When a remodeler says his company is “design/build,” what exactly does that mean?

Source: REMODELING Magazine
Publication date: October 1, 2007
By Chris Keimig

You can never be completely certain what a remodeler means when he describes his company as a “design/build” firm.  Does the remodeler or his staff do the design work?  Possibly.  Does he build jobs using his own field crew?  Perhaps.

To be sure, there are certain basic characteristics inherent to the term: In some capacity, the design/build remodeler has a hand in every element of the remodeling process from developing the initial design concept to signing off on the final punch list.

But the shape that this process ultimately takes can look strikingly different from one company to the next.

OUTSOURCING DESIGN

In the first and perhaps most common incarnation, the remodeler has an architect or pool of architects to whom he subcontracts the design work.  John Tabor, owner of Tabor Design-Build, in Rockville, Md., is one such remodeler who has worked with the same architect for the last two years.  Though simple floor plans for kitchen or basement remodels are still handled in-house by Tabor and his design assistant, the bulk of his projects usually additions costing around $200,000 are designed out-of-house.  Tabor’s architect accompanies him to all client meetings, beginning with the initial visit to a client’s home.

Although the architect is ultimately responsible for producing the design, Tabor is constantly involved in directing the process.  “I’m there to try to preserve the budget,” he says.  “The last thing I want is to design something way over budget and then the client decides not to do it.  Then we’ve wasted a lot of our time and their money.”

Using a team of three designers, Jeff Rainey, owner of Home Equity Builders, in Great Falls, Va., has a similar setup.  For him, the benefits of outsourcing design are clear: “I’m feeding them plenty of work, but I’m not paying all of the overhead, benefits, and vacation,” he explains.  “And when the economy takes a dive like it has recently, lots of people are looking at layoffs.  That’s a tough thing to face.”  By outsourcing, this is one headache Rainey is able to avoid.

Jeff Petrucci, owner of Bloomfield Construction, in Bloomfield Hills, Mich., points out the flexibility that outsourcing provides.  “We have two different designers with very different strengths who we can choose from, depending on the demands of the project,” he says.  And, like Rainey, not having to keep a full-time designer on his payroll is a major benefit.  “The ultimate advantage of outsourcing,” Petrucci says, “is that if you don’t have the job, you don’t have to pay them.”

The downside of subcontracting design is, unsurprisingly, that the owner surrenders a certain amount of control.  “My biggest gripe is that sometimes it takes a lot of time to get revisions back,” Tabor says.  “The architect may be dealing with a dozen other people, too, some of whom may be feeding him more business.”

Petrucci has encountered some of the same problems.  “Outside architects can be a little less available,” he admits.  “But I won’t use a guy who won’t call me right back.  I’ve had those people work for me, and I don’t work with them anymore.”

The key, as in any professional relationship, is to find a reliable architect or group of architects who work well with your company, and stick with them.  Nurturing those relationships will strengthen your processes and cut down on unpredictability.

BRINGING DESIGN IN-HOUSE

Many remodelers, such as Orren Pickell, owner of Pickell Builders, in Lincolnshire, Ill., choose instead to bring design completely in-house.  Pickell, who once drew all of his projects himself, currently has a team of 13 full-time designers on staff.  “Now I have designers who are, quite literally, better than me,” he says.

From the beginning of the process, Pickell has a design team with him asking the client questions and preparing variations of the preliminary design.  During the second design meeting, the designers actually sketch out their ideas right in front of the homeowner.  “Clients love to be able to see their dream home becoming a reality,” Pickell says.  “Not only are they entertained, but by the time the meeting’s over they’ve already approved the floor plan and have a rough sketch of the layout.”  Soon after, the interior designers get involved to begin the selections process.

Pickell sees distinct advantages in housing all of these elements under the same roof.  “Everyone is working together to meet the budget,” he says.  “The builder wants to make the architect out to look like a hero.  We have a unified front everyone knows it’s all about the customer.”

Most importantly though, Pickell says, is the fact that because everything is handled in-house, any problems or overages that may arise are dealt with without the customer witnessing them.  “We want all problems that occur to be invisible to the client,” he says.  “This is impossible when you have an adversarial relationship with an outside architect.”

Geno Benvenuto, owner of Benvenuti & Stein, in Evanston, Ill., agrees.  “The key is that the client is out of the loop in terms of solving problems,” he says.  “Everything is solved in-house.”

An even greater advantage, though, according to Benvenuto, is the total control that in-house design allows over a project’s schedule.  “We control all of the key elements,” he says.  “So a change that could otherwise take a couple of weeks to process, we can do in a few hours because we do it internally.”

It’s true, however, that keeping one or more designers on staff full-time (Benvenuto employs four architects and seven designers and draftspeople) requires that business remain steady year round.  “We need a variety of work to keep all the pistons pushing,” Benvenuto says.  “Having this sort of setup is very expensive, but it’s also very rewarding.  It attracts a much higher-end clientele, and because we do such nice work we attract quality employees as well.”

To keep his design staff productive during slow periods, Pickell has his team cross-trained to work on marketing or sales materials such as their photo database and 3-D surrounds.

DESIGN AS A PROFIT CENTER

Taking a less common approach to design/build is Pav Wilkinson, co-owner of Wilkinson Design & Construction, in Harwich, Mass.  Wilkinson, who has an architecture degree and spent years on construction crews before starting his business with wife, Lyn, does all of the company’s design work himself and takes on a supervisory role during construction.  The company builds an average of just two jobs per year usually large, upscale remodels for second homeowners and only handles one project at a time.

“I think the client gets the best experience when the design-builder is doing one job at a time,” Wilkinson says.  “They get all of my attention, and I can ensure everything is being done correctly by the subs.”

A WAY OF DOING BUSINESS

Regardless of what form it ultimately takes, the benefits of design/build are evident.  Working together with homeowners to set a budget before any design work is begun allows the remodeler to design a project that is realistic in scope and is practical to build, rather than trying to tear apart and rework an existing plan to fit an unrealistic price range, or having to hammer a client with change orders to amend an impractical design.

“I want to know when I give that final number that all unforeseen elements are covered,” Petrucci says.  “I don’t want to sell a job [at a fixed price] and then have $30K worth of add-ons.”  A design/build approach allows you to track and manage a project’s costs from the very beginning, with total control over all of the elements.

In selling design/build, you are not simply selling a service to your clients, you’re selling a way of doing business.  Rainey has found that clients are willing to pay for that kind of established quality.  “Ninety percent of clients come to a design/build firm because they trust in their referrals and they trust the owner,” he says.  “They come because they trust the face of the company and they know you’ll stand behind your work.”

And by selling the design/build experience, it’s possible to finally escape the bidding wars plagued by lowballers who drive prices (and profits) way down that frustrate so many professional remodelers.

By the time the design agreement is signed and the retainer collected (and before you’ve spent valuable time and resources on a project), the homeowner has essentially committed to your company.  “Once we collect the retainer, we have a close rate over 75%,” Benvenuto says.

But for contractors unaccustomed to charging enough for design to even cover costs let alone asking for a retainer the leap can be a difficult one to make.

CHARGING FOR DESIGN

Giving away design services sets a precedent of entitlement that can spill into other areas of the project as well.

“We are professionals, and we want to be compensated for our time,” Petrucci says.  “If the potential client doesn’t respect that our time is worth paying for then they’re not the type of client we’re interested in doing business with.”

Once you decide to begin charging for design, the first question that naturally arises is: How much should I charge?  Though design fees vary widely, most seem to fall between 8% and 10% of the total project budget.  A retainer, usually about 10% of the total design fee, is often collected at the time the design agreement is signed.

For a company just breaking into design/build, coming up with the design fee is usually an evolutionary process.  Benvenuto began his design/build career charging only a nominal fee for design and was able to increase his fee as his company’s reputation spread throughout the community.  “The progression of our fee went from hundreds of dollars to a fixed percentage of the construction cost (about 10% of the total job cost),” he says.

Benvenuto charges a retainer that is 1% of the total job cost (or 10% of the total design fee) when clients sign the preliminary design agreement.  After the budget is approved, the retainer is upgraded to one-third of the projected design fee.  It is upgraded once more to two-thirds of the projected design fee after the permit drawings are completed; the final third of the design fee is collected when the construction contract is signed.  If the final approved budget exceeds the original projected cost, then the design fee is also adjusted to reflect the increase.

Wilkinson has a scaled offering of design services, beginning at 8% for the basic plans and permits, and going up to 12% for full-color 3-D interior and exterior renderings.

Tabor has his design process broken down into 10 clearly defined meetings.  The first half of the design fee (usually 8% of the projected budget) is due at the second meeting, when the design agreement is signed.  The second half of the payment is collected at meeting number six, after detailed design drawings have been approved and the selections process is well under way.

Charging properly for design services insures you against clients who may get cold feet just before signing a construction agreement or who may be shopping between two or more design/build companies.  Collecting a retainer ensures clients are serious about their projects from the outset.

Once the design is complete, the focus turns to the execution of the details.  A seamless transition from design to production is the final challenge in the design/build process.

PASSING THE BATON

One of the greatest advantages of design/build is that the same company has complete control of a project through each of its phases, so by the time it comes time to build, it should simply be a matter of following the directions the company has prepared for itself.  But how best to ensure that what gets built mirrors the design exactly, especially when much or all of production is handled by subcontractors?

First and foremost, it is important to arrange a “trade day” at the site a day where all trade contractors involved in the project come to view the existing conditions, review the design, and discuss how they’ll move forward.  Though this day might look slightly different from one company to the next, it is equally important for all.  Pickell has a “seven-signature set” of prints on which each of the trades must sign off after visiting a jobsite.  “Everyone is looking for different things,” he explains.  “If you’re a builder and you see a design feature that looks bogus, you can bring it up here.”

At his trade-day meetings, Tabor hands each trade contractor a copy of their portion of the selections list, as well as a copy of the project plans.  “We give them a chance to look for any potential obstacles,” Tabor says. “I don’t want anyone coming back later saying, “This is going to be extra.”"

These meetings serve not only as a way to refine any potential design flaws, but also to brief trade contractors on the project schedule and selections.

Once the project begins, many design/build companies hold regular meetings, attended by the client and representatives from design and production, to provide project status updates and answer any questions that may arise during construction.

As soon as a project’s final drawings are complete, Benvenuto establishes a time for his architect and project manager to meet with the client every week.  “They discuss the schedule, any work done during the week, upcoming work, or remaining selections,” he says.

Pickell’s architects visit his jobsites every Friday to monitor progress and troubleshoot problems.  Since he may have many jobs running at once, Pickell says his architects “choose to visit the jobs on which they can make a significant impact.”

Tabor also establishes a weekly meeting for himself, his project manager, the lead carpenter and the client, to keep abreast of job status.

Before construction begins, Tabor gives clients a detailed production schedule that maps out each day’s activities over the entire course of construction.  “The reason I give people this thing is because I want them to know what to expect,” he says.  “Surprises aren’t pleasant in this business.”

By fine-tuning his systems and identifying a daily schedule that spans over two months ahead, Tabor seems to have all but eliminated the unexpected from his design/build process.

“People have told me we’re too expensive, and [they] then find someone else for a lower price,” he says.  “I make a note to call them back a year later.  Most tell me that their three-month project turned into a year and it cost exactly what I said it would.”

NOT SO SIMPLE

For many contractors interested in taking their companies in the direction of design/build, the selections process turns out to be much more daunting than they expected.  Managing and tracking all the minutia (there may be hundreds of selections in a large remodel) can not only be time-consuming but with a difficult or demanding client a drawn-out, frustrating process.

That’s why John Tabor of Tabor Design-Build in Rockville, Md., keeps a design consultant on staff to facilitate selections a process that begins as soon as the concept design is complete.  The design consultant guides the process over a series of four meetings, during which general design issues are also discussed.  “By [the last meeting] we’ve hopefully finalized all our selections,” Tabor says.  “I don’t like to go into a job with any allowances at all.”

Inevitably, however, some of the smaller finish decisions may get pushed back.  Lyn Wilkinson handles selections for Wilkinson Design & Construction.  To manage selections, she uses an Excel worksheet that she shares with clients, suppliers, and the appropriate trade contractors.  “Before we begin construction, they’ve made all the plumbing, electrical, and flooring choices,” she says.  “Everything else [is selected] before Sheetrock.”

For clients who need extra guidance in choosing colors, molding, and trim, Jeff Petrucci of Bloomfield Construction, in Bloomfield Hills, Mich., brings in an interior designer.  “I can actually mark up their time and make money off of the designer,” he says.  It’s also a matter of how his time is best spent.  “You’re talking about really picky architect-type decisions.  I want to have control over the [products used], but I’m not going to spend five hours with someone picking out colors and molding,” he says.

For information on Web-based solutions for managing selections, see Tech@Work, page 66, in the September 2007 issue of REMODELING.