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What I Really Think About the 'Controlling Subcontractor Price Creep' Article

Angelo DeSanto
Do builders think they are like kings and their subs are their pawns?
Do builders think they are like kings and their subs are their pawns?

Do builders think they are like kings and their subs are their pawns?Do builders think they are like kings and their subs are their pawns?I started to write this article maybe eight times, and I hope this version comes out best. I read the article “Self-Taught MBA: Controlling Subcontractor Price Creep” from Fine Homebuilding magazine and went from 0 to 100 mph in an instant. All eight times I read the article I got upset! This article is a reflection in real time of the adversarial relationship between builders and “us.” There is so much wrong with it I don’t know where to start, but the gist of the article is just what it says: Builders need “strategies to keep subs from eating up your profits.”

I’ve worked for a few builders myself and can relate to what I feel is an honest and reliable visual of the business model builders hold. While we can conceive of a builder focusing on building exceptional homes, we can also conceive of builders who know of no other business model than to spend the least amount possible on a project and sell it for the highest possible cost. By contrast, the exquisite builders let price work itself out on its own and focus on the product first.

I recall once when a superintendent named Rusty (you’ll never know who the builder is, so I’m good with naming him) asked me to bid a project. This was a big builder, and I jumped at the chance to bid it as low as I could to “get in” with this company. Well, after receiving my bid, Rusty came up to me and said, “I need you to lower your bid by 50% so I can make my bonus for the month.” After hearing his smooth-handed, narrow-shouldered squeaky voice ask me this, I instantly became incensed at his offer and told him NO (I’m leaving out the real way I said it in case kids are reading this). I never gave a care to this builder anymore, and after that, I noticed how they were constantly losing their subs and searching for new subs. Gee, I wouldn’t have guessed! By the way, I found out they were a definite “90-to-120-day paycheck processing time kinda company to deal with,” so I unknowingly dodged a bullet!

For us subs, I believe compromise must be thrown out entirely. Either we do good work, or we strive to supply the cheapest products at the cheapest labor prices. We all know no one can have both—but how to cope is the question.

My view may be harsh, but my family comes first. If you live in a state where you are mandated to hold a contractor’s license like we are here in California, then protecting your license is a chief concern, as well. Deviate a tiny bit by substituting a cheap, minimal product without disclosing it can lead to trouble. But by offering a choice, we may satisfy the builder and hold ourselves harmless at the same time.

Before the reader “clutches their pearls” at the word “cheap,” let me balance that with my experience on how to offer a choice to the customer, whether builder or end user. When I give a bid for a refinish, I state the price is assuming “minimal finish,” then I write in an option for “good finish” with its accompanying difference in cost. I tell my customers I do not make the finish, and since I have nothing vested in selling either option, I am merely listing a choice. Funny thing, the “minimal finish” price is lower than the “good finish” price. So, if I did not mention a choice and furnished a quote with “good finish,” the customer may kick me out at the start for being too high. But by giving a choice, I can (and do) end up being the highest quote, and get the job, too. The psychology of this is amazing—and it works. “Now Mr. and Mrs. Customer, did you want the minimal finish or the ‘good’ finish?” See how it sounds there? The same logic can be applied to an install, too. I do it ALL THE TIME, and it works. This reminds me of Agent Smith in The Matrix detailing choice to Morpheus. I’m sure most of you know what I mean—and it’s the same thing.

You’re welcome.

Back to the Fine Homebuilding article, which states “subcontractor price creep can add significant costs to a builder’s operations, not all of which you can easily pass onto your customer.” Well, if this is a problem then here you go: minimal finish for you, pal. See where I’m going with this? No way would I compromise the work for a low price, but I am reminded of a certain contractor who paid me to perform a refinish using a method he called a “Sand & Seal.” He said to “hit it once with 50, coat it and you are DONE.” I was new to the trade, and I figured I had to respect who’s paying me, so I did it just like he wanted. I went out on my own after that and have NEVER done a “Sand & Seal” since, but if a contractor wants a “deal” then sure, I’ll pull this out of my quiver of products and have him sign a contract listing full payment on day of completion. He gets what he wants.

Another goodie from the article: “Shopping around for better subcontractor prices comes with the risk of buying lower quality workmanship for the lower bid.” Well, this is where I push back and remind these characters that you cannot have quality workmanship and lower prices at the same time. If they push back again, then they are obviously not a company anyone needs to work for. They need to make a choice and stick to it.

Further, the article states, “Of course, there exists a limit to the price increases that you can pass onto consumers. High prices drive customers away.” To which I reply, “Oh really???” Tell that to our friend in Portugal with all the Festool equipment and insanely complex floor systems he installs. Then our friend in Oregon who hand-scrapes floors to a level few can match. When we are called on to supply an exceptional product, we can “bring it” with ease, but the end user may have to chat with us directly and avoid the builder if they want a “deal,” because the “deal” is … that we do the work. A “deal” has NOTHING to do with price! Not on our level, we’re a different crew. We set the standard.

Then there is this: “When you consider that the NAHB Eye on Housing Survey found that 66% of home builders have had to pay higher subcontractor costs, but only 61% were able to pass it onto their customers, and fully 26% of home builders report their jobs were not profitable, you realize who’s getting squeezed—you, the home builder!” To that, all I can say is these home  builders are in the wrong business if they do not know how to not only price their homes properly but attract customers looking for the kind of product they are providing. In short … NOT MY PROBLEM. All the more reason to choose our business alliances very carefully. If these clowns don’t know how to handle their end, they surely will be the first to throw us under the bus on whatever problem comes up and end up holding our pay for silly reasons that do nothing but get us upset (see my article on who to get paid by builders!).

Next bit of goodness from the article: “Nonetheless, it’s imperative to control subcontractor pricing. One way to do this comes through competitive bidding. Get your plans and specs perfected so there’s little room for argument about how you want things built, and then expand your stable of subs.” Really??? Where is this author thinking builders get their subs, from the big box store parking lot? Surely if that were the place to look, they will no doubt get a lot of “experts” to bid on their projects. “Imperative” my rear end, and for starters they don’t control pricing, WE DO. You want a nice floor, here’s a nice price. You want us to work on the weekend, here’s a weekend price. You want us to do five days of work in three days, here is a price for that, too.

In fact, I’ll make the point here that WE are the experts. WE control the prices. WE are the suppliers, and WE follow industry guidelines to a “T” and this, more than any other individual quotient, determines good work from bad work. I’ll even further my angst in saying we need to “control” builders to conform to our business practices. By contrast, they actually think they have to control us! Wow. There’s so much wrong here I have to settle down before I continue.

Brief intermission …

The article ends with, “Perhaps you have a price-pressure relief-valve you would share with the rest of us?” It’s called turning the ringer off, pal. The author obviously meant well, but he obviously doesn’t know any of his subs, either. The arrogance and ignorance of this article lit me up, and my first through seventh versions I threw out because they were way outside of PC compliance and niceties.

Moral of the story: I personally advocate for all subs and hope we all resist this “price creep,” as the article puts it. If the author demonstrates anything, it’s that not only he but the industry at large is so out of touch with the subcontractors that they think they control the prices and need to squeeze us for high-quality work for the cheapest price … as if that were a bragging point between themselves!

No, wrong answer. Not even close!

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