Residential Construction
It's Time for Contractors to Consider the Big Change

It’s time to apply the newcomer mentality to an existing business–to do something the competition isn’t doing, and at the same time, change the rules of the game. Eventually, the competition will adapt this methodology after seeing the benefits of this new way.

The change to which I am referring is simply eliminating the typical bid process. In residential construction and many other industries, people often shop based on price.

To shift the emphasis of the comparison among companies from price to another aspect, such as quality, we have simply moved away from bidding for the sake of bidding. That’s right, we have abolished the bid process under the belief that everyone ultimately wins.

You see, by eliminating wild goose chases, the wasted time associated with nonrealistic or nonserious shoppers is minimized; the time savings associated with that previously wasted time can be passed on to jobs that do come through.

Create a process that represents the chain of communication and engagement with a client. During the first meeting with the client, do the normal – identify the objectives, vision, desires, and the budget. As we all know, however, in many instances, the client doesn’t have a realistic idea of the cost of his or her dreams. So, to make sure everyone is on the same page from the very beginning, provide a “ballpark estimate” on the spot.

The second step in the process is to give the client a written budget estimate. This can be done in-house, without field visits with subcontractors. This estimate goes over the major components of the project. It usually gets the client to within 5 percent to 10 percent of the actual cost so they can decide to move forward with a great degree of comfort from the pricing standpoint.

If the client is willing to continue after reviewing the written budget estimate, they are presented with a preconstruction agreement, and a nonrefundable retainer fee is requested. (This fee is applied to the final job, but forfeited if the client doesn’t go through with the project or hires another contractor.) The point of this is not to profit, but rather to separate serious clients from those who are not serious about moving forward.

The agreement says the client intends to use us as their general contractor and states that for the retainer fee, we will give them specification and design analysis, cost analysis, and “value engineering.” The latter is a presentation of “what ifs” to show the client some options that may save them money in one area so they can afford to pay for something more important in another area.

This is the part of the process during which an extensive amount of client education takes place. It is also, by virtue of the preceding steps, an easier education effort because by now, there is an established relationship with the client.

The last step in this re-engineered process is the final fixed price and contract which is signed so work can begin.

So the moral to this story is simple for business owners in many industries, and in residential construction in particular: Determine where you are potentially wasting time with inquiries that are really fishing expeditions. Then, implement a system that quickly allows the serious ones to move forward with you – giving you more time to service them and the rest of your clients more effectively and efficiently.