Contractor Tip of the Month
Are you Working for Nothing?
Do you ever wonder why so many contractors are running non-profit businesses these days? Is it because they feel like they are not skilled in anything but the masonry business, so they must take work at a loss to stay busy? Perhaps they do not know their true cost when bidding, so they take on work, hoping to somehow get lucky and make money. Are they taking marginal jobs just to keep their people busy? Or maybe they enjoy working more than playing golf or vacationing? Could the contracting business really be so much fun that one would consciously choose to do work for nothing? Whatever the case, it doesn‚Äôt have to be that way.
Just about everyone in the construction business has taken a pay cut the last several years, including myself. Well, taking a cut is one thing; ‚Äúdonating‚Äù money to stay busy is another. When I was 9 years old, I got a chance to work the summers on a produce farm. On my first day, I worked nine hours. This was basically my ‚Äútry out day.‚Äù Being very excited about getting $9 for nine hours work, I showed the check to Mom. Mom took the check back to my boss and told him to drop my pay to 75 cents an hour. I was really upset when I got the $6.75 check in exchange for the $9 one. What I did not know at the time was that Mom kept my job, as it was probably all I was worth at the time. Looking back now, that was pretty good pay, when you consider that 39 years later, contractors are working for under 75 cents an hour by bidding work to break even, or worse, under costs.
Guess what? Just like the days of working on the produce farm, I got an opportunity to work for less again this past week. In fact, this opportunity even included me donating funds, working for nothing, while I worked longer and harder. It came along when a good friend of mine (who is a general contractor) called me explaining that he got a project he would like to have Lang Masonry work with him on. He said he made a New Year‚Äôs resolution to only use the best subs from now on, as he was miserable last year, having to give subs mouth-to-mouth resuscitation so they could stay in business long enough to finish their work. Tickled that we would have a great shot at getting the project, I had my estimator work up a price on it. Since we are slow right now, and the fact that we have not won many bids over the last few months, we scaled the net profit on the job back to 3 percent. This put us at $620,000.
My friend‚Äôs project manager tells my estimator he has a price at $440,000, and that is where we need to be.
I asked, ‚Äú$440,000, are you kidding?‚Äù
‚ÄúNo,‚Äù he said.
So I had my estimator double check the numbers to see if we missed anything. After going over the estimate with a fine-toothed comb, excluding equipment and office overhead, we showed the bare cost to be $495,000. Although there was a time in my career when I would have tried to negotiate this job out for around $500,000 to keep my people busy, while praying to break even, I am proud to say: Not anymore! I guess some other contractor will be ‚Äúdonating‚Äù to help build this project instead of Lang Masonry Contractors.
There are way too many risks associated with doing work to break even ‚Äì or worse ‚Äì below costs. What if something goes wrong on the project you are working for nothing on? What if the GC back-charges you for things that were out of your control? What if an employee gets hurt raising your workers compensation costs on future projects? What if you are doing a job for nothing and, when, good work comes along, you can‚Äôt get to it, because you are too busy working for nothing?
All these factors must be considered before deciding to do work for nothing. And, by the way, isn‚Äôt doing a job at breakeven the same thing as working for nothing? Looking back, Mom may have had my pay cut years ago, saving my job, but at least she never made me work for nothing. If you want to be part of a non-profit organization, philanthropy is good for the soul and fun. However, be sure you don‚Äôt create a non-profit of your own by taking work for nothing.