Remodeler's Exchange: Subcontractor Relationships

TOM SWARTZ: To what extent do you use subcontractors and what is the main advantage of using subcontractors?

BRECK POWERS: In Houston, most of the remodeling professionals use tradesmen. When I first started my business, I took the approach to bring several of my tradesmen in-house. One of the challenges that I experienced was that every tradesmen had their strengths and weaknesses, and what I found was that I was trying to put those people to work, but sometimes they ended up doing something they weren’t skilled at doing. For example, I might have someone doing trim work that wasn’t a master carpenter. I wasn’t able to achieve the quality that I would have liked to achieve with this strategy. I’ve found over the years that finding the best subcontractors in particular trades and building the relationships with them gives me the ability to produce the best product I can with the highest quality for the customer. The challenge that arises is when you don’t have them as your employees, you don’t have the control over them that you’d like. What’s important is that you build relationships with them and provide them with enough work, so they become dependent on you for work.

This month featuring:

Don Ferrier, President
Ferrier Builders Inc., Fort Worth, Texas
Ferrier Custom Homes was established in 1984 and specializes in high-performance custom homes and remodeling projects. Last year, the company billed $1.6 million for remodeling work. The firm currently has four employees.

Breck Powers, Owner
LBJ Construction, Houston, Texas
Launched in 1998, LBJ Construction is a remodeling firm that focuses on kitchen and bath work, as well as custom home construction. The firm currently has seven employees and bills just over $2 million in remodeling fees annually.

DON FERRIER: Breck’s experience is almost a mirror image of what I have gone through as a contractor. We’ve had master craftsmen on our team and that helps when you have times where there is plenty of work. Then you hit the times when it’s slow and you’re using them for a variety of work. Finally, there are times when you get a bigger job, you add more people, there is more in-house coordination and payroll. After experiencing each scenario, we found that it works better for us to use subcontractors or tradesmen for those specialty jobs. We like to find subcontractors that we can build a relationship with over the long term—that is very critical. We tend to use subcontractors that we’ve built a successful relationship with again and again. When I first start talking with the subcontractors I tell them, “I am looking for a competitive bid. I am not looking for the cheapest price; I am looking for someone who shows up, does what they are supposed to, and takes care of any problems that come up on the jobsite.” We are just compiling the bids, coordinating with homeowners, and supervising the jobs. For everything else, we would use a subcontractor or tradesmen. This is a better model for us rather than do it in-house.

SWARTZ: What are the disadvantages of using subcontractors?

FERRIER: The disadvantage of using subcontractors is that you don’t have as much control on the jobsite. They may be dealing with anywhere from two to 20 other builders and remodelers out there, so the scheduling has to be ideal. You have to plan further out because they have so many other irons in the fire. The other situation is you may not get the same foremen on a job. Some of the foreman may not understand what we are looking for on the job. It starts with the owners of the subcontracting firms, if they are willing to partner with you. We explain very carefully what we are looking for and what we expect of the subcontractors. They may upcharge us for specific items on the job because we may require them to do something on the job no other contractor does. We take care of specific details in our client’s homes and I am here to make sure the client is happy.

SWARTZ: How do you build good relationships with trade contractors?

POWERS: One of the simplest concepts is to pay them consistently and in a timely manner. We have a policy that if we receive an invoice before the end of the day on Wednesday, we will pay the subcontractor the following Friday. The subcontractor knows they can depend on getting paid by LBJ within a week and a half. That’s important to the subcontractor and it gives the subcontractor the dependency; they know they can count on your business paying quickly, and they never have to worry about not getting paid.

Subcontractors also like to be told their work is appreciated. I understand these relationships are critical to our business. If we don’t have good subcontractors, we don’t have a very good business. We understand the importance of these relationships, we treat the subcontractors professionally, we befriend them, and we try to learn about their hobbies and families. We treat them like friends. When they do a great job, we are sure to tell them, and if they don’t do a good job, we tell them that, too. We communicate with the subcontractors in a professional manner. Also, running a remodeling business to where your schedule is done in a manner that doesn’t create chaos for the subcontractor is also very important. Be sure to respect their time and schedule.

FERRIER: I always want to have open communication with the subcontractors. Typically, it is with the superintendent, the foreman who comes out and does the job, and finally the workers on the job. I want to make sure they have their needs met on the job. I don’t want to force the subcontractors to do what I want them to do on the job, but I want to communicate with them why the job is important to my business as well as the client. I check in with them on a regular basis and ask them what they like or dislike about working with our business. Sometimes we take their advice; other times we do not. This is part of valuing the contractor and treating them like professionals. Often, the subcontractors give me a number of great ideas. Communication is an important part of the respect between contractors and the subcontractors. We are here to help the subcontractor succeed and we want the subcontractor to help us succeed.

POWERS: We can beat our subcontractors up on price, but the bottom line is if they are not successful businesspeople and they don’t make a good living for themselves and their family, they are not going to be around one day and they will not be able to do the work you need to have done. It is important to us that we treat the subcontractors fairly so they can provide for their families. When a subcontractor realizes you care about him and his business, that builds loyalty as well.

SWARTZ: What are the advantages or disadvantages of working with a one-man subcontractor versus a subcontractor that has multiple employees?

FERRIER: It comes down to the attitude of the person you are dealing with at the subcontractor level. A lot of that has to do with the ownership they take in their business and work. One of the key things we stress to the subcontractors, and especially for interviewing, is if you are on a job and there is something that is not in your purview and you see something that is going to aversely affect the job, I want the subcontractor to communicate that to me or the foreman. We are all there to build the best product we can, be competitive, and keep the customer happy. I find that some subcontractors such as our electrician runs 34 different crews, but they are the most organized subcontractor I have ever found. They have systems and management in place that is ideal; I find they are a delight to work with nine out of 10 times. I’ve also had some small, independent contractors where it’s the owner with maybe two or three helpers and they are just as amazing and good to work with as the larger subcontractors. The smaller subcontractor may not have the management skills to operate a larger team, and sometimes that individual craftsman who is so enamored in his work can be a great person to work with.

SWARTZ: How do you bid projects when using subcontractors? How do you maintain cost control?

POWERS: We do a lot of kitchen and bathroom work. If I am looking at a master bathroom project, I have a pretty good idea of what the costs will be for that project because we have a template for that type of job. We have a cost template for a secondary bath and small, medium, and large kitchens so when we are talking about costs for subcontractors, I have a pretty good idea of what a plumber is going to charge me for a specific project based on these templates.  We developed these cost templates because we worked with particular subcontractors a number of times. In the beginning, or if I were to have a new subcontractor, I would have them bid the job. I have a conversation with him after the bid and ask whether or not his prices are standard. If I do another bathroom that is similar to the project the subcontractor just bid, I want to use his bid as a template for the work. Typically, the subcontractor has a standard price for specific jobs. This is a good way for a remodeler to start a conversation with a subcontractor. There are certain things like countertops that have variables that must be factored in the costs. In other situations where there are a lot of details or angles, then more than likely you need the subcontractor to give you a specific quote based on these variables. The complexity of the project determines whether or not we get pricing from the subcontractor.

FERRIER: We do it somewhat differently because we have the subcontractors bid the majority of the work. There are situations where the work is straightforward or it’s a routine job, we’ve got a pretty good handle on those prices. If the work is complex, we have a pre-bid meeting with the subs where we go out on the jobsite to review the work to get pricing. One of the ways I handle costs is that I use regular subcontractors based on the type of work and the location. There are other subcontractors that give me a sheet every year that has their pricing. Their work is very consistent but occasionally, we have to visit the jobsite if there is complex work to adjust the pricing accordingly. We always have the opportunity to talk about pricing with the subcontractor. Nine times out of 10, I will take their price because it works; the other time I will tell them their price is out of line and it needs to be discussed.

SWARTZ: Do you ever get competitive bids to compare prices with the subcontractors you use regularly?

FERRIER: It depends on the subcontractor and the project. We have subcontractors we’ve been working with for 15 years. We have a relationship and trust with them, and we believe they are doing the best work on every job and providing the best bid price. One of the complaints you will hear is the subcontractors will come in, bid low, and eventually jack the price up. That’s not the type of subcontractor we do business with. Of the bids we get, we usually get more than one subcontractor to bid on the work. We end up using a contractor we’ve used in the past because we know we can trust them.

POWERS: There are certain trades such as framers where we have a good understanding of what the market rate is per square foot in new construction. In remodeling, it can be quite different because you just can’t do square footage in remodeling in most situations. In our experience, you get a feel for what to expect in terms of bids. Occasionally, we get into a situation where we need to get another bid because I am uncomfortable with the number that has come in. We also have a core group of subcontractors that we work with, and I would say we get competitive bids on less than 50 percent of the jobs, especially for new construction compared to remodeling jobs.

SWARTZ: What advice would you give to a remodeler that would help make the relationship with a subcontractor more successful?

FERRIER: If there was one thing you were going to do, I would suggest the remodeler have a dialogue with the subcontractor to create a relationship; ask how they can improve that relationship, their likes and dislikes. Show them you value the relationship and ask for their feedback. My history has shown it will benefit the remodeler. You will learn things to see how you can run you business better. It’s mainly about creating a relationship and getting to know the subcontractor. It takes time but it pays dividends.

POWERS: The most challenging thing about my job is that I have to rely on so many people to help me do my job correctly. It kills me because I know if I could do everything myself, it would be done just the way we want it to be done. That means we have to rely on subcontractors to be successful. Building relationships with the contractors is the most important. We should be concerned about their well-being, their business, and building that solid relationship. I take the approach that life is short and it’s very important that I enjoy what I do, and the people that work for me enjoy what they do. As a company culture, I work hard to try and make what we do fun. It can be challenging if you have a difficult customer, so building relationships with subs is important because it’s like you’re dealing with your friends. When you go to a jobsite, you see a painter that you’ve known for years. I truly believe that a lot of my subcontractors are my friends; you trust them, and you feel comfortable with them. They have to have your best interests in mind. PR

Professional Remodeler’s Tom Swartz spoke with Don Ferrier and Breck Powers about how their firms manage the critical relationship with subcontractors and how it impacts business.