Do you see wasting time as a challenge in your business? In our construction company in Puyallup, Washington, this has been a consistent topic of discussion and an area that we are working to lessen this drag on productivity.
Should Contractors Charges for Estimates?
In response to questions from contractors on whether or not we should be charging for estimates, we started a discussion on Episode 89 of The DYOJO Podcast. I made a promise that we would dive a little bit deeper into the hybrid concept which we call the Letter of Intent (LOI). As entrepreneurs we want to grow our companies. As business owners we want to lay a foundation for long term success. As contractors there is this battle against a perceived industry norm (or standard) that estimates must be free. We hope you will recognize what many skilled tradesmen who have become business owners are practicing, that you DO NOT have to uphold the MYTH that free estimates are just the of "the cost of doing business".
You DO NOT have to uphold the MYTH that free estimates are just the of 'the cost of doing business'
The Cost of Doing Business
There is a battle between bidding work, producing work, getting paid for work completed, and all the things in between that affect our ability to do more. Your time and expenses for inspecting and estimating a project are real. If you do not recoup those costs in some form, you are feeding the MYTH that estimates are FREE. As a small business owner you wear multiple hats. You only have so many productive hours in a given day.
Consider this entrepreneurial dichotomy:
I shared many of my thoughts on how we identified wasting time as an issue in our construction business on the Restoration Rundown podcast from Ironclad Restoration Marketing. The Letter of Intent (LOI) is something we have discussed internally for some time and decided to launch at the beginning of this year. To my surprise, during my first call introducing this process to a customer they responded, "That makes sense, send it over and we will sign it."
The host, Ben Ricciardi has also authored an excellent book, The No Bulls**t Guide To Internet Marketing For Restoration Contractors. That title tells you exactly what's in the book.
The Contractor's Letter of Intent
There's a lot of back and forth on socials whether contractors should be charging for estimates. Before we can argue this point, we need to define a few terms.
If you provide something verbal, an educated guess of an estimate, based upon rough details provided by the client, then a FREE (non-binding) estimate may be appropriate. "Based on what you have described to me, your rough cost would be in the range of $______ and $______. If it sounds like we understand your scope and the numbers are in your budget range, would you like to discuss the next steps for having an estimator perform a more detailed inspection followed by a written proposal?
There is no such thing as a free lunch, someone is paying. STOP perpetuating the MYTH of the free estimate. In the free estimate scenario, you are paying all of the costs to bid the work. AT A MINIMUM, please screen your clients so that you know what you are getting into. We discussed the Client Intake Process on Episode 86 of The DYOJO Podcast. If you have a clear, thorough, and consistent process for client intake, you will generate credibility with the client and set your team up for success. You will know whether the juice (Free Estimate) is worth the squeeze (Your actual costs of inspecting, writing, and producing a free estimate).
How often do contractors receive arbitrary rebuttals to their inclusion of overhead and profit in their estimates for insurance claims? The answer is often. Sometimes the issue is easily explained by clarifying the complexity of the work or the number of trades involved. In this article we will briefly review a few scenarios, ensure that we have the correct understanding of indirect (overhead) costs verses direct (supervisory) costs, and share a sample email format for requesting clarification from the adjuster on a denial of overhead and profit.
Work Complexity and O&P
If complexity is the barometer, O&P should be added to every claim without question (especially program or third party administrator work) as the level of compliance (i.e. complexity) for an insurance claim exceeds "normal" contracting scenarios. The insurance claims process for mitigation or renovation is inherently more complex than home improvement or remodeling when insurance is not involved. If complexity is a condition of the insurance policy, the carrier representative should be able to point this out to the customer and the contractor. A good question for the customer to ask would be, "Please show me where it states in my policy that overhead and profit is a condition of complexity."
General Overhead are expenses incurred by a General Contractor, that cannot be attributed to individual projects, and include any and all expenses necessary for the General Contractor to operate their business.” - Xactware
Direct vs. Indirect Costs
As we wrote about previously, "Indirect costs are all of those necessary expenses that a contractor incurs but are not directly related to an individual project. If a contractor, or any business, does not account for their overhead expenditures in the costs of their goods and services, they will not be in business for long."
Indirect Costs are necessary for a contractor to remain in business. The insurance company may not care about this, but they sure understand their need to be profitable and protect that with great force. In most industries the overhead and profit are embedded in the costs. For example, when you buy an apple at the grocery store, they do not break out what their overhead and profit factors are for that item but they are certainly charging for it.
O&P are not optional for any business that wants to remain in business.
General Overhead expenses are not included in Xactware’s unit pricing, but are typically added to the estimate as a percentage of the total bid along with the appropriate profit margin. These two costs together constitute what is normally referred to in the insurance restoration industry as General Contractor’s O&P, or just O&P.” - Xactware
Supervisory labor (aka project management time) is as much a real cost that should be accounted for an compensated for the work as temporary power or restroom facilities. Supervisory time is a direct cost and should not be confused with or "traded" for overhead (indirect) costs. It is not included. It is necessary. It is common to either bid supervisory labor as a percentage of the estimated labor or submitted as a breakdown for billing at project intervals (i.e. bi-monthly).
A Sample O&P Email
If you receive a denial or a request for clarification for why you are requesting overhead and profit (O&P) as a contractor, this is a sample email that you could discuss with your customer and then send to the insurance carrier representative with the customer cc'd. Understand, this is not a guarantee that an adjuster will see things your way but it should help your customer and the adjuster to more clearly understand your position.
Why wouldn’t overhead and profit apply? Overhead and profit are normal and necessary costs for a general contractor to remain in business.
Xactware, the estimating software utilized for this estimate as is common for insurance claims, states,
“General Overhead are expenses incurred by a General Contractor, that cannot be attributed to individual projects, and include any and all expenses necessary for the General Contractor to operate their business.”
Overhead and profit is normal and necessary for all companies including insurance companies. The insurance company included overhead and profit in their policy fees to the insured, correct? Where in the policy does it state that overhead and profit are excluded from the cost for an approved scope of work?
Most contractors, if not all companies (including insurance), embed their overhead and profit costs into the lump sum pricing. Presenting overhead and profit as a markup is unique to insurance claims estimates in Xactimate. The software company advises,
“General Overhead expenses are not included in Xactware’s unit pricing, but are typically added to the estimate as a percentage of the total bid along with the appropriate profit margin. These two costs together constitute what is normally referred to in the insurance restoration industry as General Contractor’s O&P, or just O&P.”
Please advise if you need any further information to approve the total submitted scope and cost from our estimate as we know our shared customer is eager to move forward with restoring their home to resemble pre-loss conditions in a timely manner.
Recruiting, developing, and retaining good talent is on the minds of every manager and business owner. While there is always some new concept or fancy solution, the growth minded leader is always working to improve themselves and their team. Often this means asking some difficult questions as we review our own performance. For those professionals looking for some assistance in employee motivation, we will review two motivational mistakes and what you can do to remedy them. Robert More joined us for a live discussion on The DYOJO Podcast, Episode 88 and asked our guest, Josh Zolin,
As a manager, one thing I have observed that kills employee passion is the lack of training or advancement opportunities. Do you have any advice on how to combat that within a growing company?
Motivational Mistake #1 - Making empty promises at the time of hire
Josh Zolin is an author, speaker, and the owner of the rapidly growing Windy City Equipment (WCE) in Phoenix, Arizona. He stated, "That's tough and you're absolutely right. The lack of training and advancement can be a passion suck for many employees."
On area that Josh encourages managers and business owners it to be intentional in the phrasing and promises, perceived or actual, during the employee recruitment stage. By not being clear about the state of growth the business is in and not having a clear pathway to advancement, there is fertile ground for miscommunication which leads to unrealistic expectations. To be fair, many people in a position of leadership aren't lying, they are speaking from their vision and their intentions but the foundation hasn't been laid and the organization isn't ready for the types or pace of advancement that some employees may desire.
Another mistake I've made, I used to sell our aspirations.
Motivational Mistake #2 - Selling your aspirations rather than your reality
Josh mentions that he has used phrases in the past like, "We're going to train you fast growing company. So, there's going to be lots of advancement..." Speaking from his heart but not thinking through the expectation that it may be planting in the employees thought process. With several years of failures and experience under his belt, he now is much more intentional in the recruiting, hiring, and goal setting phase of onboarding new employees.
He noted that there were a lot of people that reach the six month mark in an organization and wonder why they don't have a significant raise or a promotion. As an owner and people manager, Josh realized that he was setting up the wrong expectations by not clarifying the situation and the conditions that would need to be met for those next steps to be taken. Now the employee is frustrated and the company has to take responsibility for their unclear and inconsistent process.
Josh recommends the following for managers and business owners,
Be transparent up front. Say something like, 'We are a quick growing company, we suck at training, It's something that we really want to do something we want to get better at, and maybe you can help with that. I can't promise that you're going to get a promotion tomorrow, but I can promise that if we get the results from you that we need, advancement is an opportunity in the future. Be crystal clear about your process.
Clarity, consistency, and accountability
To answer the question of offsetting the demotivation that comes from a lack of training or advancement opportunities, Josh advises, "Be crystal clear about where you are and what your process is." By doing so, Mr. Zolin believes that your will also help our organization to, "Weed out the people in the beginning that could ultimately be susceptible to this passion suck." Managers and owners might be tempted to think that employees have unrealistic expectations about advancement, but they also have ask themselves a few key questions:
Contractors in the propeprty restoration industry will often come across hazardous materials, two of which are asbestos and mold. Episode 83 of the DYOJO Podcast discusses these key items of concern as well as the precautions that should accompany for proper testing and removal. Listening to this episode will inform owners, managers, and restoration professionals on why they need to know if asbestos or mold is being dealt with. This article will review how the intentional restorer should structure their mindset and habits for success when dealing with mold and asbestos in construction materials.
Mold and Asbestos in Construction Materials
There exists a dangerous mindest that asbestos containing materials (ACM) are a thing of the past, the reality is that they are still found in current construction and building materials. These materials can be hazardous to people’s health, including workers, occupants, and anyone who comes in contact with the structure. Asbestos is a legally regulated material. The restoration contractor MUST be mindful of what materials they are dealing with before any kind of demolition is performed. Asbestos becomes troublesome when it becomes friable (aka airborne) when stirring up dust while making flood cuts or removing other materials. Air movement over an area of drywall that has microbial growth on it, in an attempt to dry it, can spread mold spores throughout the home and potentially spread mold to previously unaffected areas.
Mold and Asbestos at the Worksite
Due to the particulate matter of asbestos and mold, their protocols are similar. The contractor will need to make sure they are in compliance with regulations and standards. Each state is unique in how they handle asbestos, so each contractor will need to be mindful of the rules in the state (or states) they work in. Asbestos is regulated by law - there is no straying from the regulations without consequences, which could include steep fines and imprisonment. The contractor will want to be mindful of these so proper protection of their workers will be provided (respirators for technicians, properly sized via fit testing by a certified fit tester, etc.)
Mold and Asbestos Removal Best Practices
The Institute of Inspection Cleaning and Restoration Certification (IICRC) has published ANSI standards for water damage mitigation and mold remediation. These property restoration standards are voluntary compared to those that are regulated for asbestos and other hazardous materials. The IICRC S520 is what outlines consensus standards for professional mold remediation. Owners, managers, and professionals who seek best practices will find these standards and training to be essential to their operations. The IICRC standards are a solid starting point, but restoration and remediation contractors may have to deviate when appropriate. Whether a project is typical or non-standards, the job is only as good as it is documented, and deviations should follow a clearly executed plan.
Contractors should be careful not make any health claims when it comes to mold or asbestos. The job of the contractor is to successfully remediate the mold or abate the asbestos in the structure. Doctors are the ones that should discuss the health concerns of the homeowner, and the contractor should direct any health concerns to those qualified professionals. Intentional restoration contractors and their team members place a high priority on educating themselves on the scopes of work that they plan to perform so that they can keep their clients and their team members safe. Owners, managers, and contractors will do well to keep themselves out of needless legal trouble through studying and executing industry best practices.
This article was written by Tiffany Acuff. Through a chance meeting of a friend, I was brought into the restoration industry. I have seen just about every aspect of working for a restoration contractor. I love this industry because it allows me to make a difficult situation a little bit better. I am constantly on the lookout for ways to contribute to the restoration industry as a whole so that we don't stay stagnant and continue to be leaders of mitigation and preservation. Tiffany has assisted in editing the last three books from The DYOJO, including the latest one, How To Suck Less At Estimating.
The DYOJO Podcast released a clip titled, "Igniter of an Industry - Remembering Martin "Marty" L. King." This phrase was penned by an industry Founding Father recognizing another property restoration historical icon, Cliff Zlotnik. Unfortunately Marty passed away in 2015, but as our good friend Pete Consigli, who is also the technical advisor for PropertyRestorationHistory.com, says,
“Marty had a vision for a new and emerging industry he called “damage repair.” Marty’s life’s work was to see the business of damage repair evolve into a profession. Fifty years after Marty had that dream, the legacy of the restoration industry is in the hands of those he influenced and many of those people are preparing to pass on the stewardship of the industry to the next generation. It is the hope of many that the next generation will take the industry to a place never imagined by the industry’s founders.”
In this video, which originally aired as part of The DYOJO Podcast Episode 85, we talk to John Pletcher. Mr. Pletcher was awarded the 2022 MLK Award at the Restoration Industry Association (RIA) Annual Convention. John shares his fond memories of being mentored by and working with Marty.
The DYOJO Insurance Claims Standard is a guiding principle that will assist owners, managers, and aspiring professionals to train their mindset and habits for success in the property restoration industry.
"Restore the property to resemble pre-loss conditions, with materials of like kind and quality; no more and no less."
The content of the video below is adapted from Chapter 1 of Jon Isaacson's latest best-selling book, How To Suck Less At Estimating: Habits For Better Project Outcomes. The same content will SOON be released as a training course through the Restoration Technical Institute. Included in this segment is an explanation of The DYOJO Claims Standard as well as a common scenario that a restoration professional might come across and how they would use this resource to help set the right expectation with all parties involved in the insurance claims project.
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Jon Isaacson, The Intentional Restorer, is a 19 year veteran of the property restoration industry and a business coach through his organization The DYOJO.