Can Jeff Bezos help you answer the biggest question in Home Makeovers ?

 

A couple of months ago, Jeff Bezos stepped down as CEO of Amazon. What an extraordinary journey he's had over the past 27 something years. Under his incredible leadership, he has launched and grown Amazon from literally nothing to the exceptional organisation it is today.

 

You may not know this, but every year since 1997 until his final edition, issued earlier this year, Mr Bezos has written an annual letter to his shareholders. They make for fascinating reading and give unique insights into both the founder and his company.

 

In this latest release, he named two simple yet profound ingredients that he and his teams have baked into every single part of Amazon's growth. Since they are both readily available to all of us, I thought I would share them with you. In my opinion, you would do well to bake them both into your Home Makeover Projects. Just as they have been critical to Amazon's success, so they can contribute to the successful outcome of your projects.

 

How cool is that ... having Jeff Bezos help you execute your Home Makeover project ?

 

One of the ingredients is particularly significant, because it will help you to understand and then implement the answer to one of the most universal questions Homeowners ask on their Home Makeover Projects. And that's the focus of today's Podcast Episode.

 

That dominant question, the question everyone asks sooner or later, is "How do I pay as little as possible for my Home Makeover project ?" And when any Homeowners ask that question, they're also really asking "How do I avoid being ripped off ?" Understandably, no Homeowner wants to lose money, to waste money or to pay too much. So, without doubt, it's the hottest topic on the Home Makeover block.

 

In episode Three, I told listeners I knew the exact amount that every Homeowner should spend on their Home Makeover project - any and every project, anywhere in the world. That probably sounds like an incredible claim, right ? How could anyone possibly know that ? Sceptical ? Well, if you haven't listened to that Episode then you should head over to our website and do so right after this. Without giving too much away, the answer is connected to the words of John Ruskin, who I quoted in that episode, including this statement : "It's unwise to pay too much, but it's worse to pay too little."

 

Today we're going deeper ... so, are you ready to answer the biggest question in Home Makeovers ?

 

Hello and Welcome to Home Makeover Project Secrets, the show that equips Homeowners with the skills and understanding to execute successful home projects, that goes behind the scenes of Home Build Projects to unlock the secrets and share insider tips and strategies to save money and time on any and every home project. What you learn will give you the confidence to embark boldly on your next project and you’ll know what to do so your story has the happy, dream home ending you deserve.

 

I’m your host, Andrew Philips …

 

When I talk about "Home Makeovers", I include renovation, remodelling, alterations, additions, going up into attics and down into basements, redevelopments and even ground-up new builds. Any and every project where you're going to be appointing professionals, designing something, buying materials, carrying out construction work, employing contractors and sub-contractors, suppliers and manufacturers and even if you're doing some or all of the work yourself. All things home build.

 

I'm delighted you've joined me today.

 

Because we're dealing with what might be quite complicated information, especially if you are unfamiliar with some of the terminology and processes, the show notes and transcript will be uploaded to our website www.thediypm.com so you can easily revisit any episode and refer to the key information shared each week. And of course, if you prefer to watch or read an episode, rather than listening, you'll find links on the website as well. We also include any links to resources, free gifts and other useful information mentioned during episodes.

 

And now, back to the big question ...

 

One of the characters in Pixar's 2007, hilarious, cartoon movie, Ratatouille, is the legendary French Chef, Aguste Gusteau, who holds a controversial belief that "Anyone can cook". It's a fabulous movie if you like cartoons and I highly recommend it. It's a family favourite.

 

I too have an unshakeable, fundamental belief - it is that any Homeowner, if they just know how, can Project Manage their own Home Makeover to a successful and happy ending. And my mission is to equip you with the know-how you need.

 

Can you do it ? Yes,  you really can !! And today, we'll call on Jeff Bezos' to help us get there.

 

So let's draw back the curtains ...

For anyone not overly familiar with the sharp end of getting to what a project should cost, I need to give a quick, bird's-eye, overview of how most people go about it. There are a selection of techniques.

 

First and probably most well known, bidding or tendering. There is an entrenched belief that comes from corporate culture, that the best and only way to make sure you get a competitive price is, uhhhh, well, competitively. That is to say, by getting competitors to give you their quotes or bids or tenders, on what is meant to be an apples-with-apples basis, for your project. Most boardrooms lay down the law that you need a minimum of three competitive bids for any contract, to validate that it is indeed competitive and thus provides good shareholder value. This applies to everything from buying coffee cups in the office canteen to getting space race competitors like SpaceX and Virgin Galactic and Blue Origin - another Bezos company - to bid to help NASA put men back on the moon.

 

So most Homeowners think that the only way to get to the right price for their project is to go to tender, to invite bids - a competitive process with a number of Contractors participating. While there may be occasions when competitive bids do generate best price, although I confess I'm a massive sceptic, let me tell you, on Home Makeovers, competitive bids do NOT. At least not as the only part of the process.

 

Another well-known way to get to a price or cost would be negotiation. No doubt, negotiation is very effective but not in all circumstances. And success depends very heavily on the skills of the negotiator.

 

Then there are various contractual mechanisms which can help to generate best cost.

 

One of these is going "Open Book". This is when you agree a fixed overhead and profit margin and the contractor then shares all the details of all of the sub-contractors and costs they incur - full disclosure, in theory at least. The concept is that you agree a markup you are comfortable with and the contractor accepts their role of managing the project at minimal risk because they will make a fixed profit margin.

 

Another of these is to avoid appointing a traditional general contractor or main contractor to supervise and manage and deliver the works. This is sometimes referred to as management contracting and construction management. Here, the subcontractors, specialists and manufacturers who actually deliver the works are appointed and managed by specialist construction managers or even owner direct.

 

There are positives to all of these approaches, but none of them is head and shoulders above the others. There are also negatives to consider.  Unfortunately, we don't have time in just one Podcast Episode to go through all of these in detail. But I've used and applied all of these approaches over many years in all kinds of different circumstances. Some with more success than others. Based on my extensive experience, I'm excited to be able to shortcut your learning curve so you can get straight to the most efficient possible route to get to the best price.

 

If you're feeling like this could be pretty overwhelming, then this is where we need those two secret ingredients Mr Bezos used at Amazon ... cue drumroll ... here they are ... sweat and ingenuity.

 

Sounds a bit simple ? Well, the most successful strategies usually are.

 

Sweat - that's fairly obvious. A heads-up that it takes a little effort. Although the effort pays off, big time. Fortunately, I know this won't surprise or bother you - you didn't get to being a Homeowner without a little sweat somewhere on your journey so far. And another clue is that you're already considering running the project yourself. Without giving too much away today, I have something I'll be sharing in the next few weeks which will keep the sweat quantity to the minimum. I love easy and, along with know-how, I'm bringing you easy. But more of that another time. Let's stay focused.

 

The other ingredient is ingenuity. Construction projects present a series of challenges to overcome and ingenuity is the secret super-power that helps you do that. It applies right across the board, from finding design solutions to solving technical puzzles. Today we'll apply ingenuity to getting to the right price, the correct cost.

 

The strategy I'm about to share is born out of ingenuity - which is defined as inventive skill or imagination used to solve difficult problems in original, clever and inventive ways. Whatever you think of Jeff Bezos and Amazon, it's hard to deny that their ingenuity is foundational to their success.

 

So here it is, the ingenious solution I'm going to outline for you is a hybrid blend of all of the techniques I mentioned a few moments ago. By selectively applying those techniques, we can find a method that will best suit your project and at the right cost - which is, as I explained in Episode 6, the lowest correct cost. And there are likely to be multiple different solutions that Homeowners use because the goal is to pick what's best for each unique project. This is not one size fits all. But there is one effective strategy that will get you where you need to go.

 

In Episode 6, I shared some granular detail about different types of work and costs on projects and that's where we need to start.

 

Any and every project comprises different types of work and a variety of different components or elements. We need to split these up so we can use the most effective approach most suited to each type of work, component or element.

 

It's kind of like going on a shopping trip before you go on a holiday. Let's say you're going camping. So you head off to the Mall to pick up the stuff you need. Food - for that you'll go to the Supermarket. Or better still, to save time because you need a lot of stuff, you'll do that online and have it delivered to your home. If you need a tent, then best to go to an Outdoor Specialist Shop ... you can probably get a tent at the supermarket but they won't have the range of models and the quality might not be reliable. If you need a few regular T-shirts then you'll head to your favourite online clothing store. But if you want good quality hiking boots then maybe you'll find them at a Mountain Climbing speciality retailer. Somewhere with a huge range, great quality and you can try them on in-store. You don't want to discuss technical requirements of what's best for your particular foot-shape with someone in a supermarket - the best they'll manage is to point you to their boot selection over in aisle 18. They vaguely know they sell boots but that's as far as their expertise goes.

 

In this example, a General Contractor is a bit like the supermarket. The outdoor store and the hiking boot store, they're like specialist sub-contractors and suppliers.

 

A quick reminder, any cost from any supplier, sub-contractor is a combination of materials or components + labour to build or fabricate, assemble and install + plant or machinery or tools  and on top of those base costs are typically added General costs or Preliminaries Costs - those costs which are not directly related to any specific piece of work but rather to the whole project, like the site supervisor or foreman + overheads + profit.

​

Our goal is to get each of the base components at the lowest possible cost and avoid, where possible, the add-ons or at least work hard to keep them as low as possible.

 

There are three essential steps to executing this strategy.

 

Step One.

Split the works into the four categories I'll share is a moment. This is very dependant on what your project consists of. If you are doing a more cosmetic Makeover - redecorating for example, replacing carpets and light fittings, then your approach will be different from a project like an extension which involves more of what I refer to as heavy or complex trades like ground work - excavation, foundations, masonry for brick or blockwork, or carpenters for framing and so on.

 

Category 1 : Identify any work you are going to do yourself. This can include relatively simple tasks like ordering the furniture and coordinating delivery and installation. Or it might even include some more hands-on activities like doing the decorating and even, if you have the appropriate skills, works like plastering  or plumbing or electrics.

 

Work you do yourself will be the cheapest - you'll buy any components, materials or physical products directly from suppliers at the lowest prices you can find and then there are no labour costs or overhead and profit markups to add.

 

Category 2 : Identify any works you feel capable of procuring, ordering and coordinating yourself. These will typically be works that will be carried out by specialist manufacturers, suppliers or sub-contractors. My insider secret is to target works where items are standalone - they have minimal or ideally no interface with other work elements, they don't need expertise from anyone else on the construction team and they can often even happen without anyone else on site. Examples of this could be painting and decorating, wallpaper hanging, curtains and blinds, furniture and even some floor finishes like carpets, even wood flooring.

 

There's nothing wrong with having your general or main contractor organise, procure, manage and coordinate these works but recognise that they will add general costs + overheads + profit ... which together could add as much as 30% to 40% on top of the net base costs. Let's say getting a flooring sub-contractor to supply and lay a mid-range carpet in three 130 ft2 / 12 m2 bedrooms might cost $ 2,000 / £ 1,500. The same scope through the Main Contractor could run to at least $ 2,750 / £ 2,100. You can see how quickly those add-ons add up and the bigger the project the more add-on's.

 

Another way to identify works you might add to this category is to assess what added value the General Contractor will bring to the work scope. If there isn't any or not very much then you may be paying a lot of mark-up for nothing. Take audiovisual and IT installations or even Smart Home Systems. Although these typically do require more coordination with the general contractor and probably the electrical sub-contractor, it isn't rocket science and you want to be able to work really closely  with the specialist supplier to get exactly what you want and where you want it. Which is much easier if you're employing them yourself and you control the purse strings - which means you're paying them. A straightforward way to solve the coordination issue is have the general contractor provide a fixed management fee to do the liaising and coordination between the specialist supplier and his subcontractors ... that usually works out cheaper but you also have the benefit of more direct contact and control.

 

Category 3 : Identify any works that could be split between the Contractor and Owner, you.

Two common examples of this are for example lighting and kitchen installations.

 

New lighting will require an electrician to either modify existing lighting electrical supplies and controls or strip out the old and install all new cabling - which is usually the case on older properties where existing installations no longer comply with current regulations. Then the electrician orders the light fittings you have selected and installs them. The only significant added value they bring to the light fittings themselves is the ordering and coordination. But, if the cost of the fittings is anywhere from 40% to 60% of the total cost of the lighting installation, you'll be paying huge markups for not much service.

 

So a clever tactic is to buy the light fittings yourself and employ the electrician - probably through the General contractor - to do just the wiring and controls (like light switches and dimmer switches) and install the light fittings.

 

The other example is kitchen installations. Typically new kitchens are either ordered from bulk manufacturers of kitchen components or bespoke manufacturers who create unique, one-off designs tailored to the specific layout and needs of the Homeowner. Very often, the kitchen is delivered to site by the manufacturer or supplier  and a specialist kitchen installation team then install the kitchen millwork or joinery. The main contractor's role is minimal and mostly consists of coordinating the installation around other trades who need to provide an interface in the kitchen. This might include the flooring contractor to get the space ready for the new kitchen, the electrician who need to run the electrical supplies to the new kitchen fixtures and the plumber installing the new faucets, the kitchen sink and the drain pipes.

 

Here again, the kitchen itself makes up the bulk of the cost of the new kitchen. By ordering and coordinating the kitchen installation yourself, you can avoid most of the main contractor mark-ups while still paying the main contractor to use his skills and expertise to coordinate the associated trades.

 

Category 4 : Bring together all of the remaining work scope into what is likely to become your General Works category. Works that naturally fall into this category are more complex in nature. They require input from multiple sub-contractors - for example, like a bathroom that might require the framers, the plumber, the electrician, the tiler and the decorator. This needs more complex coordination and a supply chain of reliable, competent sub-contractors but where individual scope may not be extensive. So in this bathroom example, the plumber may only have four or five days work in total over two separate visits. Rough work or first fix and then finishing or second fix.  A general contractor or main contractor is likely to have contacts with a range of appropriate sub-contractors he works with regularly and he can coordinate the flow of the work and the timing of return visits.

 

Now we get to Step Two.

 

This is where you apply the most effective procurement method to get the best cost for the work scope in each of the categories in Stage One.

​

There are three main methods.

​

The first is competitive bidding or tendering.

The more complex the work scope, the more complex the tender exercise becomes. BUT ... a major warning ... for competitive tendering or bidding to be effective, the work scope must be very well defined.

​

You can use this for any element across any category from all of the work in General works Category four to individual items in any of the other categories. This method works best for higher value items where even a small percentage price difference can be an amount that is worth the effort.

​

Consider carefully the time it may take to invite bids or tenders. Imagine a smaller project - maybe converting a single garage or part of a garage into a utility room. Perhaps your budget is $ 25,000 to $ 30,000. You could spend easily end up spending 30 hours locating contractors, shortlisting them, briefing them, analysing the returned bids and then agreeing the contract sum with the successful contractor and appointing them. If you value your time at say $ 100 per hour then that process has a notional cost of around $ 2,500 to $ 3,000. Well that's around 10% of the likely contract sum. When you run a good tender exercise to a panel of appropriate contractors, you should expect the gap between to top and bottom bidders to be not more than 10% to 15%. So you just did all that work at a real cost to you for a net-zero gain.

 

Bidding or tendering is such an important topic, I'm literally not going to say any more about it now but I'll be explaining this in much more detail in another Podcast Episode in a few weeks. It is so fundamental to a successful Home Makeover, you really won't want to miss out on that episode.

 

The second method is negotiation.

This works best when there is a work package or element that you want to have carried out by a particular supplier or manufacturer. Let's say you've fallen in love with a bespoke kitchen manufacturer. You could get a few rough budget checks from other suppliers to use for comparison with what the preferred specialist quotes.

​

I favour an open approach. If you have a budget of $ 10,000 or $ 40,000, tell them and then ask them to advise the best way to spend that budget. To keep the costs as low as possible, shave a bit off your actual budget - maybe say 10% to 15% - before you share your budget with them. Once they know the budget, they'll typically offer up to and often over that amount - but that's where the negotiation comes in.

 

For this process to work best, just be clear and open. Let's say your budget is $ 17,500. If you start off saying something like : "I have $ 15,000 and I need the following". Then list what you expect to get. "I have a couple of quotes around this total but I really like your company and would much prefer to be able to work with you and your team. What would you recommend ?" If they are a reasonable company they will work with you to develop a solution you can afford. When negotiating, they have the opportunity to offer options - like suggesting you consider a Silestone or Mockstone countertop  instead of marble. Or they'll tell you that painted doors could look just as fantastic as the more expensive real oak you were hoping for. When any contractor or supplier knows they are in with a chance with a real customer who has real money to spend, they typically work much harder to win the work and keep you interested.

 

In a good negotiation, instead of being in a confrontational commercial arrangement, rather you are in a more aligned position and working together to find a mutually satisfying solution.

 

Returning to that example of the new utility room. I demonstrated how tendering that mini-project might not be worth the time you spend. That size of project, even for the general works, would be perfect to negotiate. Take time to find a suitable contractor you'd like to work with. Start the budget discussions at say $ 20,000 knowing you might be able to increase it to up to $ 25 or even $ 30,000 and see what they can offer you. You might be surprised and get everything you want or at least close to it for say $ 25,000 which would be a saving of around 17% of your original top-level limit.

 

The third method is one you will already be very familiar with and that's buying off-the-shelf products and elements from regular suppliers. The internet has opened us to a global store and the options and alternatives available are just about infinite. In some ways it has become harder not easier to find what we want because we are so spoiled for choice. Here your goal is to narrow down your search and then focusing on specific items and simply buying them at the best possible price.

​

A few tips on this. Many products are sold by both catalogue companies and by smaller, more personal service companies. With the catalogue companies there is usually minimal opportunity to get better than rack rates - the price you see is the price you pay. But, if you can find a smaller supplier of the same product, making direct contact may enable you to ask for better, discounted prices. This does take time and you need to be careful not to waste precious hours chasing down small savings that aren't worth the time spent on them.

​

Another worth mentioning is that when you are buying lots of items from a supplier, they may have member deals or a tradesman's account that you can sign up to. This often gives discounts off rack rates and those savings can add up across a project so do look out for them before you just accept the quoted price and click to buy.

​

The third and final Step 3, is where you make sure you lock in the deals you have bid, tendered or negotiated with appropriate and adequate contract documents. Critical to this is tying the contractors down to terms and conditions that protect you from price changes once the works commence.

​

This is a step most Homeowners completely forget or ignore, at best perhaps accepting, without adequate consideration, the contractor or supplier's own terms and conditions. Those are always written to favour the contractor or supplier and never the client.

​

Getting the best possible price for your project is not the total amount you agree with the various contractors, suppliers and subcontractors before you actually start the works. No, it is the total amount you have paid once the project is fully completed and the contractors are done and gone and everyone you owe money to is paid up in full. For that amount to be the lowest possible amount, a critical requirement is limiting cost creep while the works are being carried out. This means both starting with the lowest contract sum AND making sure those costs cannot go up for reasons outside of your control.

​

Here's a statistic that will shock you ... most Home Makeover projects increase by 10% to 15% on average ... which means some go up by much more because the Homeowner didn't bother to enter into any kind of suitable contract and didn't exercise any form of cost control once the works commenced.

​

Like bidding and tendering, this is another huge topic that I'll be exposing for you in a series of future episodes.

​

So, in closing, a quick summary ...

Sweat and ingenuity - thank you Mr Bezos for your timely reminder.

Three crucial steps on your journey to the lowest correct price for the works.

Step One - divide the works into the four categories as outlined - this will help you avoid unnecessary mark-ups and add-on cost as you determine who will procure and execute each work element.

Step Two - don't just throw all the work into one big pot and go out to bid or tender the work. Use your ingenuity to use a combination of three methods - bidding, negotiating and intelligent off-the-shelf purchasing.

Step Three. Contracts - lock down the deals you have made with suitable and appropriate contracts. A one-page email may be adequate for some of the items but will definitely not be when the values and the complexity increases.

​

I encourage you to look out for those future episodes where I'll be getting to grips with much more detail about how to bid or tender effectively and also focusing on contracts and cost management when your project is live.

​

And now a heads up about keeping a promise I've been making in recent weeks. For a while now I've been threatening to answer Listener and Subscriber FAQ's, frequently asked questions, and so, in our next episode, that's exactly what we'll be doing. If you have a burning question or a challenge you're struggling to overcome, please email me on  faq@thediypm.com. I'll be picking a selection of those that I've received and answering them during next week's episode.

​

To make sure you never miss an episode, why not subscribe to Home Makeover Project Secrets on our website at www.thediypm.com where you'll also find our blog posts and details about our upcoming Project Masterclasses and Training Courses.

 

If you have a challenge to overcome then I can just about guarantee others are also facing the same or similar challenges. We'll be answering listener questions in FAQ episodes every few weeks. It’s always reassuring to know you’re not the only one battling away …

 

It's been great to have you with me today and I look forward to having you back for the next Episode of Home Makeover Project Secrets.

 

All the best on your Home Makeover project adventures.

​

Andrew Philips, Project Management Coach