Upscale clients, usually more uninhibited about spending money, are pulling in the reins. “The marketplace has changed as result of the recession, and it has changed in complex ways,” says Keith Alward. “Everyone is more nervous about money and more focused on how to control it.”
Alward, the owner of Berkeley, Calif., company Alward Construction, says that one consequence of this attitude shift has been high-end clients seeking three to five bids for a project. This differs from just a few years ago when Alward’s high-end clients readily accepted the project price from his reputable company. The remodeler used to tell potential clients that “[at Alward Construction] we don’t use pricing as a way of getting business.”
In Boston, one of remodeler Paul Sullivan’s three-time repeat clients came to him with a $100,000 remodel. He mentioned to Sullivan that he was considering getting another bid on the project. “People hear things that make them question everything,” says the owner of The Sullivan Co. On a recent $1.3 million project, although Sullivan was told that he was being hired, the homeowners chose a contractor who bid 3% less. These clients, like most high-end customers, Sullivan says, pay cash for projects and can afford the work, but are nervous about the economy and their jobs. “I think plenty of people are not affected — other than psychologically — by this recession,” he says.
Eric Borden of ESB Contracting, in Toms River, N.J., says that his wealthy clients are also reluctant to spend. “There is retraction, naturally, in all phases of the market,” he says. In 2005, ESB’s volume was $3 million. This year it will probably be $500,000. Part of the reason for the reduced volume is that more remodelers are competing for the work.
Borden says that new companies are moving into his area. He works on multimillion dollar oceanfront vacation homes in Bay Head and Mantoloking on the New Jersey coast and says that clients are asking the remodelers of their primary inland residences to come to the shore to work on their vacation homes. In the past, Borden says, these contractors would have turned down the job because they had enough work in their own area. “Now, they’re willing to travel farther for less money,” he says.
Borden also points out that although the industry has been preaching a “get out of bidding” strategy, in this market the reality is that remodelers have to compete with a range of bidders. That salesmanship “goes out the window” he says, when the client wants to know what you can you do for them today. He is still trying to differentiate his company. “We don’t like the term ‘bid,’” he says. “We call it ‘setting the budget,’ and it has always been an education process.”
Bid and Bid Again
“Today, like everyone else, I will take every opportunity I can possibly take,” Alward says. An architect he had worked with years ago asked Alward to bid on a job, but informed the remodeler that he had a strong relationship with one of the other two bidders and that the other bidder had worked on the client’s house several years ago. Also, the clients just wanted a bottom-line number — they did not want to see how that number was arrived at. Though Alward ultimately questioned the effectiveness of providing a bid in this way, he did submit one and he won the job. But he worries that in multiple-bidder scenarios, architects might convince homeowners that there is no difference between three reputable contractors, so they should just look at price.
Three years ago, Sullivan did not provide bids. His most common scenario: The homeowner already has a set of plans and is ready to hire Sullivan. He calls Sullivan for a general budget proposal, which Sullivan provides with both a low and a high range.
Almost all of these jobs were billed cost-plus, and since The Sullivan Co. is open book with its clients, the clients knew the company’s labor rates and profit. However, three years ago, most of Sullivan’s clients began asking for fixed-price contracts.
Sullivan recently completed his third bid for a client who does not have finished plans or specifications for their project. “It was supposedly our job, but it quickly turned into a bidding process with another contractor,” Sullivan says. “I know they will try to have me bid it a fourth time with the plans, but I’m unlikely to bid a fourth time. It may seem foolish, but [it’s] for the long-term good of my company and the long-term good of the industry. People have to start putting their foot down,” he says. “If we keep getting bullied by clients over a few dollars, we are only hurting ourselves and each other, and the clients are not being served by that.”
Sullivan says that most $1 million-plus projects are not put out for a competitive bid, but if they are, he knows most of the other bidders. “Most of them are involved in the builder’s association,” he says. Due to his association involvement, Sullivan used to recognize the job signs in his area. But now he says there are a lot more players in the game. Many are former employees of large remodeling companies who know what their previous employer charged for projects and feel confident they can under-bid due to low overhead. “They are working out of their basement with no office staff and minimal insurance,” Sullivan says. “They can go in for a 10% profit. A lot of these new companies will ultimately fail, but they are out there now.”
Jackson & LeRoy Remodeling works on architect-designed projects in gated communities in Salt Lake City, with pre-recession jobs in the $750,00 range. “With the upscale market, our No.1 rule is to under-promise and over-deliver,” says co-owner Brandon LeRoy. “The bid scenario is completely counterproductive to that. You have to overpromise to get the job, which does not set the right expectation for clients. It completely contradicts great customer service.” Less than 20% of the company’s work comes from bids. “To win a bid you must compete with bids that are either unrealistic and/or incomplete. I have yet to know anyone, including myself, who can completely equalize — apples to apples — bids on an upscale project.”