Avoiding a Potential Pain in the Assets

A good guy we know was recently working with a potential client when he ran into some concerns. He sent some of their correspondence and asked for my opinion.

His note to the potential client:

Thanks for sending the project blueprints! We have studied them and would be pleased to be involved in your project.

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As you suggested, you would like a firm bid, which is the only way we will do these projects. To provide a firm price, there are a lot of decisions that will need to be discussed and decided upon, although we can include allowances for some items. This will involve several meetings with ourselves, you & your wife & our subcontractors and suppliers obtaining the decisions, to end up with the firm bid. As you can appreciate, this requires considerable effort on your part, but also for our team. Typically the next step for us at this phase would be to enter into a contract to “Engage Services” and we’ll start the process stated above. There is a fee associated with this contract, and if {our company} proceeds with the project, we credit half of this contract toward the project.

Before proceeding with this step though, we do have a couple questions:

1. What is your desired timeframe to start?

2. What is your anticipated or desired budget for the project? (and what all does that include?)

Feel free to reply or call to discuss these further.

Now, I think it’s best to ask those questions in person and after building a relationship, especially when asking about the budget. They need to trust you before they’ll share that information. However, based on the response he received, I don’t think it would have mattered:

I’m not sure on the answer. I’d like to consider paying you a flat fee to oversee the project and then negotiate the subs and pick the materials myself. I’ve personally built or had built multiple homes. I have another large home being built now . . . I have found that this model works best. The builder is involved but my team helps with bids etc. . . . So I think the answer is; I do care about the cost, but I mostly hate being taken advantage of. I watch the numbers and want accuracy and value honesty a lot. One simple example… a week ago I got a bill from a lumberyard that my general sent me. He suggested this lumberyard. When I compared product to product at {a chain lumberyard}, they were 18.9% higher. I then requested a full material list (the foundation is poured and the rough framing is about to begin) and sent it out to {two chain lumberyards} and his private local lumber yard. Previously one sheet of 9/16th OSB was 18.50 and last night because I addressed this the bid was 13.90. {Other store} was 13.50.

I don’t know exactly how to express this, I want someone to oversee the project, even build it with their people, provided it’s comparable to the local market. I know the cost can and will run out of control without detailed oversight.

That level of detailed oversight is also called micromanagement. My response to the contractor:

If I were in your position, I would send the nice man a note and thank him for his time and wish him well. This guy is a big, BIG problem just waiting to happen. His focus is on price and he is going to do everything and anything he can to screw your price down, down and down.

Not too many contractors are willing to spend time price shopping the materials on a job so they can purchase each one from the lowest priced yard. Not too many clients are willing to pay for the time and energy spent making multiple trips to three different yards to get the lowest price on all materials.

That’s not even the point. This client will question and argue cost details and prices throughout the project. You’ll spend more time defending your prices than you’ll spend building the project.

The contractor, our good guy, sent the following note to the potential client:

Thank you for considering us for your construction needs. While your described method may work well for some it does not fit our business model. Therefore, we are respectfully declining involvement in this project. We wish you all the best.

That’s how it should be done, gang. A nice, polite walk away with little time and money spent and no financial loss. Recognize a potential pain in the assets when you see one, and let someone else take the job.