Contracts, Motivation and Making Money
OK, I need to put something out there. It might make me seem shallow, shameless or otherwise morally deficient, but here goes anyway.
I like money.
Now don’t get me wrong. I’m not talking about dreaming of swimming through endless seas of cash like a comic book scene from Scrooge McDuck (for anyone under 30, that’s Donald Duck’s uncle). Nor is my stated love for dollars the main driver in my life, kicking aside family and hikes through the mountains in the tireless pursuit of a bigger bank account. In fact, I should probably restate the whole thing, more in line with what my Scottish grandmother would have said. What I really mean is, I don’t like wasting money.
A few years ago my wife and I decided to do some renovations on our 25 year old house. We didn’t have anything too exotic in mind – update the kitchen, splash on some paint and add a deck out back to cover up the rain beaten concrete patio. For a bit more insight, we lived in Squamish, BC at the time which gets a LOT of rain, and much of it comes down hard. The concrete had fought a valiant battle with the constant downpours, but ultimately lost the fight. It gave me a good understanding how water carved out the Grand Canyon.
We opted to start on the deck. After calling a few local contractors, we chose one that specialized in classic west coast carpentry. We settled on a price and after a few weeks our back yard had been transformed. Kevin, the contractor, had done a really good job, so we figured that he and his partner would be a good team to tackle some of the other renos we had in mind.
It was now October and life caught up with us. Work, kids in school, weekend coaching responsibilities and an increasing desire to hibernate as the days shortened and the Squamish monsoons arrived left us thinking of anything but renovations. It just sounded like too much work, even though we weren’t actually doing any of it!
By the time February rolled around, the subject of the kitchen came up again. After some considerations (and friendly “debates” with my wife, who it turns out is quite a bit smarter than me) about appliances, flooring and the like, it was time to call up Kevin. He happily came by the house one evening to discuss the plans.
I say “happily” because his work circumstances had changed dramatically since he completed our deck. His order book was pretty full in the previous late summer and autumn, so he was able to schedule and price projects in line with the hot market that it had been. In the depths of winter, it turns out that other homeowners had the same feelings of malaise that we had felt, which had turned off the project tap. Kevin’s backlog was pretty thin. Being a very nice (and honest) guy, he leaned across our aging kitchen counter and came clean.
“I’m happy to take on your kitchen job – things are really slow right now”, he told me. “In fact, you and your wife treated us well on the deck job, and we need the work, so I’m willing to cut our rates and get it done right away.” He then said something that has stuck with me for a long time. “We’ll do all of the work ourselves” (fortunately an electrician and plumber were part of his team). “It will keep the cost down and we can control the schedule.”
Now, his statement wasn’t exactly the Sermon from the Mount, or even a decent political stump speech. Most people wouldn’t remember what amounted to a fairly basic, albeit nice to hear, discussion between a local carpenter and a homeowner client about keeping costs down. Pretty unmemorable really. A forgettable moment.
But I’m a contractor myself. So I wanted to see if he would perform as promised. For me, it was about three things. Would I get the nasty surprise later when he might tell me “we’ve had some extra costs that we didn’t expect”? Or would he perform as advertised? So it was an exercise in trust. Second, I wanted a new kitchen. And third, it catered nicely to my somewhat frugal nature. Hey, I’m not cheap. I just like a good deal. (OK, I’ve been accurately called cheap).
The next couple of weeks saw the kitchen stripped down to the studs, flooring ripped up, plumbing rerouted and finally, a brand new kitchen. Cool! It was the first new appliances I’d ever had and I have to admit I was like a little kid. “Hey honey, the fridge has a cold water tap in it!”
What didn’t happen was arguably even more impressive. No big extra bill. No delayed schedule. Just great service at a very good price.
So when I had a chance, I asked my contractor friend (yes, when you’re cooking on a temporary stove in your bathrobe and the contractor is framing the ceiling above your head at 8:00 at night, you either want to kill each or you become friends) the uncomfortable question. “You have me a heckuva price. Did you make any money?”
He admitted that the price was tight but yes, he and his crew did make a few bucks along the way. “We did all of the work ourselves with no sub-trades. It allowed us to schedule things as we needed and we didn’t have any other prices to mark up. I told the guys that they had a certain number of hours to get it all done. So they did. All of us were motivated to get the job done as quickly and professionally as possible. If I had one guy on the job that knew he was just getting paid by the hour, the whole thing would have gotten out of control”.
OK, that made sense to me. I had watched them work on occasion and the crew definitely wasn’t slacking. No long breaks, no time wasted with idle chatter, just work. Then, given I’m in a similar line of work, I had to ask myself, would the same kind of cost and time savings apply to a much larger project? Something where the costs are measured in millions (or billions) of dollars?
It turns out that the answer is yes. I tested the waters with a few of our own projects and also asked a number of people that work in the same electrical industry as you and I. The secret is not in finding the best people, or even grinding down the contractor to get best price. It’s somewhat simpler than that. The answer lies in what I also learned as a sports coach and parent. It’s motivation that will bring the results.
Now, before you run out the door to buy some colourful pompoms and leap into your next management meeting with a rousing rendition of your favourite college cheer, I have some advice for you. DON’T DO THAT!!! If you do, you will miss the opportunity just as much as you would have missed the point. Motivation is MUCH stronger when you set up a project to be contractually motivating.
Wait, don’t turn off your computer! I promise not to turn this into a lecture on contract management. What do I mean? Whenever possible, you need to set up your contracts to do two things. First, make sure that everyone on the project is motivated to deliver the final product as quickly and at as low a cost as possible. The nuance here is the term “everyone”. If you pay one person by the hour, he/she will be motivated to sell you hours, not final product! If you contract someone to perform a certain scope, but they are reliant on someone else (who is selling you hours) to do their thing first, expect the schedule to be longer than you wanted. In other words, all of us are motivated by the contracts we sign and the methods by which we get paid. Set this up well and you will be on your way to project success. And it’s not chump change you can save. Industry estimates point to savings at the owner’s level of 10-30%. That’s real money, especially when the budget is in the millions of dollars, or more.
I recently gave a presentation on this topic and it’s amazing how quickly people understand the concept. It’s one of those “that’s so simple, why didn’t I think of that?” ideas. Like the wheel, or inside running water. Or the Clapper.
All of us in the industry like to say we are in the people business, and I agree wholeheartedly. It’s just as true that we are in the motivation business. Not the “you can do anything!” Richard Simmons motivational video kind of business, but the kind of drive that comes from inside of our minds. How do I make money?” How do I please the boss? How can we get more business?
It turns out the answers are right in front of us. Cut costs, reduce schedule, increase quality. Life changing things. Just ask yourself – do my contracts motivate people to do these things? Or am I actually motivating them to do the opposite? Check the terms of your contracts and you’ll find out pretty quickly.
I always thought “Wow, if I could do all of that, I’d be rich!”
And then my kids went to college. Oh well, someday.