Breaking the Rules

Whether a remodeler adheres strictly to the industry's tenets or picks and chooses which remodeling rules to follow is a matter of personal prerogative. The following remodelers stick to the rules of remodeling most of the time; however, they don't hesitate to bend the occasional tenet if doing so benefits their companies.

April 30, 2006

Some Rules Should Never be Broken

As children, rules were put in place for our safety. If, for example, you ever had a close call with a car while crossing the street, you realized why your parents warned, "Look both ways before crossing the street." Similarly, the tenets of remodeling exist for the welfare of the industry as well as the success of an individual's business.

A remodeler, unlike a young child dashing blindly across a street, can weigh the risks and rewards associated with breaking the rules. Whether a remodeler adheres strictly to the industry's tenets or picks and chooses which remodeling rules to follow is a matter of personal prerogative.

So do you follow the rules of remodeling, flout them or fall somewhere in between? The following five remodelers stick to the rules of remodeling most of the time; however, they don't hesitate to bend the occasional tenet if doing so benefits their companies.

"I don't think you have to be a maverick," says Andy Poticha, co-owner of Northbrook, Ill.-based Design Construction Concepts. "I think you have to be very cautious about what rules you chose to break, and you have to understand the consequences."

Rule #1:

Never allow clients to provide materials

Rule-breaking remodeler: Andy Poticha
Company: Design Construction Concepts
Location: Northbrook, Ill.
Years in business: 15
Sales volume: Averages between $2.5 million and $3.5 million

It's a familiar story: a client gets a great deal on tile, a pedestal sink or a soaking tub and wants the remodeler to use it as part of a project. Then when the time comes to install the product, something goes awry. The load of tile comes up short. The sink can't be found. The tub has a scratch.

Poticha is no stranger to this remodeling nightmare. One time he agreed to install marble countertops provided by the client, whose child happened to be on a baseball team with the child of a marble fabricator. The fabricator promised Poticha's client a great deal on kitchen countertops and bathroom vanities. But when the countertops weren't on site the day they were supposed to be installed, the savings quickly disappeared for the client. Their absence also caused a domino effect of delays for Poticha's company.

Andy Poticha is choosy about the type of products he'll allow a customer to supply. 
Photo by Marc Berlow

The episode caused Design Construction Concepts to revise its policy on client-supplied materials. No longer will they allow a client to supply standard materials used during a remodeling project. So anything integral to the execution of the project — for example, recessed can lights, pipe, wire, framing materials, windows, doors, tubs, toilets and tile — comes through Design Construction Concepts. However, items that are not integral to the functionality of the project — such as wall sconces, chandeliers, towel bars, toilet paper holders and mirrors — are another story; clients supply decorative items on just about every project. It keeps them happy and gives them a feeling of control, Poticha says.

"I don't need the chandelier up so that I can do something else and something else after that. Whereas if the countertop, sink, or worse — the tile — is not there, I can't set the cabinets, I can't set the countertops, and I can't do anything after that," Poticha says.

Though a delinquent sconce or damaged chandelier isn't likely to set off a snowball of delays, they will require extra subcontractor hours. Design Construction Concepts covers that in its contract.

"We have them be responsible for having it delivered to the site, placed in the room where it's to be installed. They have to inspect it. If they've done all that prior to installation, then we have no issue. If they haven't done any of that and we go to install it and there's a problem with it, then they are subjected to being billed for additional charges," Poticha says. While Design Construction Concepts will warranty the labor for the installation of a decorative item, they won't cover material defects.

Of course, the policy on client-supplied decorative materials benefits the company, too.

"If this $20,000 chandelier comes in brass and it's supposed to be nickel, I don't have to worry about it," he says. "I don't have to worry about fighting with a factory that I don't typically deal with because these are one-of-a-kind pieces, and we don't have relationships with those vendors."

Rule #2:

Never let clients do work

Rule-breaking remodeler: Dennis Gehman, CR, CLC, CKBR
Company: Gehman Custom Remodeling
Location: Harleysville, Pa.
Years in business: 16
Sales volume: $3.1 million (2005)

What's the No. 1 rule for Gehman Custom Remodeling?

"I feel [a project] needs to be a win-win for both our client and us," says Dennis Gehman, company president and co-owner. With that in mind, Gehman is willing to allow a client to do some of the work — but only if it makes sense for the project and the company is able to make its margins. He estimates that clients do some of the work on about 35 percent of the company's jobs.

On a recent kitchen renovation, the client happened to be a licensed electrician who worked for a local manufacturing plant. When he proposed that he wire his own project, Gehman agreed to the plan — with a few conditions. First, the electrician had to pull his own permit and schedule the inspection for the work. Gehman's contract also included a clause that would have imposed a $500-per-day penalty if the electrician failed to complete his end of the project on time.

"Oftentimes it scares people off and we really want the liability to be on them and the work that they're doing. It certainly has made some people say, 'Nah. It's not worth it. You guys take care of it.'" Gehman says. "Other people have done it and done it well."

The electrician was one who did it well. Gehman Custom Builders gutted the kitchen and gave the electrician three days plus a weekend to complete his portion of the job. The electrician came in ahead of schedule.

Rule #3:

Find your niche

Rule-breaking remodeler: Bob Peterson, CGR, CAPS
Company: ABD
Location: Fort Collins, Colo.
Years in business: 16
Sales volume: $3.2 million (2005)

"Our rule is 'If it's remodeling, it's our niche.' We specialize in kitchens, basements, additions, great rooms, exterior, windows, siding, roofing ..." says Bob Peterson, co-owner and founder of ABD. "We're a company where 75 percent of our business is repeat business or very, very qualified referrals so we are not going to let those people get away."

By casting a wide net, Peterson's sales volume, which was $3.2 million in 2005, is on-target to be $5.5 million in 2006.

"I believe it increases volumes but can reduce margins slightly. It seems that if we give a bit in some areas, we are able to make it up in other [ways] due to the trust bending [the rules] creates," Peterson says.

Peterson isn't afraid to venture outside of his company's comfort zone if it means pleasing a repeat or referral client while turning a profit.

"It means we do projects once in a while that we may not have down to an exact science," he says. In one case, a repeat customer called ABD to do a basement job. While Peterson's company is well versed in finishing basements, this project called for creating the basement from the existing crawlspace — something ABD had only done once before.

Peterson was upfront with the client about his limited experience with a project of this type, but he promised the client that if they were patient with ABD, they would be as pleased with the basement as they were with the previous project ABD had completed for them.

Peterson balanced his enthusiasm with experience by hiring a subcontractor engineer who came highly recommended by colleagues and an excavating subcontractor who had several similar jobs under his belt.

Peterson acknowledges that venturing into new territory can cost him a few points on markup (although he never gives more than five percent) but he feels it's worth it if the clients become part of the company's referral network. It ends up paying off in the long run, he says. Peterson only bends the rules if he feels the project is exciting and visible enough that it will result in future leads — especially ones in desirable neighborhoods.

Rule #4:

Don't mix business and family

Rule-breaking remodeler: Tim Sweeney
Company: Sweeney Construction Co.
Location: Madison, Wis.
Years in business: 60
Sales volume: $3.2 million (2005)

"Nepotism is alive and well in our company," jokes Tim Sweeney, a partner of Sweeney Construction. The company roster includes his brother and sister-in-law as well as his wife, Linda. Linda joined the company as a partner five years ago after the animal hospital she had managed for 20 years came under new ownership. She left the practice and took a year off to figure out what she wanted to do next.

"The whole time I'm raising my hand and going 'over here,'" Sweeney says. He knew Linda had grown the animal hospital from a one-vet practice to one with multiple doctors and a national reputation with a client base to match. Sweeney thought her experience would be an asset to his remodeling company.

"I knew her talents and skills coming in," he says, "and I knew that she was going to very easily show what she could bring to the table." He proposed the idea to Linda, who expressed interest but had concerns. First, there was trepidation over the fact that both husband and wife would be drawing income from the same company. Also, the couple worried that too much togetherness might strain their marriage. They sat down and openly discussed potential pitfalls. Linda's main concern was that she wanted real responsibility — not just busywork because she was an owner's wife.

Her primary responsibility is what Sweeney calls the company's "first client touch." All new clients are filtered through Linda. She also designs projects for clients and works closely with the company estimators to help them come up with accurate numbers for each project.

"She's quite passionate about what she does," he says, calling Linda a driving force for the company. "My wife has folded nicely into our company."

Rule #5:

Never start a project before you're ready

Rule-breaking Remodelers: Jeff Jertberg and Bob Jertberg
Company: VanBerg Construction
Location: San Diego
Years in business: 18
Sales volume: $3 million (2005)

For VanBerg Construction, a design-build firm that works collaboratively with several independent architects and interior designers, the typical time frame between an initial client consultation and the start of construction is about six months. So when an interior designer approached co-owners and cousins Jeff Jertberg and Bob Jertberg with a condo conversion and said her clients wanted to start in just six weeks, they ran in the other direction, right? Wrong.

The Jertbergs had partnered with the interior designer in the past. A previous collaboration with her had been prominently featured on the glossy pages of a regional home and garden magazine. The article garnered plenty of buzz for the company, and VanBerg repurposed it for company marketing materials.

"It was a really sweet project," Jeff says.

This time around, the project was located in a high-end community and the homeowners wanted to convert the Tuscan-inspired interior into something more contemporary. It also needed "soft" universal features to accommodate the husband, who suffered from a neurological disorder. Thinking that this might be another plum project, the Jertbergs agreed to meet with the homeowners.

"You read your clients when you meet with them, and it just seemed that they had the potential to be picture-perfect clients," Jeff says. They agreed to take on the project.

One of the strengths of VanBerg Construction — and one that it markets to potential clients — is that the company does thorough planning before breaking ground to maximize efficiency and minimize additional costs. With the accelerated start date on this project, that wasn't possible.

"The design package wasn't nearly as complete as we would like," says Bob, and that resulted in a "design-as-you-go" approach. Because of that, they made sure the clients were aware that costly change orders were likely. The original budget for the fixed-price project came in at around $300,000. Since then, there have been two change orders for more than $100,000. A third substantial change order is in the works.

While the Jertbergs were flexible on start date, they had to reset the clients' expectations about project completion. The company's completion date was a couple of months farther out than the clients originally wanted, and the change orders have added to the project's timeline, but the homeowners' only concern was to occupy the condo as soon as possible.

"We let them know upfront that we're not going to tell them what they wanted to hear because obviously that sets us up for failure and sets them up for disappointment," Jeff says.

In the end, the project will add somewhere between $500,000 and $1 million to the company's coffers. In addition to turning a profit on the job, VanBerg Construction will have another magazine-worthy project to add to its portfolio.


Some Rules Should Never be Broken

  • Put everything in writing — contracts, change orders, warranties, punchlists and so on.
  • Never proceed without a signed contract and down payment.
  • Pull all required permits.
  • You, not the homeowner, are the general contractor.
  • Payments must be received on-time.
  • Track the cost of doing business and the cost of each job.

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