Monday, March 19, 2012

If you’ve been a contractor for a while . . .

You know about headaches that come with any project – risk of loss, regulation, code compliance, employees, warranty claims, liens, and – always – the need for more capital.

If you’re looking for a better way to make a living in construction, consider a contractor I know. He doesn’t have these problems – and still makes a good living as a residential contractor.

He gets involved early in the project, before plans are drawn. He works with the architect, gets owner approval of the plans, guarantees a maximum price, selects trade contractors, makes sure work is done right -- and then collects a little extra for finishing under budget. It’s a good business. But it’s not a general contracting business. It’s a consulting contractor business: no employees, no inventory, no payables, no warranty, no investment, no liens, no risk.

His clients are very comfortable dealing with consultants – lawyers, accountants, financial advisors, etc. In their eyes, he’s just another consultant, a construction consultant.

Is this legal?
Of course. No state requires that general contractors have employees and payroll. In fact, the deck is stacked against any general contractor with large crews: worker’s comp insurance, high overhead, high payroll taxes and liability insurance premiums.

Is anyone really doing this?
It’s the way most federal, state and municipal jobs are done today, including many of the largest projects, e.g. the Corps of Engineers. Many commercial and residential jobs are run by consulting contractors – sometimes called paper contractors. Some of the most experienced, most successful, most respected construction professionals I know fit the definition of paper contractor. And for good reason.

A consulting contractor is the owner’s representative – answers only to the owner. The consultant’s job is to protect the owner against high costs, delay, shoddy work and risk of loss. No one else on the site shares that agenda.

But understand one point. Construction consultants walk a fine line. A construction consulting contract has to be very different from any construction contract you’ve ever seen. Refer back to my January 25, 2011 blog and you’ll understand the problem.

Finding work as a construction consultant
It’s not hard. In fact, it’s good practice to suggest consulting on any job you bid. The pitch goes something like this:

I can save you some money on this job. I’ll act as your consultant at a price my competition can’t touch. There’s zero profit for me in this job. Just pay me for my time. I’ll give your job the same attention I give to every project I take on, but with no markup. You can’t beat that deal. Say the word and I’ll write up a contract we both can live with.

If working as a consulting contractor appeals to you – and if you aren’t exactly sure how to do it – consider a new book published this week by Craftsman. The title is Paper Contracting. The co-author, William D. Mitchell, has completed over 100 projects as a construction consultant – everything from home remodels under $100 thousand to government projects worth over $100 million.

Paper Contracting could open your eyes to a better way to do construction business.

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