Home Building: Grace Under Pressure, Part II

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HVAC contractor Carl Grace has already faced down a boatload of problems, and he’s hardly had his coffee yet; but the day is just getting started.

August 19, 2014

The story you are about to read is true. The names have been changed to protect both the innocent and the guilty. Part 1 can be found here.

7:15 AM:

A protracted argument develops between Chico and Willy. Chico is not at all happy about one more McCain Properties job. “How about I go to Yancy’s project this week? I never get Able Brothers, so at least you could send me to someone else good instead of those McCain morons. Willy always gets the Yancy jobs, and those guys are a dream.” He had a point, but Chico was a junior guy and seemed to bear up to the abuse and insanity better than most of the older crew leaders. Besides, Willy was getting up there and had a hip Carl suspected was as bad as Fred the warehouse manager’s knees. All of Yancy’s homes were single story. “Please Chico,” Carl pleaded, “I need you on this one. You can handle them, and it means a lot to me. That’s important business for us.” Chico throws up his hands, “Alright, boss, that’s how you reward your best guy, give him the worst job. Whatever you say, but it’s wearing me out. And I think if you add up the cost of all the wasted trips on the McCain jobs, all the tear-outs and late changes, we probably aren’t making a dime. There’s always an extra trip and sometimes two.” Chico spun around and headed back to get the load as Carl calls out a sincere, “Thanks, Chico,” wondering if he is right about the profit. “Smart kid,” Carl thought. “Probably have his own shop someday, and sooner than later if I don’t do something.”

7:30 AM:

As the last van pulls onto the highway, Carl’s eyes wander across the big GRACE HVAC logo with the “Grace under pressure” motto written in cursive script underneath it. Corny as hell. Carleton, his retired father, told everyone that the idea came to him while sitting in church, singing “Amazing Grace.” How could he just ignore that? What the heck, people brought it up all the time. Didn’t that marketing guru from Florida say, “Half of marketing is just getting people to talk about you.” So maybe it worked? Carl looks at his watch. The day was just beginning, and he was already exhausted, but here comes Wanda on the warpath. “Boss! You wanna hear what those idiots from McCain just told me?” 

7:35 AM:

Wanda proceeds to unload on Carl about how the construction manager at McCain is furious about only getting three crews, and that Grace is responsible for holding up his schedule and costing him money. “I faxed over their poor excuses for spec sheets that showed up Friday at 4:45 p.m. and told them it is a miracle we can get three out for them today—presuming their jobs are actually ready—and you know what Hal over there said?” Carl knew that all he had to do was wait, and Wanda would tell him everything Hal said. “Hal says the problem is that our system is not set up to handle a big builder like him, and the nature of their customers means blah, blah, blah! Here’s the killer: Hal had not even looked at the sheets I sent him!”
As Wanda goes on, Carl thinks about the implication of Hal, McCain’s director of purchasing, claiming that Grace wasn’t sophisticated enough to handle them. This is completely preposterous, Carl knows, but does it matter? Carl knows that Hal is golfing buddies with Carl’s competitor, Efficient Heating and Air, and that they have even gone on out-of-town trips together. “Maybe Hal is trying to build a case against us.” Carl wonders.

8:00 AM:

All crews are now out at long last and Wanda has calmed down. They sit down and go over the damage from McCain Properties. Grace HVAC has spent long days pricing packages with different-sized compressors, air handlers, multiple zone systems, humidifiers, even high-velocity systems, according to McCain specifications. That’s how Grace does its bidding. The problem is, as it has been ever since the downturn, the specs change constantly. McCain regularly adds and deletes options and requests non-standard options with no regard for the impact on Grace, always wanting the lowest price right now. One woman had even asked for an eight-zone forced-air system because her sister had seven-zones on a hot water baseboard system, so why not? We have to price that out? Really? Can’t McCain just teach their salespeople that sometimes saying “no” in a nice way is the very best option?

9:30 AM:

Hal from McCain and Wanda are mixing it up again, and Hal calls Carl directly to complain. Somewhat to Carl’s surprise, Hal backs right down when Carl suggests that they review the two rejected jobs line-by-line. Hal even acknowledges that Wanda is just doing her job. “So what’s the real problem, Hal? Help me!” Hal then unloads on Carl, but not about Grace. Hal is at his wit’s end about the decisions coming out of the McCain corporate office. They keep dictating options and selections as if all McCain customers were exactly the same, buying identical product, none of which is true. “You won’t believe this, Carl, they just demanded we get our labor rates down to within 10 percent of the Southern divisions. Everyone knows that is simply impossible up here. Hell, they know it, too. They just delight in messing with us. And look, I can get in a lot of trouble for telling you this, but you always bust your can for us, and there is something you need to know.”
Carl wants to know, but then again, he doesn’t. This cannot possibly be a good thing. “Wait a minute, Hal, I appreciate you wanting to help, but I don’t want you to get into trouble on my account. That big Phase II project bid is due in tomorrow and if you tell me something that could affect that, well, somebody may figure it out.” A long silence ensues. “Carl, look,” another long pause, then Hal just blurts out, “I have a totally reliable source at corporate that says they are writing a supplier national deal with WhisperTemp and kicking General Heat to the curb. Everybody, and I mean everybody, will have to change. I know this is going to screw you up big time.”
Carl’s bad day just got worse. “You have got to be kidding, Hal. You know WhisperTemp equipment has never been good in a cold climate and even down South, their compressors have the worst failure rate in the industry!” Carl thinks about the long relationship with General, begun by his father. He has relied on them for the very best equipment and advice since his apprentice days. They are usually competitive, price-wise, but never the cheapest. Yet no one can argue with the quality of General’s equipment or their warranty. “Carl, I just want you to know that I fought it. Rumor is we will be buying air handlers and compressors direct. Grace will just get labor, ductwork, maybe thermostats, and the odds and ends.”
Carl’s mind is racing now. How can the McCain corporate purchasing guys be so blind? “Hal, you know WhisperTemp’s local distributor is primarily a commercial business. His market is two-story swamp-coolers on top of hospitals, schools, and office buildings. What will your home-office boys say when your schedule falls apart because the local distribution is just not there?”

10:15 AM:

The conversation with Hal continues until after 10. Hal explains that the corporate guys claim all the distribution issues are solved. It is a waste of time to fight it. Is Carl willing to take Grace down that road? He has heard this is an emerging trend, but what little direct-buying Carl has seen has mostly evaporated during the housing recession. How much can McCain really save, Carl wonders? $500 per house? Maybe $750? But what will the inevitable schedule delays cost? Of course, the corporate purchasing bonus probably has nothing to do with schedule and everything to do with showing a bottom-line reduction in hard cost, however brief. Doubtful that warranty cost and the inevitable customer dissatisfaction is figured in, either. Whatever, Hal’s message hits Carl hard. Will all of the work on this bid be a waste of time 30 days from now?

12:30 PM:

The ensuing two hours are busy with visits from Carl’s insurance broker and the commercial contractor who comes to talk about the new loading and staging areas. Carl has to concentrate on what they are saying, working hard to fight back thinking about what Hal from McCain had said. Now Carl sits in a corner booth at Maroon’s, his little brother Ted’s favorite restaurant. Carl admires Ted, a popular local attorney, and still wonders if Ted’s aversion to pipes and ducts and compressors was perhaps a gift. Well, staying out of the business was the right thing for his brother, for sure, and as a mostly absentee minority owner, Carl could not ask for a better counselor. In fact, Carl feels that Ted’s advice in their monthly lunches is so good in large part because he is not involved in the business directly day-to-day. Ted can step back, consider the big picture, and what comes out is usually logical, if not always practical.
After only a few formalities catching up on family and friends, Ted finds himself listening to a full-on litany of McCain Properties’ crimes against Grace HVAC. Carl recounts the constantly changing specifications, mystery options, late change orders, and lost schedule days resulting in continual scouting trips to determine if jobs are ready. Then the brothers talk through the implications of the impending bid. Ted is a good listener but, in due time, raises his hand in a stop motion and says in a surprisingly forceful tone, “Carl, I don’t think you are making a dime on the McCain business. Have you measured that? Have you thought that through?” When Carl asks Ted if he had gotten a call from Chico, his rather hot-headed but superbly capable installer, his brother just gives him a blank look. “Sorry, bad joke, but it seems Wanda, Chico, you, and everyone else thinks I am losing money with McCain.” With that, Carl then tells Ted about the situation with WhisperTemp versus General Heating. Ted responds, “You’ve got half a day until that bid is due. You’d better think hard on this.”

2:00 PM:

As the brothers part, Carl decides to postpone the planned meeting with the IT guys who are promising that they can bring Grace HVAC a gazillion in new business through a better website and social media, and heads right back to the office. He knows most everyone there is working on the bids and will not have their parts done until 4 o’clock at least, but Carl has his own figuring to do. He makes notes on a pad driving back and, lost in thought, nearly runs a red light. When he arrives, he tells everyone that he cannot be disturbed for the next two hours and shuts the door. On the whiteboard he lays out every profitability factor he had thought of and that generates several more. Then he draws lines and creates two columns, one labeled Able Brothers and the other McCain Properties. He makes notes and rates each one as positive, neutral, or negative, by builder. How do they handle POs? Able is excellent and McCain is okay once they decide what to build, but as to VPOs? McCain is a disaster. Most of them are just rejected or, even if approved, they can languish in the system for months. Able pays weekly. McCain pays in 30 days, in theory, but the truer figure is more like 45 days. What does that cost Grace?

4:00 PM:

Carl asks everyone to come into his office. He gives them all marking pens and a question: “What do our builders do that make us profitable or unprofitable? Indicate everything you agree with, with a plus. Everything you disagree with a minus. Then list whatever I missed. You have until 4:30, then we’re going to spend 30 minutes discussing it together.” “But what about the bids?” Wanda asks. Carl freezes her with a raised hand. “I’ll call both McCain and Able right now and tell them I will hand-deliver their bids by 10 tomorrow morning. You get to work.”

5:45 PM:

The spirited discussion goes on for well over an hour and two things that come out really surprise Carl. The first is how much his people agree. The second is how everyone seems to understand the reality of the situation better than he does. No one believes that the McCain Properties business is profitable at the current bid price. Carl sees three options. First, to keep his bid as it is and hope the WhisperTemp versus General thing just turns out to be a rumor. Second, raise his bid by the 5 percent he needs just to break even and hope for the best with McCain. The third option is to just walk and not bid at all. Carl has never truly considered it, convinced that he needs the volume to keep everyone busy and to maintain his own buying power. Yet as they wrap up, it is his son Jeff who makes the most compelling observation. “I’ve been listening to you all for the last month, and it seems pretty clear to me. For about the same volume as Able Brothers, McCain takes about 50 percent more time in the field. For our staff, it’s like three or four times as much. So if we drop McCain, we can both do a better job with our current customers and develop new ones that will be profitable.” From the mouths of babes ...

6:00 PM:

This drive home is different. Jeff is animated, talking about everything he has heard and observed in the past month. Carl is stunned. Jeff had been paying attention all along, far more that he imagined. As they pull into the driveway, Jeff asks Carl what the decision is. “Let’s sleep on it, Jeff, and during the drive in tomorrow, we’ll make the decision—together.”
So what do you think Carl ultimately decided? What would you have done? Which builder do you more closely resemble—Able Brothers or McCain Properties? Are you sure? If you begged your suppliers and trades to tell you the truth, what would they say? The labor shortage is rampant. The builder who gets the best suppliers and trade contractors—and the best crews—wins. But that status can neither be bought with cash nor demanded by volume—it must be earned. Have you earned it? Do your suppliers and trades truly see you as the builder of choice? PB
Scott Sedam is President of TrueNorth Development, an internationally known consulting and training firm based in the Detroit area. Scott welcomes your comments, questions, and feedback at scott@truen.com. Find Scott’s LeanBuilding Blog on www.ProBuilder.com or www.TrueN.com, where you will find archives of past articles. You can also join “The LeanBuilding Group” on www.linkedin.com.

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