The commercial market is very alluring. With higher price points and already-in-place financing, commercial work can mean a company gets to avoid the all-too-common headaches of residential jobs.
But there’s also a huge potential for loss. If a job isn’t managed properly, a builder can really end up behind the eight ball. To protect profitability, it’s important to properly manage funds, understand the scope of the work, and thoroughly investigate any laws affecting the job.
Here, a number of experts weigh in on the process.
When considering commercial work, builders should carefully assess each job’s profitability — not by dollar amount, but by percentage, insiders say.
This helps to gauge whether overhead and commissions are covered. It’s easy to become dazzled by the big numbers without noticing that the associated costs are nearly as monstrous.
Builders also should check out prospective clients to be sure that funding for the job won’t fall through. If the work is for a private company, such as a hotel or motel, ask how the pool is being financed. On public projects, make sure the general contractor has put up a performance and payment bond from an insurance company.
“That way, you know if they don’t pay you or they end up in financial trouble, there’s an insurance company behind you,” says Ron Atlas, vice president of Aquatech Stainless Steel Pools in Wheeling, Ill. “It’ll take a while to get paid, but you will get paid if they put up a bond.”
Also, ask other professionals about the property owner, since a local general contractor may have experience bidding or working for the client. “If [a contractor] you work with all the time got outbid by 20 percent, there’s not enough money in the job to make a profit,” says Bob Rondeau, founder of Phoenix-based Pool & Spa News Top Builer Rondo Pools and Spas, who recently rejoined the company to serve as commercial manager. “So [the general contractor who was hired] is going to grind on all his subs to bring the profit margin down to nothing.”
Another important way for a company to protect itself lies in lien rights. If you’ve taken the job and done the work, but aren’t getting paid, it can be tempting to forego the lien to avoid making waves.
“It aggravates people if you file a protective lien and put the world on notice that you’re owed the money,”Atlas says. “While that may prevent the general contractor from collecting on his money, he’s pretty upset with you for slowing things down.”
But don’t give up that power. A lien may not guarantee payment, but it’s better than nothing. This way, the property owner and title company are obligated to hold back a portion of the general contractor’s pay equal to what you’re owed. The GC does not see the rest of his or her earnings until the owner receives a waiver saying you’ve been paid.
But still, when dealing with commercial jobs it’s best to expect some losses. Builder Ken Hart, who has worked primarily on commercial projects in his 30-year career, had to write off almost one percent of his earnings last year to lost causes.
“You can get stung in this marketplace, even if you’ve filed your mechanics liens and posted your bonded stop notices and done everything by the book,” says the president of Aquatic Technologies in San Juan Capistrano, Calif. “If the guy goes under, the guy goes under.”
Preventing overlap in duties
Pool builders can also find their commercial profit being chipped away if there’s confusion regarding responsibilities on the site.
With so many more subcontractors present than on a residential project, everybody can trip over each other, and costly misunderstandings can arise.
“Without proper coordination, many times [the general contractor is] asking you to do work that you didn’t include in your bid,” Atlas says.
Pool builders must make sure their duties are spelled out clearly from the start using a detailed contract. It’s a good idea to address trades that are peripheral to pool construction such as plumbing, electrical, flatwork and mechanical.
“Our contract is very specific in scope,” Rondeau explains. “It says, ‘We are responsible for this and nothing more, and you are responsible for this.’”
When it comes to the equipment room, for instance, Rondeau’s contract will state who brings panels and breakers and who ties the equipment to them. “It’ll say, ‘From this point of the [drawing] to the left is all yours, to the right is all mine,’” he points out.
Also consider the assignment of miscellaneous tasks. Who is going to haul away any waste or extra soil? What about installing deck drains? Atlas uses a checklist for the different phases.
A detailed contract should be followed up with a pre-construction meeting that includes the general contractor and any other trades whose work will touch the pool area. Any disagreement can be ironed out at that time.
Make sure your representatives at this meeting know the contract backwards and forwards. “Each job is different,” Atlas says. “On one job, we may do the grounding of the swimming pool, and on another we’re not allowed to touch it, because the electrician’s doing it.”
One of the most pronounced differences in commercial work is government involvement. Before taking on these projects, builders should understand all relevant state laws. Otherwise it’s easy to get hit with penalties or have to redo work.
Codes for commercial pools generally involve a state health department. They often require higher turnover rates than are needed in residential pools. Codes also often address areas such as sloping maximums on the pool floor and deck, non-slip surfaces, disability equipment and emergency shut-off switches.
Other mandates involve the labor force, with some states requiring the use of union help. Government jobs generally stipulate that workers be paid a prevailing wage, and there’s no work-around.
Anyone caught violating these laws not only has to make up the difference with the workers, but also may get slapped with penalties, further reducing the job’s profit.