We are seeing increased requirements for subcontractor bonding by general contractors.  Only a year ago we saw subcontractor bonding requirements only on subs with contracts in excess of $250,000 or if they made up the critical path of the project.  Today we are hearing of generals requiring all subs with contracts as little as $50,000 being required to bond. 

In talking with some generals this presents an interesting dilemma.  Jobs are so competitive these days with profit margins being slim that bonding a vast majority of subcontractors can actually have a negative impact on securing the work.  On the flip side, with so many new subcontractors entering the public arena and other subcontractors being essentially desperate to win work to stay alive, it is risky to list a low bid subcontractor you do not know without requiring them to bond. 

What is the right balance of bonding to remain competitive and mitigate risk?  There is no right answer as this depends on your business philosophy.  However, bonding the critical path always makes sense in my opinion.  The peripheral trades, unless they are specialized, my not be as necessary.  For these trades, replacement contractors may be easily obtained without impacting job performance and profitability.

I read recently that in a survey commissioned by Move – 62.5% of Americans think of their home as a place to live rather than an investment.  I have no data to back this next claim up, by my guess is that only a couple of years ago that the results would have been inverted.  The commercial contractors among us deal with recovery periods, payback metrics, etc. on a daily basis.  Many business customers use payback metrics to determine what features they will add in a facility. 

What the results tell me this time is that the expectation for cashing in on one’s home have evaporated.  Springing for a gourmet kitchen is now a luxury and not an investment.  A steam sauna (and the five times a year it is turned on) in the Master Bath might not be worth the extra cost.  Yep, as homebuilders and custom remodelers, we are back to the process of selling basic shelter and not dreams.  Or are we?

It is too easy to dismiss the trends of today as truths of tomorrow.  Look at where believing the axiom that home values never decrease took us!  More than ever, we have to become part psychologist and understand what drives our markets and clientele.  In order to do that, especially in a difficult market, we have to tie the “wants” together with the “shoulds”.  I want a new Master Bath, but I should insulate and put in an on-demand hot water heater first.  I want a new kitchen, but I should upgrade my legacy furnace – and so on.  Do your best to understand your clients “wants” and the rationale behind their “shoulds”  If you can make these two meet in reasonable harmony, you have a potential project. 

I have never approved of the practice of telling a client how much more their house will be worth with a renovation – this is misleading at best and we are making an effort at dispensing knowledge most of us are not expert in – but those projects that add long term value to your client have a better shot at success than vanity projects alone.  Do your best to tie the vanity (want) with long term value (should).  This isn’t groundbreaking or new, but as sales become harder to come by, understanding the psychology of consumerism can be helpful.

I have been getting a few calls from clients lately looking for the surety company personnel that handle takeover work of failed firms.   Seems a lot of people are starting to get the feeling the time has come when the low ball bids are going to come back and haunt the bidders.  We have begun to see some stress in the marketplace and I would expect this to rapidly increase during the second half of this year.  To much job borrow going on which makes firms count on getting the next job to survive.  With the competition today this strategy is only going to last so long.  Long run this is probably good news as it will weed out the firms the weaker firms and leave behind healthier, better run companies.