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!

Angelo DeSanto is owner at Rancho Cucamonga, Calif.-based Dande West.

Funny how houses go up in price. Vehicles go up. Gas goes up (even though oil went down!) But we have to stay put, IE lose money. It's been like this for a long time and we have to make back our prices to where they should be. My dad made more than my engineer grandfather in the late 50s and early 60s.
Well said Sir!! I have several builders in my 'never again file'.
They insist schedule is more important than acclimation and dry time. Sorry guys, let's agree to disagree and move on....
Yep, we follow the rules !!
Good stuff here Angelo. My take is that builders need to know what is spec'd for any given project. At that point, they should get bids from their subs. AFTER they have numbers from their subs, THEN they can present their pricing to their customers. It always seemed backwards for a builder to pull a square foot price out of his/her #!!$$ when submitting a bid and then to collect bids from subs. No wonder many builders only break even or worse. I guess my question here is "How can you submit a bid if you don't have any idea of how much your subs will cost?!?"
And this is why I work for few builders!
Smart man ... :-)
I have to laugh when a homeowner asks me to give them my contractor price, I say sure but I charge 20% more to contractors because of the hassle working for them!
That is kinda funny, what were they thinking ???
A contractor with this kind of thinking is not someone I will work for! You don’t go to macy’s And tell them how much of a discount they are going to give you, do you? NO! You don’t come to my shop and tell me how much I’m going to work for either. There is an old saying “I can work anywhere for free”
Words of wisdom !
Also, especially in the wood floor business, we must think of ourselves as SPECIALTY contractors, not SUB contractors.
I agree
Great comments - all of you !

My single wish is that "we" lower our eyes to NO ONE. Many home builders and General Contractors have no idea of the latest innovations to our trade, or even of the basics - yet we all attend at least one or more extended education classes each year. They do not.

WE have to be the leaders - or no deal. We didn't decide to be wall paper hangers, we took on the hard part being wood floor experts. Personally, I think we are more equal to electrical and/or mechanical engineers than most other trades.
As a Licenced GC I agree with you 100%. The biggest problem that I see is that the GC relies on estimating software which may not reflect actual real time prices from subs or increases in material costs. Then they try to get a sub to conform to THEIR estimated pricing instead of what the actual cost is. Part of it is also the clients who don't know any better either, in this point and click world customers want everything instantaneously and don't seem to understand that quality work takes time and craftsman. Craftsmen that should be paid a fair wage for their work and paid within a reasonable time frame as well. I work for some very large worldwide companies and have to put up with the 90 to 120 day pay periods. But I also set myself up to pay my subs even if I have not been paid. My subs will drop other GC's to come work for me because I treat them like the professionals that they are and I pay them usually within 10 days of receiving their invoice. The only issue I have with subs is not understanding that they need to carry insurance or my carrier will charge me.
I'm on your side, and in my area the Xactimate software is used by every restoration contractor, and you're right in this regard. The Xactimate software has pricing pre-installed that is not realistic - yet relied on just the same.

Similarly, I was at the office of a mega-large GC company at the moment bids were opened and it was a super-charged event !! The staff had someone on-site with a cell phone while the bids were being read out. Although I do not completely understand, they were changing their bid up to the moment of their companies bid opening and relying on what the other GC's were bidding. So ... if their competitor bid $1000, they would drop their bid $50 below that. They won a lot of work this way !!

My point is, for them - they just wanted the win. Making the job work after that seems like the subs would've had to have taken a cut to keep their chance at working once this GC won the job, and they were known for crushing subs. The subs that worked for them thought there was no other way but to wait for 3 months or more to get paid - and for less than what their signed contract stated. The GC's bullied them into signing things that leveraged their contracts over the subs. I saw them, I read them.

Also ... the company "Rusty" worked for doesn't rely on Xactimate, they rely on deception to get ahead. I know this because I've dealt with them, and some GC's rely on this method as a rule. I typed and then retracted a popular name here, but ... I have stories.

Lastly, the 90 120 day pay period is against the law Coast to Coast, and I've written on that. To my current knowledge, Michigan is the only state that does not protect subs with similar laws.

You sound like an outstanding man of integrity, and I'm on your side once again with respect to carrying insurance. It's a basic part of business these days.
I am a custom home builder and have a problem with just about everything you have said. Sub creep is probably the single biggest cause to decreased affordability in my area. I may be old-school, but I believe in loyalty. Many of the Subs I use have been working for me for more than 20 years. They know what I expect and I know what kind of product they produce.

That said, let me get on record saying I am a firm believer in you generally get what you pay for. Most of the Subs in my area are pickup contractors, being that they strap on a tool belt during the day, or in this articles case maybe knee pads, and work on bids, payables, receivables, family time and whatever else in the evenings. I understand this, so I work hard to try and work out set SF pricing. Lets keep it dealing with wood floors. So, lets say it's $10 per SF for 5" rustic hickory sand and finish+ $1.5 for stain + $3 for hand scraped etc. This method works great for everybody, I know how much it is going to cost, I do my bids accordingly, when I have a job ready I call and say go do it, when it's done I do an ACH transfer and that's it. No having to look at it and work me up a bid, no homeowner standing around asking a million questions, no having to submit an invoice, no having to wait 30, 60, or even 90 days to get paid. Money in your account as soon as the next day. I do all of this because I can, and in todays labor environment I want to make it as easy on my Subs as possible. I don't tell them what they can charge, because I want good relationships. We should all be able to make a profit and be happy.

Now here is where the problem is, at least in my area. Subs aren't sticking to their prices. I understand prices can't stay the same for ever, I get rising labor and material prices, but when all of a sudden they want to raise their prices by 50 - 100% year over year, and then want another 25-30% the next year, all because "they can" or because they did on one job somewhere. Home prices in my area have increased on average 33% over the last year and a half because of this. I work on a fixed guaranteed price, and when this "price creep" happens mid cycle I can't pass it on to the customer. In my opinion, the recent "price creeps" are pure greed, and that infuriates me, because in the long-run everybody looses. My grandfather had a saying, "the Pig gets fat and the Hog gets slaughtered. It's okay to be a little Piggish, but don't get Hoggish".

Needless to say, I am now continuously shopping for new Subs and am keenly aware of who the big culprits are. What comes around goes around.