Charging Ahead
Not all of the projects roundtable participants undertake are design/build — for some, design/build makes up as little as 25% of jobs — but all spoke of the high rate of follow-through from design through construction. Says Richardson, “Of what we design, 97% gets built.”
For the most part, the group says they build all the projects they design; they don’t get into bidding wars and don’t work as construction managers for architects.
Charging for projects is another issue that revealed only slight differences. Sue Cosentini uses an architect whom she pays hourly, and when she sells a job, people contract with her for the design phase first. “Out of the design phase comes the construction contract,” she says. She gets a retainer that commits her to both design and construction. The retainer is used to pay her architect. “Any money left over, because it’s a pretty large retainer relative to the overall project, goes to the construction project,” she says.
Klein also works off a retainer. He uses six different third-party architects and designers, depending on the customer and the job’s requirements. “The retainer is designed to cover not only the cost of design,” he says, “but also the cost of the estimate and the preparation of the proposal,” he says. “It’s not necessarily a profit center, but it’s certainly a cost center that we expect to zero out at a bare minimum.”
Richardson says that everything his firm designs they build. “We sell process. We have a preliminary design fee, detail planning stage, and then construction.” The design people, who are in-house, are also involved in sales.
Kelly says his process has some similarities, but “if the job is complex, we do what we call a feasibility retainer. If it’s not very complex, we’ll go right to a design retainer, which is designed to get the client to commit to working with us. But they don’t sign the actual construction contract until the third step.”
But Frank Spivey says in his market, Indianapolis, consumers won’t do business that way. His firm doesn’t charge for design for projects under about $70,000. They bring clients a partial design and don’t finish the design or drawings until after they get a contract. “We actually build design fees into the project. So everybody pays a portion in design fees.”
There is, however, a level of risk in charging design fees. Swartz says he sometimes faces the same dilemma as Spivey and has lost some work because they’ve “held the line” on charging a design fee. He has, on occasion, waived a fee for a past customer, or at least said, “Give us the money and we’ll put it toward construction.” But he feels that once he’s at a potential client’s home, he’s got the opportunity to build a relationship, discuss the process, and educate them.
Thinking About Design/Build?
In some ways design/build seems a natural development in the industry, with its emphasis on teamwork, centralized control, and consolidation of effort. But of course there are risks and challenges when changing any business model. It’s a daunting prospect. Remodelers who are going to move ahead on this have to “understand the enormity of the responsibility that they’re taking on in terms of delivering customer satisfaction, because now [they] are responsible for the entire project,” Klein says.
The first thing to do is “forge a relationship with a competent designer,” Cosentini says. “Establish a relationship with a mutually win-win setup and then go out into the world and market [yourself] as a design/builder and start doing business that way. The idea of a contractor doing CAD-generated stuff on his own— there’s just not enough time in the day.”
Another area to focus on, Kelly says, is finding a niche. “We’ve made our success in design/build by capturing the interiors. We have an interior design staff mostly driven by CKD and CBD certifications and interior design certifications. We control that part of the project no matter what, whether or not we’ve got an outside architect.”
Ultimately, the remodeler has to look at their current business and focus on the specific problems they face, Richardson says. “Do you want to be able to control the process? Do you want to have a more efficient process? Do you want to have happier clients? Do you want to reduce miscommunication? Do you want to create more predictability and growth in your business? Based on those sorts of qualities, then design/build is a way to do that.
“There are different ways to go about doing it — whether you improve your own skills in terms of design or whether you partner up with an independent architect or designer,” he adds. “But what’s driving the change is the “pain [you’re] presently going through.”
Homeowners aren’t the only ones who have to get used to the idea of paying for design. Remodelers making the switch to design/build also struggle with issues surrounding fees for design and preconstruction services. The two biggest hurdles are knowing how much to charge and asking for the fee.
“The biggest obstacle you have is … what I call ‘the weenie factor,’” Kelly says. “In other words, you go so far and you don’t want to talk about money, so you just weenie out on that and you just don’t talk about it. The design agreement , same thing. You’re going to ask for a commitment. For some people that’s very difficult.”
Another pitfall in terms of money, Kelly adds, is budgeting. “If your budgeting isn’t good enough or you’ve got a new person who isn’t experienced enough to do it correctly and you’re wrong,” then you’re in trouble.
Often, projects in design grow beyond the original scope. Experienced design/build remodelers increase the design fee to keep pace with the evolving project. The key, suggests Richardson, is documentation. “Case developed the first, that I can remember, change order for a design retainer. So that when the scope changed, we documented it.”
Cosentini says she documents changes to project scope via e-mail.