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differences between commercial and residential casework10/22/21
I build cabinets primarily for small, detailed, residential projects out of a tiny shop. I've had an opportunity come up to build some commercial cabinets. While the specs and elevations are pretty straightforward, I'm concerned that I may be missing some glaring differences between the business side of residential and commercial cabinet work. The scope is smaller than most busy and established shops would want to fool with, so it would be a good one to start with I think. What contract terms are you most likely to re-negotiate? Any thoughts on bond requirements? I'd appreciate your input!
If you are a small shop , stay away from any job that requires a bond.
I do about 1.2 m a year and will not even consider a bind job, that's stuff for the big boys , they will eat your lunch and smile in your face while they do it.
Commercial work will be spec d to AWI standards , get the book and read through it and you will have a good idea of what you need to produce to meet , economy, custom, and premium work requirements.
If it's a small gc go for it .
If it's one of the largest in your area be careful.
Just saw you are in Denver,
If you want to message me I will be happy to fill you in on the Denver commercial market.
I am just north of Denver but serve that market.
Who is giving you the opportunity? If it's a GC, be careful. Very early in my business I had a GC come by shopping. I got the job and found out he shops little shops quite often. Looks for naive owners that are hungry so he can squeeze on price with that promise of tons of future work! I made money, but I learned a lot. Biggest lesson is a delivery day is a hard delivery date. You have to be ready to deliver, no excuses. And then you must be able to store the work until they are really ready. 2nd lesson, the rest of the trades have no respect for your work sitting on the job site. Figure in a day for rework and touch up. Also protect the hell out of it when you deliver on the sight. Watch for the labor situation on site. You may need a union person on your team to be allowed on site. After that I only did commercial work where the owner of the business came looking for me. No more GCs for me.
Son, Do this first one at a heavy discount and i will get you ten more" My response is "Better yet, We do the first one at full price and I will give you ten discounts" ever heard the sound of a cowards exit, it is full of BS.
I did a good 1000 Kitchens before switching to all commercial in 2008 (Date sound familiar ?) Glad I did And we are as big as our nearest three competitors yet do not take as big of Jobs (Getting older love less chaos)
Bonds are generally only required above 50 and 100k and are required in the master GC contract. this will be exposed to you in the contract or it is the GC wanting the bond. Many good GCs who want your work will add cost in Contract for Bond, Lot less hassle on your part. A bond is no more than insurance to complete large Jobs need it, they are far more worried about the steel and heavy construction on this
Probably will not be able to invoice materials until 1) it is onsite or at your shop 2) if it is at shop it has to be insured naming GC and client as Co-insured. They will require you lable and photo document the materials as dedicated to the job and contract. A good reputation with a good GC will get you a check much faster
Contracts are generally by the GC or a basic copy of the AIA contract the GC is under. Billing will be on AIA forms g702 703. they can be intimidating but once you learn it simple enough. I use them in excell so it is fill in the blanks.
You will be required to sign a partial waiver of liens before you get paid, Don't worry it means nothing til they pay You
the 703 is a scedule of values which we align with invoicing
each draw is all or a portion of the status invoiced, Generally on or before the 20th or 25th of the month work completed then hopefully (and good GCs do) cut you a check between the 15th and 30th of following month.
At 40 years in the Biz i only work for good GCs I try a new one every once in a whil if they jerk us around we complete the work and kiss their ass good by ! most all come back confused as to why we will not work for them anymore. some very LARGE Gc's have also used us to get a lower number out of another company. they fail to realize some of us are ethical enough to tell each other when we have been Shopped. We then write a FU email and ask to be removed for the bid list for their company. A major Univ we work for has dropped Gc's for this practice, Good to have a decent reputation and eventually some clout.
Remember "Do the good work and the Kings will find you" Do not take (unwarranted) shortcuts, keep GC and client involved, NO Hanky Panky None Zero
And for the most part all will work out pretty good ! Good luck !
Join the AWI smart is a good word for that one. recently architects have been following up on qualifications a lot stronger, this seems to be some good work on the Assc's Part.
This has all be super helpful. This isn't my first commercial job, but previous projects have been working directly with tenants coordinating their own build-out. I'm not hungry for work, so there's that, and I'm planning to sub out the laminate work simply due to space constraints. We'll see how it goes. The AIA contracts have been helpful in previous projects so I'll fall back on those terms at least as a starting point. Nothing ventured, nothing gained as they say.
The necessity for AWI certification/membership is easily determined by the GC or you via an RFI to the architect or if its a small project they can just call the architect for confirmation. If the work your being asked to perform had a hard spec' for AWI membership/certification you'd likely have never been approached in the first place. That, or your bid will be rejected before it goes very far.
Much of the smaller scale commercial work in our area is never hard spec'd with regards to AWI for the reasons mentioned, massive shops will often kick the can down the road on smaller projects because they are a nuisance so the work is open to non AWI shops. Even on larger projects its usually not an issue in any way to be specified as an allowed supplier AWI or not. If your area is ripe with AWI shops that may not be the case. Its not to say its not advantageous to become a member but as a small shop you will likely never run enough revenue to afford the process of full certification anyway.
I agree with James, do not fall for any shenanigan's with regards to pricing to get in the door based on future work. Price the work accordingly and stand your ground. While no one has any idea of the scope your being asked for I think where your coming from the residential world you will find that you will likely over-deliver hard core on quality and may find it difficult to be profitable if you build to those standards on many bread and butter commercial jobs (plastic laminate cabs, etc). Its not a slam to commercial work but all you have to do is look around your doctors/dentists office to see stuff that would equate to numerous call backs/rejections on even a modest residential project.
If your not hungry for work get a bigger shop first. Commercial work requires space to do laminate, a good slider, edgebanding etc. Plus you have to store the cabs until the site is ready. IMO
All this is true, but the real difference between commercial and residential is the payment process. Residential you usually get a deposit (30-50%) and full payment immediately upon completion. Commercial bill on the 25th for that month for what is installed, usually get paid about the 25th of the next month, minus the 10% retainage. So with commercial you go about 60 days before you see the first dime on a project. On a medium size commercial project you might be just about done before you get the first check. This is what we call the "nut" Just how much in the hole are you willing (or able) to go before you shut down. You either have to have some deep pockets, or some creative financing. You also have to have some large gonads to play this game. However once you start rolling work completed 2 months ago will pay for this months bills, so it is really not as bad as it seems. the thing about commercial is that the bigger the "nut " is the less likely hood that smaller shops are willing or able to take the risk, reducing competition making the price of the project go up. Plus you charge not only for producing the product but also for the cost of your financing as well. The larger the job, the larger the risk but also the larger the profit. Of course with commercial there is alot of hoops you have to jump through, pay apps, shop drawings and submittals, misc paperwork, etc that must be done, it is not just producing the work. The key is finding a couple of good GC's because a good GC will not try to beat you out of your money, they will want you to make a decent profit so you can do the next job, and many more after that and they know that they will not have to worry about the millwork portion of projects anymore. Sounds easy doesn't it?
Do millwork companies ever allow GC's to buy down their rates with more favorable terms? Discount for net 60 over net 90, or the contract amount is treated as a high interest loan and a lump sum up front counts against the principal? Joint escrow accounts? Require the GC be bonded on their contract with the sub? Probably an unorthodox approach, but not unreasonable in other industries.
This project is small enough that I could float it if needed, but liquidity is a company's lifeblood and especially in uncertain climates like today's, cash is king.
The first time you work for a GC commercial (New releationship) you pretty much need to go by the book for the most part. with supply needs in manufacturing are different than a Electrician or Plumber who orders parts and lets it sit until needed at supply house He can generally invoice withing days of his materials, Cabinetmakers cannot we have to have products raw , manufactured in advance to hold a critical path scedule with the Job.. Most GCs understand this and will work with you Like i said I insure stored materials for good reasons both safety and money. the greatest barrier to commercial is being new at it. after a few years and in my case now decades it gets manageable and if it was not PROFITABLE then we could not keep doing it
James is right, once you establish a relationship most GC will work with you, i guess good millwork subs are very hard to find. We try a few new ones now and then and if we do not have a good relationship, it is like a bad date, you lose my number and I'll lose yours. I have been working with the same ones for years now, longer then I like to admit. I actually started in prehistoric times pre CNC. Like James I have found it very profitable, otherwise I would have gone a different direction. I have made a very good living over the years and will retire soon (very comfortably I might ad) it is very nice to know that I can retire any time I want or i can keep working it is my choice. I realized a while back that size is not everything, to me the object is to be able to pick and choose your jobs, keep a small crew that you can depend on, and do it in a 40 hour week (there are times when you work overtime, but that is exception not the rule). This way you, and your crew look foward to going to work, not dreading it. I really can not remember the last time we did not make money on a job, when we lose money it is that we just did not make as much as we planned. We do a little residential work now and then just to fill in some of the down time between commercial jobs. When we get on a lenthy project it is very nice to make money EVERY single day, every single hour. I know that commercial is not for everyone, but I do not know many shops that have the cash flow that a commercial shop does. I have been in this market here for over 30 yrs and believe me I have seen all types of shops big and small come and go, seen good times and bad, and the ones still in business I can count on one hand with even with a few fingers missing
Said it before here, d conti's evaluation with regards to cash and payment has not been the experience for us but I hear it over and over again even from GC's that "they have to be the bank". The simple fact that Ive heard repeatedly when I ask their estimators/PM's why they have to extend such terms and get hung out so long that the answer is "because our company wont ask for deposit".
Lead estimator for one of my best GC's calls his company "the bank of xx construction". Because the owners simply do things the way they've always done. They start jobs months before deposit and often times have to push the client for deposit.
If thats the way they choose to work thats fine. But they ask US to bid.. I am not calling on them, and I have no problem asking, or making it clear production on their job will not initiate, prior to deposit. I know we are very slightly lower than our competitive bidders but not by much and certainly not by enough to cover a big line of operating credit (either from a bank or ourselves, after all, if we have to carry the job, warehouse the job, we need to be compensated).
Bottom line is we are getting work, receiving deposit, and getting repeat work, mainly because we ask and are not going to follow the status quo. Its likely that your contractors, and yourselves, have set a precedent that allows your upstream entities to sit on their money longer which in my mind means your leaving money on the table.
Perhaps its because I had the luxury of learning from you all and local suppliers that carry on about the same issues but I came in doing it differently and have met zero pushback. I have no issue with rolling a project knowing a check will be cut in 14-30 days and do that regularly but on larger work nothing is started prior to deposit or near payment in full. Now my average project is less than 50-70K a lot in the 25-40 range which may be a factor.
Mark, I believe you have missed informed. GC are not "the bank", "the bank" is every subcontractor on the job. This is the way it works, subcontractors work for 30 days and submit a pay request for wok done for that month. The GC project manager approves the pay app and sends it to the Arch.(or owners rep) for approval. Once all the pay apps for that month are approved the owner gives them to however is doing the construction financing, they look over it and if approved cut a check to the GC. Included in this check is the GC's overhead and costs for that 30 day period. The GC then turns around and cuts checks to the individual subcontractors. The only ones that are really out any real money is the subcontractors, they are ones financing the job. The GC is really just distributing the owners money. Sometimes when our checks are late it is because somewhere along the line there is a delay, but you can beat the house that the GC is not going to release funds until they get them. Of course once in while a GC will front subs some of their money if it means keeping the job moving but this is the exception not the rule. I personally hate it when a GC holds your check for some reason, like it is actually "their" money that they are paying you with. It is actually the owners money but in all truth it is your money that you have already earned. You must play this cat and mouse game all the time, and you swallow your pride and keep your mouth shut all the way to the bank. 15 to 20 years ago I had a good friend of mine go to work for one of the biggest GC in the country. They did well in excess of 1 billion dollars per year. He got called into the office one day and was scolded for paying his subs to quickly. The told him to hold that money for at least 30 days. Imagine if you held 100 million a month in the bank and collected interest (which at the time was 6 -8%) it sure would help the bottom line. I did work for them occasionally and I found that they paid ok but a little bit slow for your first 75% of your contract but the last 25% was like pulling teeth. So I just marked up all my bids to them by 30% So say it was 100,000 job, I bid it at 130,000 knowing that everything would be fine for the first 100,000 and then I would have to go through hoops for the last 30,000. they finally ask me one day why my prices were so high and I bluntly told them if they would pay on time they would get better pricing. Funny thing though, I am still in business and they fortunately are not.
My point is we dont play the "cat and mouse game" period. Never have, never will. Maybe we are lucky, maybe its because our market is small and they dont have a blue billion courting their work, I have no idea. I know for a fact when I was a GC and landed a decent deposit I could put it into a short term investment and make a few bucks off the deposit while the job got rolling and there is no doubt in my mind thats the truth for every entity up the line.
Again, not to argue but Im not misinformed. Im completely aware of the situation you all have dealt with and continue to deal with. But as you say, I have what you want, and my terms are my terms, you accepted my bid, you can either go to the other guy, or meet the terms to "keep the job rolling" to use your words.
It might be time for the minions out here to stand up and stop extending and dealing with ridiculous terms, waiting on money, dealing with the 10%.
Things dont change unless you make them change.
Thats what this whole thread boils down to.
Couldnt agree more.
Commercial is easier ? Maybe if you only build boxes, but the whole spectrum of commercial millwork is a lot more challenging, and difficult than residential will ever be. We have built things that will never be found in the residential arena. Radius commissioners benches, very intrigate courtrooms, many churches with very detailed prayer halls and pulpits. We have done historic restorations, buildings on the historical register, where you must maintain the historic significants of the building. Go look at a five star hotel and look at the millwork in its lobby, resturant, and bars, we have done a few of those as well. There maybe a few residential jobs that can rival those but unfortunately there are only a few 20 million dollar + house that are built every few years. I put 1,000,000 worth of millwork into one county administration building. The only house I ever saw with that much millwork in it was Tylers Perry new house, which cost I believe 90 mil to build. They also had 6-8 millwork contractors on it as well.
We too, for a pitifully small shop as compared to your grandiosity, have supplied high rise custom feature walls not commercially available anywhere, floor inlays, cabinetry accents, back-lit transparancies at reception areas, and the like. McGrew no different, many others no different.
If your going to argue that even a high end hotel lobby is met with the same scrutiny as a 90 million dollar residential home your out of your mind. I have built high end residential work. Its pretty much THE MOST fussy work you can ever get involved with other than a church project that is overseen by committee process and thats only because the church committee is a group of residential individuals mulling arond a job, looking at every little detail, as if it were their own home. That situation NEVER HAPPENS in the average commercial job. The need is to get the work done, quickly, to a spec, and get the job to profitability in the eyes of the client. Caulking, filler, "no one will ever see that" most often takes priority over intense craftsmanship.
It in no way means it junk. But it has little to no correlation with "high end" residential work. You can blow your own smoke all you want but at least in my time in the trades its a load of horse dung other than on a super rare occasion.
Hotel work, commercial medial work, car dealerships, you name it... its just a different game than someones personal home (and not even their 4th, 5th, 6th, or 15th home).
The commercial job will be easier to build.
Probably some plam boxes and a plam top or ss.top.
I'll take that all day long over a 25 k kitchen with custom glazed finishes , dovetail drawer boxes etc.
That was my point.
And yes many many residential jobs have very complicated millwork such as helical staircase, floating stairs, beam work etc.. that rivals the complexity of institutional work.
The difference being the institutional work has been designed and engineered, the residential is usually not nearly as figured out for you, and you have to fill in the blanks , when you ask the architect the go to answer is " whatever you think is best " To me this is more challenging.
But my point was on average I would say a 25 k to 25k job is way easier commercial day in and day out .
Agreed with Quicktrim. Dont forget in commercial work - usually the end user doesnt pay out of their own pocket for the work.
In residential the customer will always be the end user and likely to pick every little detail apart.
Commercial work is usually more structured and less emotional.