Fair Trades

From the beginning to the end of any remodel, variables abound and chance may play a part beyond anyone's expectations. When a company succeeds, it does so, in a sense, by reducing that variability, by exerting as much control as possible over the job's every detail.

In the office, where handpicked staff work under direct supervision, a business owner has only himself to blame when things go wrong. But on the jobsite, things are different. Few remodelers staff the tradesmen whose specialty skills and equipment they need on most every project. That means entrusting those jobs to someone else's employees.

But for many, the traditional contractor-subcontractor relationship just doesn't deliver. Especially in the high-end market, where customers and projects are most demanding, it can be difficult to find tradesmen who perform to the remodeler's own standards. Bringing trades in-house is a tempting alternative, but in the end, some companies find they're just exchanging one headache for another.

There has been a lot of talk in recent years about the value of improving remodeler-trade contractor relationships. But establishing sound relationships takes time, and that's after you find a trade contractor who meets your performance standards. Just getting trades to show up can be a challenge for some contractors. Then there are issues of quality, customer service, and scheduling flexibility.

At Design Builders & Remodeling, in Sandy Hook, Conn., owner David Adams says he grew weary of what he calls “the prima donna mentality” of trade contractors. Adams recites a litany of familiar complaints: “Holding us up; not doing things with quality in mind; rushing to get in and out because they get paid by the job, not by the hour.”

In response, Adams established seven in-house trade divisions. Now, under one roof, he has excavation, plumbing, drywall, masonry, concrete, roofing, and landscaping crews, plus a kitchen showroom and a full complement of carpenters. Each “division” is really just a small or one-man crew.

Adams provides logistical support for his tradesmen and feeds them work. But he expects a certain level of ambition, too. Adams' tradesmen work for other contractors as well as for Design Builders & Remodeling, and he offers profit-sharing incentives and encourages them to bring in their own jobs.

Finding the right people, Adams says, hasn't been easy. The businesses are just barely profitable, but even at break-even, they're paying for themselves, which is all Adams really wants.

“In the end, I have the convenience of having these guys when I need them, and the clients are thrilled,” Adams says. “I'm able to get more work because my clients are happy and my stress level has gone down tremendously.”

Better control over scheduling isn't the only benefit. Adams' larger staff, now totaling 25 office and field, has helped reduce his insurance premiums. And, he recently learned, his insurance carrier will still let him carry all of his employees on one policy even if he establishes each trade as a separate LLC.

Adams' “maximalist” approach is atypical, but a number of other contractors have successfully added small or one-man crews to work a single trade. Seattle's Prestige Custom Builders has carried a small paint crew since 1999. The crew is a subdivision of the Prestige home services wing, which handles smaller jobs to keep the $6 million company visible in the community and in front of past clients. Prestige still subs paintwork on larger projects, but uses the paint crew whenever possible.

“Our self-performed labor is the most profitable segment of our business,” owner Jeff Santerre says. “We're in a time-and-material world here, so if we have a given contracting fee and we sub it out, we make the contracting fee; if we perform it in-house, we make the contracting fee, plus whatever we're making on the labor.”

The paint team gives Prestige Custom Builders the flexibility to keep more projects in-house. Santerre will send the team (all bachelors, he notes) on two- or three-week “field trips” to paint clients' second homes in the San Juan Islands. The islands, near Seattle, are thin on good painters, so Santerre loves that he can get his own crew on those jobs.

He also puts his painters to work pre-finishing exterior structures and wood siding, which improves the quality of the work — a huge benefit in Seattle's wet climate. “It's a lot better finish than you get if you send it to one of the siding pre-finishing companies,” Santerre says. “They kind of blow a little skinny coat on it as it goes by on the belt and that's it, whereas we can oil prime it, and paint it, and double coat it if we want to.”

For all the potential gain, though, bringing trades in-house is an endeavor fraught with complications, and they're complications that remodelers often fail to consider. The problem, essentially, is that a full-time tradesman is not just another carpenter who fits neatly into the production hierarchy. Trades have different operational needs, and if a company's systems aren't set up to accommodate those needs, things can get tricky.

Phil Bowman learned that lesson when his Columbus, Ohio, company, J.S. Brown & Co., brought on a full-time electrician. One complication, says Bowman, the company's general manager, was that the electrician's need for a stock of supplies didn't mesh with J.S. Brown & Co.'s accounting system.

The company had no system for tracking material costs that weren't direct job costs. That meant the electrician couldn't realize the economies of scale that an independent contractor would have by buying parts in bulk. And if he did buy supplies that were used on different jobs, it made job-cost accounting more difficult.

“You'd get into the difficulty that if you bought a thousand feet of coaxial cable, it's supposed to be charged to a job, or divvied up among two jobs or three jobs,” Bowman says. “Well, if only 200 feet of it was used, you had to expense the whole thousand to current jobs in progress, and it overstated some of those costs. It left our accountant pulling her hair out.”

Scheduling quickly became another problem. Originally, the electrician was supposed to only work larger projects. But it quickly became apparent that that wouldn't keep him occupied, so the electrician's role was expanded. Bowman had to balance two conflicting priorities. First, he had to keep his electrician busy with electrical work. Otherwise he'd end up with a high-wage earner doing fill-in jobs usually budgeted for a laborer or carpenter's helper, which didn't make anyone happy. But Bowman also had to serve his project manager's needs. Everyone wanted the in-house electrician to keep project costs down; scheduling conflicts were common.

“It was, ‘I needed him over here and you need him over there'; which fire is burning the hottest at this particular moment?” Bowman says. “And that's a pretty tough way to distribute your manpower.”

Like Bowman, Seattle remodeler Michael Fast's efforts to operate an in-house trade were complicated by the fact that his company's volume meant asking employees to fill dual roles. Fast once cross-trained his MRF Construction carpenters to reduce his dependence on painting contractors, whose performance disappointed him. At first, Fast says, he loved having more control over scheduling. Eventually, though, he realized that he was paying his skilled carpenters a premium to do low-cost labor.

“We were able to attract better-quality carpenters, and we wanted to leverage that skill,” Fast says. “It was nice to have the control and get [the painting] done when we needed it, but I found that if I could find good painters who focus just on painting, that would free up my people to do more profitable things.”

Besides, Fast says, his carpenters just weren't as efficient as full-time painting crews; carpentry was his company's core skill, not painting. “We aren't a painting contractor, we're a remodeling contractor, so we decided to focus on where our strengths are,” Fast says.

It's also important to have a high enough volume of work to keep the tradesmen busy doing what they're paid for. Even then, there may be gaps in the schedule, which means the tradesmen will likely have to do double-duty. Santerre has found cross-training a good way to keep his paint team busy and involved.

“The painters really enjoy it and it keeps them fresh,” he says. “The first couple of years, it was a challenge because we were saying, these guys are painters, that's all they can do. Then we started saying, ‘Hey, wait a minute — is there any reason this guy can't help a carpenter and start learning that by osmosis?' Or if we need to organize the shop or do some other miscellaneous things, we can have these guys be a little flexible and pitch in.”

Of course, Santerre's tradesmen are lower-skill, lower-wage employees, so he doesn't have to worry about throwing off budgets. Adams, too, will occasionally round out his tradesmen's hours with lower-skill work. He acknowledges that with the more skilled workers, this leads to cost inefficiencies, but says it's worth the small change to make his in-house trade program work.

Peggy Fisher, a Virginia remodeler whose Fisher Group keeps an electrician on staff, says that in the end, a specific set of circumstances will dictate how a company is structured. “Different companies do extremely well with very different business models, so it's just a matter of finding what business model works for you in any given market situation,” Fisher says.

Michael Howes, owner of Woodside, Calif., MCB Remodeling, is a case in point. Howes recently tried and gave up on keeping a full-time tiling crew.

“We like to have a lot of control over the details of the tiling we do; we have pretty high standards and do fairly complex layouts,” he says. “In working with a sub, it was almost like we were meddlesome because we were asking for a higher level of quality than is typical. It was easier for us to bring it in and have direct control.”

Howes set up the tiling operation as an independent profit center, and quickly found he'd created a successful second business. But that meant taking a whole new set of responsibilities that distracted Howes from his remodeling work.

“It's kind of like this whole parallel universe we were trying to run,” he says. “We could have had a lot of business, but in the end I decided that it wasn't worth the amount of time it would take; it would effectively take me too much away from my core business. It was a great profit center, but my own business would have suffered for it.”

Instead, Howes went back to basics, and took a new look at tiling contractors. This time, he refrained from trying to enforce a set of standards on the job. Instead, he and the tiler met to exchange references and discuss working styles; Howes asked to see extensive examples of the tiler's work and asked the tiler to study MCB Remodeling's projects, all before ever agreeing to work on a trial job.

Though “it was kind of a pain in the butt,” Howes recalls, the effort paid off beautifully. Howes knows he can count on the tiler to deliver, and the tiler knows that an MCB Remodeling job means exacting specifications.

“Most business owners have a certain amount of the control-freak gene in them,” Howes says. “So it's attractive to have the control in your house, rather than somewhere else. But the reality is that with proper planning you can establish your expectations and have that control with your subcontractors, as long as you bring them on as equals and don't just try to feed them your point of view after they've given you their price.”

David Zuckerman is a freelance writer based in New York.