Performance contracts are a good first step toward the successful completion of a custom project. But they are only the first step.
Over the past few months, we have been looking at behaviors and strategies that separate the true pros from the amateurs, and one word more than any other has set the tone: Accountability.
But while we have identified performance contracts - written by you, the contractor - as a valuable tool for accepting accountability yourself and for holding your customers accountable, the job doesn't end there. On the contrary, the contract is only the beginning, both literally and symbolically. It's a crucial, but small, first step toward getting and exercising the control you need over a project in order to bring it to successful completion.
As the owner or manager of a custom or semi-custom woodworking operation, it is important to maintain as much control over projects as possible, in three main areas: how they will be manufactured, when they will be delivered and installed, and when you will get paid for them. Each of these issues opens onto a host of others, affecting everything from employee management to project detailing.
To understand the importance of control in the main areas, let's look at each a little more closely.
Except for meeting the desired visual aesthetic and any code requirements, control over how a particular project or any part of one will be manufactured must rest entirely with you. If your customer, whether he is a homeowner, a design professional (i.e., architect or interior designer) or general contractor, tries to tell you how to make something, see it for the red flag it is.
The bottom-line truth is that none of these people are able to do the job themselves, at least not cost-effectively. Otherwise, they wouldn't have hired you. So if any of them tries to take control over the details of manufacturing, you need to gently: (1) assert your belief that your method is best, and (2) remind them that they hired you exactly because of your manufacturing expertise.
It is sad but true: Many of the people you will contract with (designers and GCs especially) will try to tell you how to do your job. To varying extents, which are as individual as the personalities in question, they will attempt to treat you as their employee. Remember: You are not their employee and the minute you begin to act as if you are, you begin losing money. It really is that simple.
Delivery and Installation
One of the many beauties of writing a performance contract is the freedom it gives you to stipulate delivery and installation dates. Though we said last month that exact dates are best avoided, there is nothing wrong with using them provided you are confident that: (1) you can meet them, and (2) your customer will be ready for your work on the agreed-to date. For many shops, it is that second item that can become problematic, but again, only if you relinquish control.
I am talking here about delays brought about by anything from the weather to incompetent project management. There are many reasons for delays, but whatever the cause, the solution is seldom to knuckle under or adopt an "oh well" attitude. In fact, this is what too many GCs (in particular) have come to expect from "inside guys" (those of us doing the finish work). The only way to change it is to refuse to give them that kind of control.
Delays, though not necessarily intended as such, are control-sapping gremlins that can suck the profit out of a project quicker than you can say "lickety split." That's because the costs of delays can be subtle, almost to the point of being unnoticeable.
After all, what's the big deal if you finish that job two days ahead of schedule, only to find out the site won't be ready for another two weeks? Your guys cranked it out ahead of time and did a bang-up job to boot. So you have to sit on it for a couple of weeks, what's the big deal? You'll store it over in the corner. Sure, it will take up floor space, but you can work around it. And maybe the finish isn't fully cured, but you can stack everything carefully and use pads to protect it.
And, so what if the final payout is delayed a little? Things are rolling along just fine. You can handle it.
No, you can't. And if you wrote your contract carefully, you won't have to try.
You see, the moment you begin to store jobs instead of shipping them, you are in a different kind of business. It's called "warehousing." And unless you have the kind of facilities you need to be in the warehousing business (i.e., an actual warehouse - I'm not talking about storage trailers here), and unless you have factored a warehousing cost into your project price, YOU CAN'T HANDLE IT.
Warehousing is a business unto itself. Stacking finished work in a corner and throwing a tarp over it is not warehousing. And putting finished work in a trailer so it can cook in the heat and freeze in the cold, well, you get the idea.
So let's assume you do not have an adequate warehouse facility (most custom shops don't), but want to try to store the project anyway. Unless you have written into your contract a stipulation that any repairs to completed work, necessitated by damage resulting from storing the work rather than delivering it on the agreed-to date, will be paid on a time-and-material basis by the customer, YOU CAN'T HANDLE IT.
At a minimum, uncured finish that has been tarped over will need touching up; those pads will leave marks. And you do not even want to think about worst-case scenarios, such as accidental collisions between the finished work and, say, fork lifts, clumsily handled materials or clumsy employees.
Now, about that last payout, the one you are not worried about since things are rolling along so nicely. You are rightly proud of your guys for the time they saved over your estimate. Why turn such a positive thing into a negative one?
Last time I checked, you were in business to make money. And this has nothing to do with "positive" or "negative." This is an opportunity not only to make money, but to make more of it than you had planned, to capitalize on the teamwork you have worked so hard to cultivate. Are you going to throw the monetary realization of all that effort away so easily?
Having your guys put that project into storage rather than on a truck headed for the job will cost you twice - they will have to handle it one more time (at least) than you figured. And if you think they won't notice that a job you have been pushing for sits around for a couple of weeks instead of shipping...well, need I say it?
When You Get Paid
It is this issue that is most crucial, and the one from which all the others take their cues because, as we have said, you are in business to make money. Only you can know, through careful assessment of your material costs, profit goals and expenses (i.e., payroll, insurances, rent, long- and short-term debt, etc.) what you will need to get for a project and when.
A good rule-of-thumb for custom work is to always get an advance and to get the balance either in stages as agreed-to portions of the project are completed (progress payments) or when the job is done. Progress payments are smart for big jobs, and 50/50 deals often work well for smaller ones.
Whatever terms you write, stick to them. And don't let your customer, particularly a GC or designer, give you any nonsense about what you are asking for being "unreasonable" or "not the way we normally do things." Such objections must be tactfully, yet forcefully, met by saying something like, "It's the way I have to do things in order to bring this project in at the price we have discussed. Now, do we have a deal or not?"
That usually gets their attention.
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