Curt Moody was finding it tough in a down economy to find construction projects for his architectural firm to design. And the competition was like none he had ever seen before.
“One of the difficulties in this market is the small firms are doing everything they can just to survive ? and the large firms are doing the same,” says Moody, president and CEO of Moody-Nolan Inc. “The large firms are coming after the smaller work. A lot of times, clients are looking to say, well, they would prefer the personal touch of a small firm on a certain project type.”
So to address this challenge, you need to set up your firm to respond to both ends of the spectrum.
“We build our practice around being able to service and give the personal touch by having our project teams small enough to be able to respond in that way,” he says.
“But there’s the understanding that, let’s say, when a schedule gets pinched, you need to be able to add personnel quickly, so you need an approach that allows you to augment your core teams with other staff members when necessary.”
It was even more of a challenge since he built his company over the last 30 years, and to his credit, it is now the largest African-American owned and operated architecture firm in the country ? 162 employees work at the $26 million organization.
You’ll find that restructuring is not magic in itself, and it will still take you some solid selling efforts to overcome what might be assumptions about a larger company.
“When you reach over 100 employees, clients just look at you as a very large company and impersonal,” Moody says. “So work very hard to show that with your past clients, what you committed to them you fulfilled.”
You will need to explain to prospective clients that you will do that for them as well. Make sure you focus on how well past clients of similar size were satisfied.
“You will have good client references if the new clients want to dig into that,” Moody says.
The composition of the project team is important. To maintain the small company feel, you should have the team that presents the initial sales pitch be the same one that carries out the project. If your company is divided into specialty areas, you can make the head of the particular division the point person to serve as the project’s executive. He or she would name a project manager who would choose a team of very experienced people in that project type.
“They are all going to have the skills that any of your competitors will also propose ? but you’ll have them,” Moody says. “The team is built around those skills but the responsibility is to service the client. Therefore, they have the responsibility of getting to know the client more than just as a project, so you can address their overall needs, not just the specific needs of a one-time project opportunity.”
When you discuss the client’s needs and budget during the sales pitch, again use a small business approach.
“What you should try to say is that you can fulfill those base needs, making sure you give them the full program, that you meet their budget, meet their schedule, and by the way, you are going to be as innovative as they desire,” Moody says. “So it’s basically the client’s determination how far you go, not your own, because you can go from one extreme to another.”
In other words, you should show a client what the client has asked you to do, and then show what you can do that expands on what they asked for.
“Try to show them that you can meet their basic criteria ? here it is ? but they have an opportunity to go beyond that and here’s how you can still meet their criteria and go beyond what they might have been thinking,” he says. “And by doing that, you are giving your clients more choices than some of your competitors. That gives you an edge. You have to have a strategy that is going to work to help you be successful no matter whom the competition is.”
How to reach: Moody-Nolan Inc., (877) 530-4984 or www.moodynolan.com
Getting that next project
When Moody Nolan Inc. opened a new office in Dallas, Curt Moody knew one of the first orders of business would be to impress upon his staff the challenge of getting the next project.
“You can be very solid for the present,” says Moody, president and CEO. “But when you finish that work, what is next?”
If you don’t have something following quickly, you’re either going to have a large payroll expense during a time when you are not generating sufficient revenue for it or you are going to have to reduce expenses.
“A lot of firms are going to cut positions,” he says. “The problem is that you have gained some experience on that project and now you are letting it step away because you are waiting on another opportunity.”
You need to try to stay away from that and be in environments where you don’t vary your staff levels. Build upon the skills that you retained, keep the skills of that environment, and you can do better by maintaining a healthy workflow.
“You have to know when somebody has a dream,” Moody says. “You have to know when somebody says, ‘We are growing, we have a need. Should we consider building or expanding?’ You’ve got to hear about those things; follow it wherever you can find it, then follow up: ‘You know you are thinking about this ? can we help you? Can we do an analysis or some planning to see what might be in your best interests?”‘
How to reach: Moody-Nolan Inc., (877) 530-4984 or www.moodynolan.com
It can bring spouses together or it can rip them apart. It can be a labor of love or hard labor. It can be a fond memory or an experience to be forgotten. Smart Business spoke to Dennis B. Ellman, a partner at Greenberg Glusker Fields Claman & Machtinger LLP, about how, armed with a bit of knowledge, you can build a home that serves you and your family and have fun in the process.
Assemble the right team. Your financial success was likely achieved by hiring the best. The success of a construction project requires no less.
The Owner’s Representative (OR). Unlike a general contractor or design professional, an OR is a project manager who represents only your interests as the owner. Most are former architects or contractors, so their skill set is well suited to custom home development.
An OR’s responsibilities include negotiating contracts, preparing and tracking budgets, assisting in value engineering, attending weekly job meetings, reviewing invoices from the architect, contractor and consultants, confirming that all required lien waivers and releases have been submitted, reviewing, insurance for compliance with contract requirements, etc.
The Architect. Selecting an architect includes answering these questions: Do I want and can I afford a well-known architect? Does the architect design in the style that I prefer? Will the design meet my objectives or only serve the architect’s likes? What is the average cost per square foot of the homes designed by this architect? Is the architect someone I will enjoy working with?
Architects are typically compensated based upon a percentage of construction cost (between 10 percent and 20 percent), and are paid as their work progresses. This rate structure can lead to mistrust when the architect recommends a more expensive design or more costly materials. Consider suggesting a fixed fee based on the estimated cost or size of the home, which will be subject to adjustment only if significant changes are made.
Understand what the architect’s fee includes. Some include the cost of mechanical, electrical, plumbing and other engineers whose services are required for the preparation of the architect’s plans. Others do not include these consultants, in which case the owner must pay these in addition to the architect’s fee. Engineering fees can often total between 1 percent and 3 percent of construction cost. When comparing one architect’s fees against another, make certain you know what services are included.
The General Contractor (GC). Many custom homebuilders are excellent builders and people of integrity. Others are not. Owners should perform extensive due diligence before engaging a GC. Check personal references, visit homes that the GC has built, and ask your lawyer to investigate prior litigation to which the contractor has been a party.
The Attorney. Make certain the attorney you hire is not a generalist, but has extensive construction contract experience. Ask about projects in which the attorney has been involved. An experienced attorney may also be able to recommend potential ORs, architects and GCs.
Sign the right contract.
Negotiated vs. Bid Contract. There are two methods of engaging a GC. The first is to wait until plans and specifications have been completed and then send them to several GC’s requesting bids. This process should result in a truly competitive price for the construction of your home.
The second method, often referred to as a “negotiated contract,” is one in which the owner, with the assistance of the OR or architect, selects a specific GC and negotiates its fees (profit) and general conditions (project site and supervision costs) prior to plan completion. Once awarded the contract, the GC will be required to obtain a minimum number of bids from each subtrade. This enables the owner to hire a GC as the plans are being developed, leveraging their expertise for estimating costs and value engineering.
Contract Form. The most common construction contract forms are “cost plus” and “fixed price.” A cost plus contract pays the contractor the actual cost to build the home, plus a fee typically stated as a percentage of that cost. There is no cap or maximum price, although an estimated budget should be included. Require that all trades be bid to at least three potential subcontractors.
A fixed price contract sets forth a price for the completed house; it also includes cushion to protect the GC, which you will pay whether or not it is needed. Any changes during construction will likely increase the price.
A hybrid of these two contract forms is the “cost plus subject to a guaranteed maximum price” (or GMP) contract. As implied by its name, the owner pays the contractor’s actual cost of the work plus an agreed upon fee, not to exceed a maximum price. These contracts typically incentivize the contractor to complete construction for as little cost as possible by giving a percentage of “savings” (usually between 25 percent and 40 percent).
There are certain protections that should be included in all construction contracts. Since contractors are paid as the work progresses, the owner should be permitted to withhold a percentage of what would otherwise be due the contractor. This so-called “retainage,” which is typically 10 percent and paid upon job completion, is the owner’s insurance that, if the contractor fails to complete the work, funds will be available to pay any liens and the additional costs in securing a new GC.
A well-drafted construction contract should protect the owner from contractor claims for additional compensation. Representations should include confirmation that the GC has thoroughly investigated the project site, carefully reviewed the plans and found them to be complete and without inconsistencies, and that the contract price includes both work shown and work reasonably inferable from the plans.
Time to Complete. The contract should have a date for completion. The GC’s failure to complete by this date will give rise to damages. Contractors are typically entitled to extensions of time for causes beyond their control, such as inclement weather or labor strikes. Exceptions should be narrowly defined.
Know yourself and have fun
If you labor over the smallest of decisions and then second guess yourself, or if you approach every task as a work in progress changing course every step of the way, consider buying a completed home. Too many projects exceed their budget due to costly changes and owner-caused delays during construction. But, if you are reasonably decisive and secure, then consider a custom home. Remember, the process should be fun. No matter how wonderful the home you build, no one will be happy if it results in family strife.
Dennis B. Ellman advises and represents real estate developers, brokers, investors and affiliated construction and architecture professionals in financing and loan workouts, lease negotiations, construction contracts, project agreements, and all aspects of real property acquisitions and dispositions. He can be reached at DEllman@greenbergglusker.com or (310) 201-7417.