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Using in-house labor can have more benefits than using subcontractors, according to Dennis Gehman.
Dennis Gehman, president of Gehman Custom Builder, Harleysville, Pa., faced these questions as his company experienced a period of planned growth last year. Despite a few setbacks, which included a client's pulling the plug on a major project in progress, Gehman says the benefits of a flexible, highly skilled labor force far outweigh the convenience of subcontractors. Gehman explains to managing editor Alicia Garceau the advantages as well as the challenges of maintaining in-house tradespeople.
PR: How does keeping the trades in-house benefit your company?
Gehman: Financially, it helps us because we’re paying less per hour to an in-house employee than what we would be to a subcontractor. That profit margin [subcontractors] have built into their hourly rate, we’re keeping in-house. Probably the first [benefit] is scheduling, especially if a project manager can handle everything. There isn’t any waiting for the electrician to come along [before we can] start drywalling. [The project manager] does wiring that’s needed and then keeps [the project] moving.
PR: Are all the project managers able to handle several trades?
Gehman: Four of the project managers are quite competent in both electric and plumbing. All of our project managers do all their own carpentry, the roofing, siding. Most of them have set cabinets. All the project managers do laminate countertops. We have three that are certified in Corian.
[We also have a] carpenter [who] is fairly well interchangeable. The painter can do the basics, so he can be a carpenter’s helper when he’s not painting. Our mechanical guy [does] plumbing, electric and some minor heating. He hired on first as a carpenter and had a strong roofing background. I think we’ve been fortunate that some of them had learned those trades before they started with us. Others have taken night classes that we’ve offered. We haven’t specifically advertised for those people; they’ve just come to us.
PR: How much time do you save on a project compared with a remodeler who uses only subcontractors?
Gehman: Let’s take a bathroom, for instance. Typically, we’d have a project manager and a helper, and they gut the room. That’s going to take maybe a half day, and at that point they’re ready for the electrician and plumber to rough-in. Calling a subcontractor, they have a hard time stopping that other project, so we lost a half day there. It would follow right on through that.
We do our own drywall hanging and taping, and there again, they can keep the project moving. Many times, drywall is going to take a day to dry, so [subcontractors] come back the next day. We usually have other things that our project manager can [do] on site. That keeps it moving smoother as well. We set our own tile and the Corian, the laminate work — all those things that for many companies are a different tradesperson. Every time there’s a handing off of something, something can get dropped, and things can get spread out a little bit longer.
I think that the typical bathroom for us probably is done two to three days quicker because of being able to do everything in-house.
PR: How do you justify the increased overhead from these employees?
Gehman: They’re all production people, and it’s not like we have an electrician we’re paying to do nothing because there isn’t electrical work. They’ll do another trade and work at it.
Yes, we have the overhead because of the trucks and the extra tools. We need [the trucks] for production, but they’re a great marketing tool. [According to] the Remodeler’s Executive Roundtable group that we’re a part of, our overhead costs are right in line with others who don’t have them in-house. Certainly when the economy slows down, it’s easier to tell subs we don’t have work than it is to tell employees that. There’s more of a commitment to the employees, and there’s probably more of a commitment from the employees to us than what there is from subs.
PR: You did have a case in which a customer pulled the plug on a major commercial job last winter. How did that affect the company?
Gehman: It was a large project. We had worked on it for about three-quarters of a year. It was a two-phase project; the one phase was all but done. We were getting into [the second phase]. It was a combination of client and municipality, and unfortunately we let the client get a little too involved. We ended up being monkey in the middle. We were starting to question how this was going to go, and they pulled the plug. That was the reason for the layoff [of two employees] in January. It left us basically without work for people we thought were set for two months.
PR: How did that layoff affect morale?
Gehman: It affected it greatly. The beginning of April we had three employees leave within a week. Those were the people who were disgruntled, and them talking was keeping everybody down. My sense is, at this point, morale is good. Part of that is the overtime is back, there’s lots of work, the sun is shining. Those things help.
PR: Was losing the job a bigger problem because of in-house labor?
Gehman: [As owners,] we had talked about if it comes to that, we would have to make a quick decision for the sake of the business and longevity. It didn’t take us long to decide [to lay off]. That caused some of the morale issues, too, [but] I think we probably would do it again if we needed to. Generally, we’ve had some job projects fall out in the past that we hadn’t started yet. We’ve always had enough other projects going that we could distribute the people around to keep them going. That would be our hope.
PR: What did you learn from this experience?
Gehman: The employees need to see me. In the past, especially when I had my tools on and I was working side by side with employees, it was much easier to build a relationship. [As we grew], I didn’t have time for that, and I wasn’t working in the field. I was hiring people, and then they were left to work in the production department. I wasn’t in touch with them on a day-to-day basis, so they had some questions: What’s Dennis doing? Does he care about me?
At this point, we do not have somebody else in charge of production. That’s my role -- the day-to-day scheduling -- and that forces me to stay more in touch. That’s not a role I wish to continue for the long term, but I see it as being good for building the relationships, especially with the people who have just come to work for us and to strengthen the relationships that were there before with the longer-term employees.
If we had ’98 to do over, I would approach that from a different angle. [I’ve learned] the importance of monitoring not so much the day-to-day business but the morale of the employees. It was a learning experience.
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