Transparency and Partnerships

In a webinar we did a few weeks ago, this question came in and I want to address it.

Can you talk about being a “transparent” contractor? My partner is being brainwashed by a retired hedge fund guy who wants to play contractor for his rich buddies who says that’s the way to go. And, unfortunately my partner is falling for it. We haven’t made ANY money on any of his jobs yet.

I can hear the frustration. Their partner is listening to someone who knows nothing about construction but still knows what’s best. The writer has it figured it out, and says everything you need to know in the last sentence: “We haven’t made ANY money on any of his jobs yet.”

At this point they have two options: they can convince their partner that transparency is a mistake, or dissolve the partnership and move on to profitable work.

There’s an old saying that the worst ship to sail the seas is a partnership. My guess is that this partnership doesn’t have a managing partner. Establishing one partner as the managing partner is an absolute must if a partnership wants to survive. You also need a written agreement in place before the first day of business.

Now, if the managing partner is the one taking direction from a retired hedge fund guy and losing money on jobs, the partnership is sunk. It’s time to move on.

We have multiple articles on our website discussing the problems with transparency; the most recent is here.

The buying public believes they know far more about construction than they actually do. They get on the internet and do some research, then stop by one or more of the big box stores to gather prices. They take that information and start formulating ideas about what should or shouldn’t be done. and what it should cost. They don’t have the experience, they just have a few facts. Unfortunately, those facts are only numbers, and numbers aren’t enough to build the job.

I’ve taught estimating to over 30,000 contractors in the U.S. and Canada, yet I can’t look at your estimate sheet and tell you if your numbers are right. I have to do the same research you did on a particular project to come up with an accurate price for the job. I also don’t know if your markup is correct without working through your P & L, hoping it’s compiled correctly.

How in the heck can your customer look through all your details and know your price is correct or not? Plain and simple, they can’t.

So instead, they’ll compare your numbers to another contractor’s numbers and choose the lowest price, thinking everything else is equal. Maybe they’ll just use the pieces from someone else’s quote to try and argue down your price.

Transparency is like handing your customer a handful of bullets so they can turn around and shoot them back at you. It’s not necessary. I’ll argue it’s not professional. It creates a lot of work for the contractor who’s trying to demonstrate that he’s the best contractor for the job.

My advice to the contractor who wrote the note: Give the hedge fund guy a transfer to the competition and let them lose money on their jobs.

Or get a working agreement in writing for you and your partner. My advice would be that you be the managing partner, because if your partner is in charge, this business won’t survive.

Finally, read Markup and Profit; A Contractor’s Guide Revisited. It will give you some direction to get your business back on track and making some money.