Landscape Estimator and Business Advisor Anna Turner asks, ‘Do you have sufficient finance in the job to cover it going wrong?’ Assess the risk and price accordingly.
We’ve all had a project or two that, from the start, we wish we hadn’t won. Instead of doing high-fives a sinking feeling hits right in the guts. The warning signs were there, but we ignored them. We went in too lean, or we got a bad feeling about the client but went ahead anyway.
Step by step
The key is to think about risk at the time of pricing, not after they sign the contract. By then it’s too late. Risk needs to be mitigated at the start. I know you’ll say you’d never win a job if you priced to cover everything that could go wrong, and that’s true. But it’s important to consider all the possible risks and try to mitigate them as much as possible.
Work through the project systematically, starting with the site project information.
If the documentation is sub-par, it leaves room for different interpretations, opening up the risk of having to do work not factored into the pricing. When the client can argue they thought the documents meant one thing when you thought they meant another, you’re in trouble. Know that when the designer makes a mistake it’s you, the contractor, who will pay the price. Try to work with designers you know and trust, or designers who have been in the game for years.
Site conditions play a big role
Consider access, soil type, and topography. Factor the site conditions into the labour and machinery costs and adjust them accordingly. Excavating with a machine in a front garden in sand is vastly different to excavating by hand in clay.
Non-structural work usually comes with less risk than the structural work. Weigh up the risk of doing the work versus the skills and labour you have to hand.
Don’t forget the client
If the client is a builder, do your research. Try to find out as much as possible about them. Red flags to look out for include if they burn through subcontractors. Ask around. Check on their socials to see who has worked with them before. If they don’t retain their subcontractors there has to be a reason.
Do they pay late? If you’ve worked for them before and had trouble with payment, run a mile. Otherwise ask around and check the contract terms and make sure they’re reasonable. Do they output work that aligns with your brand? If they don’t align with your brand you may have a hard time winning the job in the first place.
If the client is the homeowner they’re harder to investigate. Try to work out if the client has the budget to do the work. If they’re penny pinching from the start, it might be worth backing out. It’s not always the case, but if they were recommended by another good client it’s a positive sign.
Quantify
Write down a list of the risks. A list will help to quantify and mitigate those risks as much as possible.
Some risk, like hitting rock, can be reduced or removed with a clarification. For example, ‘Excavation into rock will be charged on a cost-plus basis as a variation to the contract’.
Other risks are more complex, and with these there are two options:
* Include a Provisional Sum in the contract to cover the risk. This signals to the client that the item may cost more than anticipated. It also acknowledges there is a risk and you have given it thought.
* Cover the risk by adjusting the margin. The margin is there to cover your overheads and profit, but additional margin should be applied to cover risk. For a straightforward job with a good client, your standard margin should be enough. But a high-risk job, a complicated build with bad access, needs a bigger buffer. A high-risk job needs to be worth winning.
Your contract is your friend
A well-written contract is a lifesaver. When the contract clearly outlines the Scope of Works and surrounding conditions, you’re covered when the scope or conditions deviate from the contract.
Start with a detailed and well-defined Scope of Works. Don’t tell them how many hours you’ve allowed or quantities of materials (some clients will use it against you, counting that you used five bricks fewer than you quoted and demand a refund). Do write a detailed description of each item in your scope of works. Take out the wriggle room. Tell them exactly what the finished product will be. You don’t want the descriptions to be wordy. You want them to be precise. For example: ‘To supply and install 6 x run of SS wire rope trellis as per Section 1 1/02-14 on Drawing Details & Specifications – 2.’
There is no room for misinterpretation in that description.
Write a clarification to cover every risk identified (if you haven’t covered it in the Scope of Works). For example, clearly state where you will be storing materials and how traffic management will be handled.
Don’t forget to read through the contract with your client. Don’t assume they have read it. They probably won’t unless you walk them through it. This process may be a bit awkward, but it’s also an opportunity to show your expertise and build trust.
Last point
Stop treating your margin as something you shave down to win the job and start treating it as an insurance policy. That’s hard when we need to feed the beast; however, a job that goes south badly will cost more than walking away before the pain starts.
Don’t be afraid to walk away.
