Volume 44, Issue 4 - April 2009

Contract Glazing

Contract Glaziers Can Stay Profitable 

Profitability is not just about making money, but also keeping the money earned, noted Bill Dexter, risk-management consultant and trainer, during a series of March webinars hosted by the Construction Specification Institute. During the webinars Dexter provided a number of tips for doing just that, as well as creating project-specific contracts that will keep owners’ expectations realistic.

“This is a high-risk, low-margin business,” Dexter said. He pointed to a number of issues that subcontractors and general contractors deal with that cause a loss of profitability, including owner-drafted contracts, which are generally slanted to favor the owner; changes during construction; and the owner’s performance, i.e., not making timely payments, authorizing change orders, etc. Another “money leak,” according to Dexter, is being the low bidder.

“If you are the low bidder on the project the owner may still expect [the highest level] from you even though you may have made cost cuts in bidding that job,” he said. Dexter further stressed that one of the most important steps is making sure that contractors are getting and giving feedback to owners, who may otherwise not know where the money they are putting out actually is going.

“When you meet with a new owner, their ultimate concern is the budget,” Dexter said, explaining there are several things that an owner wants to know:
• If you have the talent and resources to build their [project]; 
• How much it will cost; and 
• When it will be done. 

Once problems such as those noted above are addressed, Dexter offered three steps to profitability: “describe the work; define trade standards; and billing with a budget report,” he said.

To follow the first of these steps, Dexter advised creating project-specific contracts. Dexter shared some benefits in preparing your own contracts. “It’s not as complicated as you may have assumed,” he said. “It tailors the contract to the way you do business … and can include an exact description of your tasks, benefits and remedies.”

When working with a contract you’ve prepared, Dexter added that it’s important to still educate and work closely with clients. He offered a few suggestions.

“If you’ve written your own contract, go over it word-for-word with your client. Explain what every clause means,” said Dexter. “Also, invite clients to suggest revisions; you’re not letting them make changes, but you’re just asking if there is anything in the contract that they feel uncomfortable with.

”In addition to detail-oriented contracts, Dexter also advised taking a role in creating detailed specifications. “[Let them know] what brands are included, what equipment is included, etc. Also, take time to include the work you are not going to do,” Dexter said.

Ensuring those specifications match up with set trade standards is another good aim, Dexter noted. As he explained, a departure from trade standards is the number-one consumer complaint against contractors and subcontractors. Several levels of standards exist, so it’s important to spell them out.” The minimum standards are the building codes and other codes, while the “higher” trade standards are those created by professional trade associations and are not enforced unless they are written into a specification.

The highest trade standards are the manufacturers’ specifications and instructions for the specific item being installed. “These cannot be changed and they carry the same weight as the codes,” said Dexter, who added that when posed with a disagreement between a building code and a manufacturer’s specification, the specification is the one to follow.

Finally, he noted that there are “unachievable” standards—generally an owner’s unrealistic expectation for materials and methods—as well as “false” trade standards, such as following or not following “custom and practice.”

Another “false” is the standard of care. “There is no such thing in the construction business,” Dexter said.

In order to narrow down the trade standards, Dexter suggested doing the following:
• In the contract, describe exactly to which standards you will build; 
• In an exhibit, list the expected performance of materials and methods; and 
• By reference, incorporate the standards. 

Regarding the third point, billing with a budget, Dexter noted, “The flow of cash from the owner is his gauge on how well the project is going.” According to Dexter, when it comes to subcontractors and bids there are good, bad and ugly. On the good side are detailed job inclusions and exclusions; unit costs and specifications; and time to complete the work.

On the bad side are lump-sum only bids and a lack of specifications. The ugly includes errors in estimating and a lack of exclusions. 

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