to charge me less than rental value or even just include it in the labor charge or overhead or whatever, that would be a plus on his side. The only thing that would be really unfair is to be charged more than rental value. Can't say I ever knew or cared if contractors owned or rented, unless there was an item that was unique to my job. Then, sometimes I'd buy it and let them use it (and then I'd sell it) rather than have to pay the contractor the purchase or rental price. That's why I bought my own scaffold and concrete mixer and rebar bender.
Sure thing, Jim. Do it all the time. The customer doesn't care whether they rent it from you or from a yard. You should continue, not only on this job, but on all future jobs where you use these to factor this cost in, one way or the other. I consider it more fair to do it for individual items like this than to add to your overall overhead. For instance, If you don't do concrete forming again for two years, is it fair to have added the cost of owning these to every kitchen remodel you do? No. Imagine the ownership of a trencher. My plumber will only charge the hourly rate for useing it when he uses it. I don't care if he owns it or he rents it from another entity.
Another way of looking at it is to take a long range view. If you don't charge a rate that covers the minimum cost of ownership, you are losing money by providing a service. That means that you will eventually go out of business. You have done a dis-service to all your potential future customers by depriving them of the opportunity to benefit from the kind of quality and expertise that you provide. In the extreme - that is immoral in that the world at large had something stolen from it. Do the world a favor and cover your costs equitably!
Excellence is its own reward!
tools, forms, blades, bits and other items needed to do the job are a part of the business. IF youwere to purchase more forms, figure out how many jobs it would take to pay them off and charge the customer for that part. Its a cost of doing business. Those costs must be factored into your rate. Same with upkeep and maintenence. There really isnt anything shady about that, however instead of charging them a fee for renting your materials, figure it into your cost per hour or job. The nice thing about capital improvements and additions are its a tax benefit. You can deprciate the cost of forms to help offset your earnings so you pay less taxes. So consult with your bean counter about buying these forms and any other tool or needed items to complete jobs.
This is portrayed as a WIP; presumably, because it's T&M, with an agreed to rate. Where can you draw the line with tools you want the customer to pay a rental fee for that you're purchasing instead ? Can you buy a SCMS and ask the customer to pay the equivalent to rent to offset your cost of purchase ? How about your hammer, drill, circular saw, or tool-belt ? If you're pricing a job, then by all means apportion all your costs. If it's not a normal item, then by all means you have the right to flow through the legitimate rental; but, if the tools are "in the truck", I think you had to have excluded them in advance. In this case, with the customer paying equivalent to rental, you need to conduct a transperent transaction with full agreement..
Phill Giles
The Unionville Woodwright
Unionville, Ontario
I agree, it should be transparent. The customer is paying for it one way or the other and has a right to know what he is paying for.
Now supposing that Jim can rent him those forms, sell him the concrete, and get paid for all the labor to do the work for less than the cost of having a subcontractor do it and do it more timely too, who should pocket the difference? I put it into an account called, "good client relationships".
Excellence is its own reward!
Jim er ah Gunner...
My good friend Mr.P used add in the cost of the tools if he had to purchase to the job. So I dont see anything wrong with chargeing the customer for the rental. IMO it should of been bidded into the job anyway. Darkworksite4: When the job is to small for everyone else, Its just about right for me"
It wasn't a bid job, Ron. It is billed time and materials.
Brinkmann for president in '04
I would find some way to charge it to the job. Maybe your idea about charging the HO the rental fees might be the way to go or material mark up labor ect. But I think either way its a cost that you should be able to recoup either on this one or over the next couple of jobs.
Darkworksite4: When the job is to small for everyone else, Its just about right for me"
Edited 10/5/2002 10:11:57 PM ET by Ron Teti
The fraction of the cost of renting forms you choose to add to your bill depends on your greed, sympathy for the customer and how any charges effect the competitiveness of your business. Your call.
The one point that no one mentioned, at least I didn't see it, is that you by all means should charge for the wear and tear on the forms you own and any other equipment. These things, if used regularly, will not last forever. Replacement is, IMHO, a legitimate expense that you should account and save for in some manner.
Some of the better companies I have worked for have a separate account set aside for repairing and replacing equipment. Use of major items were charged for and listed on the bill. Smaller equipment was covered by a small, $5 or $10, charge tacked onto most jobs in the same way a small parts charge is commonly added to cover items that add up but are not worth the time to list individually. Some groups include these charges in the price of a service call or other terminology.
When working for companies who bill this way I was usually told to wave the smaller charges if it made sense or if the customer objected. The charges for major equipment use was not considered negotiable.