# Customer purchases



## CarpenterSFO (Dec 12, 2012)

I have a few initial estimates in the works for remodels of homes owned by architects and engineers, all of whom plan to purchase materials and finishes themselves.

Rather than reject that possibility offhand, my (new) policy is that homeowners may do that, but I will add the value of their finishes into the basis of my gross margin calculation, i.e. my margin will be based on total project value, including the value of finishes that they purchase. It's a standard pricing model for architects, so it shouldn't be mysterious to anyone. Whether prospective customers will accept it is another question.

I don't see any risk in doing this - I'm not interested in the projects if all the profitability is stripped away - and I believe that with clear contract language, there should be no misunderstandings.

Does anyone have any experience in the practical application of this policy? 

Thanks,

Bob


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## AllanE (Apr 25, 2010)

I use a contract written by our HBA attorney, and the contract clearly states that builder markup is applied to "material or labor supplied by Builder or Owner, and Work scheduled, coordinated, overseen, or insured by Builder". 

It really doesn't matter who pays for the material (or labor), if I as contractor oversee or schedule or coordinate the labor or the material installed, I am going to mark it up. It is irrelevant who pays for it.

I would make this clear up front.


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## greg24k (May 19, 2007)

I agree with the above, I also charge extra for installation of Material provided by the Owner. 

Most of the time the material they provide it will be short, or it will be missing something, or it comes in damaged, and its always could you pick up what you need and I will pay later, or could you exchange please, etc... These things are always time consuming and if you have a PITA customer it could lead to disputes.


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## 91782 (Sep 6, 2012)

Subscribed.

My longtime neighbor, friend and architect is getting close to breaking ground on his retirement digs.


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## 480sparky (Feb 1, 2009)

Make sure you have a very detailed warranty clause in your contract.


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## colevalleytim (Mar 1, 2008)

Bob
is there a way to add hourly cost clause in CA contracts for any issues with provided material? 

As opposed to writing a change order.


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## CarpenterSFO (Dec 12, 2012)

colevalleytim said:


> Bob
> is there a way to add hourly cost clause in CA contracts for any issues with provided material?
> 
> As opposed to writing a change order.


I thought about that approach. I'm less concerned about the contractual difficulty, than about the potential for client surprise factor: You thought you were saving $200 by buying that sink yourself; guess what, you lost money by doing that, due to all the work I had to do. On a small remodel like the ones I do (compared for example to AllanE's custom homes), the impact on the customer's price expectations is so quick and so complete with just a couple of these issues, that the customer won't have any time to reset. So I thought I'd get the issue done with up front - from the customer's viewpoint, get the price consequences all figured out up front, rather than chisel away at them.


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## CarpenterSFO (Dec 12, 2012)

greg24k said:


> I agree with the above, I also charge extra for installation of Material provided by the Owner.
> 
> Most of the time the material they provide it will be short, or it will be missing something, or it comes in damaged, and its always could you pick up what you need and I will pay later, or could you exchange please, etc... These things are always time consuming and if you have a PITA customer it could lead to disputes.


My goal is to remove the financial incentive for them to purchase stuff themselves, so that I can just get the job done. If they don't think they're going to save money by buying materials, then they may stop doing it.


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## CarpenterSFO (Dec 12, 2012)

AllanE said:


> I use a contract written by our HBA attorney, and the contract clearly states that builder markup is applied to "material or labor supplied by Builder or Owner, and Work scheduled, coordinated, overseen, or insured by Builder".
> 
> It really doesn't matter who pays for the material (or labor), if I as contractor oversee or schedule or coordinate the labor or the material installed, I am going to mark it up. It is irrelevant who pays for it.
> 
> I would make this clear up front.


Thanks, something like that will probably work. Indeed, my goal is to make things clear up front. This has been a particular problem for me with architect-owned remodels.


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## SamM (Dec 13, 2009)

I've got a bathroom coming up where they're buying material. I have a clause in my contract that if I'm delayed because they don't have the material when I need it then my wasted time is reimbursed. 

I also kept my markup on what the material would have cost me. I know exactly who's going to be doing all the work related to getting the material (hint: it probably won't be the owners).


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## Texas Wax (Jan 16, 2012)

Guess I have always viewed client purchases as a "value added service". Value for them of being engaged in the construction process, have freedom to choose or have the most choices, a greater level of control.... Architects and designers, generally tend toward the control (freak side of life), Perfect fit and more often than not, they are buying better to really top end products anyway.

Value added service like this is not about them saving big money at Menards, home depot, lowes. All mark-up and costs based on those purchases are still included, just like you where buying them as a contractor. You still have to manage them (making sure the materials are purchased and delivered in a timely manner)

Must choose the right clients, however price usually weeds out the 'money savers'. Clear contractual language and communication of expectations regarding client supplied materials, tends to weed out the problems and problem children pretty fast.


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## CarpenterSFO (Dec 12, 2012)

Texas Wax said:


> Guess I have always viewed client purchases as a "value added service". Value for them of being engaged in the construction process, have freedom to choose or have the most choices, a greater level of control.... Architects and designers, generally tend toward the control (freak side of life), Perfect fit and more often than not, they are buying better to really top end products anyway.
> 
> Value added service like this is not about them saving big money at Menards, home depot, lowes. All mark-up and costs based on those purchases are still included, just like you where buying them as a contractor. You still have to manage them (making sure the materials are purchased and delivered in a timely manner)
> 
> Must choose the right clients, however price usually weeds out the 'money savers'. Clear contractual language and communication of expectations regarding client supplied materials, tends to weed out the problems and problem children pretty fast.


I really appreciate the comments. I've had a couple prospective projects recently, where at the last minute, the customers (architects both) said, "Hey look, I can buy this luxurious finish for the same price as you can buy the moderate finish plus markup. I get a luxury project for the cost of a middle-of-the-road project. Isn't that great?! Hey look, I can do this with all the finishes! Isn't that great?!" I declined to continue on both projects.

It would be useful for me to re-frame the discussion about their involvement toward what you describe. That's a more positive way to talk about their involvement, while also explaining what it will or won't do to the cost of the project.


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## greg24k (May 19, 2007)

CarpenterSFO said:


> My goal is to remove the financial incentive for them to purchase stuff themselves, so that I can just get the job done. If they don't think they're going to save money by buying materials, then they may stop doing it.


I hear you Bob, but this is a Grey area you try to enter. Like the old saying goes "damn if I do, damn if I don't" Same thing here, it could be no problem, it could be a problem or it could be I wish I never did this before.
It's your business and its your call to make how you want to proceed with this, because if it turned out good or bad, you the only one who will be strapped to the outcome.

Good luck, you know I always wish you for the best :thumbsup:


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## Spencer (Jul 6, 2005)

There are so many situations that can make things different. 

I hate giving up my markup. 

I do have a bathroom coming up in which the customer has an interior designer, I could tell the designer was going after the tile purchase so she could pocket the 20-30% markup from the supplier. I had to take a step back and look at everything else I had going on and realize that in that case, I was money ahead by letting her do the legwork. 

I rely on markup. I think you're on the right track with making it clear that its still going to cost them the same money...or even if they can save a little with their own purchasing power, you are still going to get your markup on those materials.


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## hdavis (Feb 14, 2012)

I think this all tends to be a headache. I guess the HO is going to handle all the material defect issues, and Bob gets the workmanship issues - who decides all that? Also, far from decreasing your risk, installing prodcuts / materials you haven't worked with before may have their own call back profile that you aren't experienced with.

Unless the HO is going to take on material and installation questions....


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## 480sparky (Feb 1, 2009)

hdavis said:


> I think this all tends to be a headache. I guess the HO is going to handle all the material defect issues, and Bob gets the workmanship issues - who decides all that? Also, far from decreasing your risk, installing prodcuts / materials you haven't worked with before may have their own call back profile that you aren't experienced with.
> 
> Unless the HO is going to take on material and installation questions....



My standard response to a customer who wants to supply all the material is, "Then I will not provide any warranty for anything. Material or workmanship."

That pretty much settles it.


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## FrankSmith (Feb 21, 2013)

I had a customer try to do this to me earlier this year. He was wanting to purchase material and then he wanted the proposal broke down after I had submitted it to him for a full project. I told him very bluntly that the only reason to approach the project like that was to try to save himself money that I had planned to make if I did the job. Doing so would cause me to not make what I needed, and there for I would not be interested. 

Why beat around the bush? That is what it comes down to. Of course, that was a job I did not get.


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## Texas Wax (Jan 16, 2012)

CarpenterSFO said:


> It would be useful for me to re-frame the discussion about their involvement toward what you describe. That's a more positive way to talk about their involvement, while also explaining what it will or won't do to the cost of the project.


Few more thoughts

This is not about the client supplying general structural materials, romex, copper pipe, drywall and mud, rather select items reveolving around client choices selections. It only works well in a 'target market' of not bottom feeder customers.

Reality, this owner purchasing trend is real and not going away anytime soon. Doesn't really benefit us as contractors at the production level of the business. Me it's a wash, some advantages some disadvantages. 

From marketing-brand-customer experience thinking it can be really positive. Look at the responses from our fellow contractors. Instant differentiation from the competition, without saying a word about them. You are actually being open to furthering a relationship with your client, trust ... It's another relationship building tool. Obviously its the relationships that generate the farthest reaching WOM exposure.


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## CarpenterSFO (Dec 12, 2012)

Here's my new language (mostly to go into e-mails), for customers who have raised this subject:

Regarding the purchase of finishes by you: I welcome your involvement in the selection of finish materials for your project, and if you want to purchase those finishes, we will be happy to accommodate your wishes. Before making any such purchases, please read our contract language in the contract section "Purchases by Owner", so that you can understand the impact on warranties, project price, and other important matters.​
This is a positive step for me: it gets me out of the business of saying "No", it puts the details in some clear and dry contract language; it preserves my profitability (because the contract language establishes that the basis of my margin calculation includes owner purchases) and it will remain effective at weeding out the bottom-feeding prospects.

I realize this is old hat for some of you, but I had never done a good job of clarifying either my thinking or my communications about it.

I appreciate all the advice.

Bob


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## Jaws (Dec 20, 2010)

We use allowances a lot when the client wont sit down with our vendors or decorator and nail down fixtures or appliances, finishes, ect.... before we bid. If they are vague i use the value of the house and a percentage. Ie, 2% for lighting fixtures. 600k house is 12k for lights. If they are more specific, or if the specifics on the plans show less or more, i adjust. 

So i use 12k for my bid, add my mark up. If they spend 6k or 30k doesnt change my mark up on fixed bid. 

Cost plus, it says in our contract that we are allowed to mark up anything we coordinate, install, ect... like Allan E. Ours is an exert from the TAB contract. We have been known to let them buy their own appliances or floors or what ever if it is a good enough job and they have some special hook up. More often we have lessened our mark up to get them to use of suppliers in a price battle.


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