Job Bidding: Going BIG in Stages

September 5, 2002

By Rick Stenberg

Do you want to do a BIG Project, but you’re just the little guy?
How can a small fabrication shop do a large high-rise office building? How can crews of four to six produce hundreds of vanities? How can you survive if you don’t get paid, even if you were able to produce the hundreds of vanities required in a high-rise? What about cash flow?
Yes, it sounds impossible – but it’s not. I know, because I’ve done the work and satisfied the customer without putting my company in financial peril.
What I’m about to share with you is a way you can expand your projects while remaining small. It’s the knowledge necessary to negotiate and contract a high-rise and produce the end product with four to six workers, while keeping the cash flow going.
Before I began my own shop 17 years ago, I worked for a very large company. I was a superintendent running several crews on many large high-rises in San Francisco and Los Angeles. I learned the inside workings on how these buildings evolved, from start to finish.
What I wasn’t privy to was the negotiations and contracts that landed these large projects. All I knew was that the legal department handling these multimillion-dollar deals was a very busy place!
I also knew what happened if we didn’t get paid for one of the big jobs – something could happen even in the best economic times. Could the company survive? Would there be massive layoffs? With a mortgage and my second child on the way, I wanted control of my own destiny, which meant only one thing – start my own company.
I was very conservative in the beginning, only taking jobs that I could do with one apprentice. Little by little, over the next four years, my little shop grew to a whopping four people!
We were successful and enjoyed the small kitchen and fireplace projects, a far cry from what I was used to. However, if for whatever reason something went wrong and I wasn’t going to get that all-important check, I wasn’t going to go bankrupt, because I never took on a project large enough to do that to me.
About a dozen years ago, I went to Italy to attend some seminars on stone and fabrication. While there, I attended a business class, the area I probably needed the most help. I didn’t have an MBA; I was just a fabricator.
This class intrigued me, as it showed how anyone could negotiate and structure a contract to provide that all-important win-win scenario. What they taught me was not to be intimidated by the overall size of the project, but to break it down into “bite-sized” portions that I could handle. (Remember, Rome wasn’t built in a day, and neither are large high-rises.)
Shortly after returning from the seminar, a set of drawings came across my desk for a 26-story office building in San Francisco. Normally, I would’ve put them in the trash; however, with the knowledge I just gained coupled with my prior knowledge of high-rise construction and scheduling, I decided to negotiate my first big project.
I contacted the architect whose name was on the blueprints, and scheduled a meeting. I entered the meeting with the attitude: YOU DON’T GET ANYTHING UNLESS YOU ASK FOR IT. I also had my prior knowledge of high-rise construction, which is a very standard process with few exceptions.
Office buildings are built in stages. Stage 1 is when the steel frame and exterior cladding go up from the bottom and continue to the final floor and roof, creating a beautiful weatherproof and completed exterior. During this process, a business broker advertises and obtains leases for tenants to occupy the building, floor by floor.
In Stage 2, the building owner provides restroom facilities for each floor, while the tenant is to provide for the improvements to meet the particular needs of their business. As each floor is fully leased, the owner makes available the next couple of floors until they’re leased and so on, until the building is fully occupied. This process normally takes a year or so.
I told the architect that I would like to do the project, and had some innovative changes I would like the building owner to review in respect to the contract. He was a little taken aback by such a suggestion, but was also curious about my “innovative changes,” so I ran my idea by him. To my surprise, he liked it.
This particular job had six vanities on each floor of the 26-story structure for a total of 156 vanities. My bid price was approximately $2,800 each for a total of $436,800. What I told him was that I was a small, high-quality shop and that I did not want to sign that large of a contract.
My proposal was a contract for 12 vanities covering the first two floors. This way, the owner could see my work, and not be obligated to continue with me if it was found unacceptable. On the other hand, if the owner was a slow payer or refused to pay, then I wouldn’t be out so much money that I could go bankrupt. I would only be out half the value of the 12 vanities (the contract specified a 50-percent up-front payment before I started), and I would refuse to work for him again.
If he liked my work and paid on time, we would enter into the second contract for the next two floors, or 12 vanities. If everything remained good, we would continue until all 13 contracts were completed.
This is a win-win that gives the building owner a great position. There’s a smaller deposit on 12 vanities instead of 156, and the owner isn’t obligated to continue with any work that he deems unsatisfactory … nor are there legal struggles attempting to get out of the 156-vanity contract. Instead, the owner has only small quantities of completed vanities to pay for, making his cash flow easier to handle.
The fabricator scores a big win as well – and, as it turns out, it’s not just in controlling the money outlay.
Four to six workers can produce 12 vanities in an approximate six-week time frame. Your cash flow is good because you’re completing $33,600 in work every six weeks, instead of financing 50 percent of the project’s total value for a year or more.
As a fabricator, you also win because – if the relationship continues with the owner – you have over a year’s work on the schedule. And, because the process of large-scale building projects progresses slowly, you can still do other projects in the meantime. An added bonus is that the individual tenants will notice your work, and you may land additional work in the form of counters, desks and conference tables.
By restructuring contracts, you can keep from being eliminated from the large projects and still safeguard your economic situation. In the past 12 years, I’ve completed five more projects of similar scope using this method.
You, too, can play with the Big Boys – and everybody can win!
Rick Stenberg is founder and owner of Marin Marble in San Rafael, Calif., where he’s ready to start his 18th year in business. His work is throughout the United States (including Hawaii) and as far away as Indonesia; it’s also appeared in Architectural Digest and Home Builder, among other publications, as well as several television shows. Outside the shop, he lives and works on a Sonoma County farm growing wine grapes and raising Holstein cattle, sheep and chickens.