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Tuesday, March 10, 2009

"Free Estimates" and Sonny Lykos's The Process

Before his untimely death last year, Sonny Lykos sent his answer to the problem of unreasonable free estimate requests. His The Process is a system to explain that while the contractor is quite ready to provide a ballpark guide to costs, detailed estimates take time and effort -- and require a proper design fee.

Of course, once the prospective client commits to the design fee, you have a high chance of completing the work; if not, at least you are paid for your efforts and work in preparing the proposal.

Unfortunately, I lost my copy of his documentation when my hard drive crashed a few months ago -- and the other copy, lodged on our ISPs server -- disappeared when we switched to our new website system.

Thankfully, all is not lost -- in the archives of the Journal of Light Construction, I discovered this fascinating and useful article, Charging for Estimates, and within that article is a reference to The Process, which JLC stored on their own server.

Obviously JLC owns the copyright to the full article, so you will want to follow the link to it and read it directly from them.

The copyright to The Process document itself is owned by Lykos' estate, and since Sonny gave me explicit permission to publish and redistribute it, I am reprinting it here. Read it carefully, and consider whether you can make use of it overcoming the "Free Estimates" challenge in more expensive renovation and remodeling projects. (I've tagged links within The Process document so you can head to the relevant websites directly -- including The Lykos Group's own site in Naples, Florida (Principal Thomas Lykos is Sonny's son.)


Date: _______

Dear ____________________:

Thank you for the opportunity to work with you on your pending renovation project. The Lykos Group, Inc., is a second-generation company that was founded in Chicago in 1971 and continued to operate in Michigan from 1972 until 1991, when we made our final move to Naples. Over 66 years of experience is at your disposal.

We are members of the Collier Building Industry Association (CBIA), The Remodelors Council (RC), Florida Home Builders Assoc. (FHBA), The National Association of Home Builders (NAHB), Construction Specifications Institute (SPI), and The Association of Construction Inspectors (ACI).

We have not advertised since June 1991, acquiring 100% of our sales from additional projects of existing clients and new clients from referrals. We feel that this is the best testament to the caliber and value of the services we offer. Our philosophy is that we are a "service provider" first, and only second one that operates in the residential renovation segment of the construction industry.

During those 30 years in our industry, we've learned the dos and don'ts of what is mandated to assure happy clients. There is an accepted "process" employed in all renovation projects that has steps and guidelines to follow and should not be deviated from to avoid chaos.

Enclosed is a synopsis of "the process" — the world of residential renovation. We hope its contents will enlighten you about the way remodeling should be done to make it a pleasant, yet educational experience. You will find us referring to "the process" from time to time as we further discuss your project.

We will call you a day before to verify our appointment.


Thomas X. Lykos, President

So, just what is a remodeler?
Remodelers take your dreams and aspirations and transfer them into reality. We change an intangible concept into a substantive result.

Please understand that we do this without the luxury and benefits of prototypes or the ideal environment of a factory. We must bring our manpower, equipment, and extremely diversified materials to your home. In addition, we depend on as many as a dozen or more different subcontractors, plus many material suppliers.

Acting as the facilitator of the entire process is an enormous and complex task.

Furthermore, as you see the project taking shape, you will initiate changes to bring it more in line with what you want. Changes are to be expected and are controlled with change orders. Each of us, including you as the client, act as part of a production team and share the responsibility for making timely decisions to ensure that the project stays on schedule.

We cannot emphasize enough the importance of working together with all parties to make sure your desires are realized. Frequent communication, by telephone, e-mail, documentation and in person are the heart of this project.

The following pages will describe "the process" in more detail. By following these accepted industry practices, we can eliminate disappointments and make this a pleasant and educational experience for you.

The Process

O.K. Where do we go from here?
First Meeting

This is a mutual interview — we want to make sure that we're right for you and that your project is right for us. We're both looking for a comfortable fit. We will consider the following, discussed in greater detail below:
1. Your ideas and desires.
2. The project budget.
3. Possible designs.
4. Basic materials.
5. Potential scheduling.
6. The SCA fee.

Second Meeting
1. We obtain a fee for the SCA.
2. We take exact measurements of the area(s) to be renovated — this may include the entire home — and we transfer these into a new CAD-generated floor plan. We create one set of existing and plans and another including the changes. These take anywhere from a few hours to well over a day.
3. Allow several hours for this meeting since I'll be chauffeuring you to several showrooms for product selections.

Third Meeting
1. We firm up the final design, material selections, color selections, and the remaining details.
2. Possibly invite specialty subcontractors (SCs) to view the site for their comments.
3. Discuss and change any other minor items.

Final Meeting
1. Prior to this meeting we create the contract and modify the plans and specifications.
2. Go over the final plans, materials, colors, etc., in detail.
3. Set a schedule — with start and completion dates.
4. Sign and initiate the contract. We receive a "commencement" payment.

So what is an SCA?
A Specification & Cost Analysis is a definitive comprehensive document stating the final costs, allowances, material selections with brand names, and all particulars of the project as agreed upon. All SCAs include a complete set of CAD drawings and plans.

Preparation for an SCA includes evaluation of existing construction and current building codes. If a room addition is involved, site planning is needed as well.

An SCA can be compared to a "brief" in the legal profession, which is defined as "a document containing all facts and points of law pertinent to a specific case." Preparing this document takes a tremendous amount of a professional's time.

Creating an SCA takes anywhere from several hours to several days, when taking into consideration designs, meetings with specialty contractors (SCs) and material suppliers, and estimating, plus the time mandated by permitting requirements.

The "estimating" process of an SCA involves many hours of line-item costing for every single operation of each phase to reach the final cost. It is also based on each SC's fixed bids as well as fixed bids from the suppliers.

Depending on the project and its particulars, the fee for an SCA can be $250 or more for a major bathroom remodel, $500 or more for a complete kitchen remodel, to over $1,000 for a major project or one costing well into six figures. As the cost and square footage of a project increase, so does the time needed to create an accurate SCA, and accuracy is critical.

The SCA eliminates nearly all surprises and ambiguity, ensures an agreed upon contract that is realistic and viable, and discusses everything — on paper.

Upon acceptance of the SCA, we credit you for that fee toward the initial "commencement" payment.

What do you have in mind?
First, give us an overview of what you want to accomplish and why. In doing that, you'll also let us know what you don't like about the existing space(s). We will talk a little about your lifestyle and how we can make your home better. We'll generally discuss what materials or products you'd like to use to change colors and designs and improve spaces.

Tell us your "ideal" scenario — your desired finished look.

After ascertaining the general "scope" of what you would like to do — as mentioned earlier — we'll make a CAD-generated set of plans of your
existing home and a set of revised plans showing the proposed renovation.

Let's also consider options. Later we can change them or eliminate those deemed not viable. This is an exploratory time.

Let's talk about your budget.
Budgets are the foundation from which we proceed; and, therefore, nothing can continue until a budget is established. We provide a "ballpark" price at no charge, but since there is a fee for the SCA and design work, this is another reason to discuss a budget — to save time.

By talking about budgets up front, we ensure that the project scope is within the realm of your desired budget. Time is saved for both of us. When you look at a new car or home, the price category of what you're looking at lets the salesperson know your financial commitment. We don't have that information unless we talk about it first.

As any remodeling project materializes and walls are being built, electrical is being run, etc., there are always things the owners want to change, which is important to make sure you get exactly what you want. Also, when the time arrives for an inspection by the permitting department, the inspector may mandate one or more minor changes; each inspector has his own "druthers." Consequently, plan your budget to include at least 10% more for changes. It's all part of the process.

Designing — the fun part.
This part is trial and error. Like trying on new dresses or suits — longs and shorts, heights and their relationships
to other things, form and function. Think in terms of traffic
patterns, sound transmission, lighting effects (natural and artificial). Visually walk through each area that's affected. Don't forget ventilation.

Look for at least one area, if not the entire project, to offer a dramatic effect, while still being usable.

Actually, the designing part should be fun for you. For us it means back to the computer and the CAD program, but it's worth it. We like to see the smiling faces of our clients.

Materials & Products: Boy! There's so much to choose from.
We know — but we'll help you along the way. Again, keep in mind colors, textures, maintenance, individual design, coordination, and ease of use. Just like selecting a contractor — does it feel like a good fit? Touch it. Try it. Not the contractor — the products. Think in terms of drama, or a little "pizzazz."

Let's coordinate the colors and textures. What trim and accessories work best? A little at a time — it will all come together.

Try to visualize the finished area(s).

The role of subcontractors
Subcontractors are those contractors who provide their own specialty services to your project. In addition to those folks, we must also consider the various material suppliers involved. They are all part of the "production team."

Collier County issues the largest number of building permits in the entire U.S.A. Yep, not just Florida, but the entire country. To that fact, add two more: Kids are no longer entering the trades, and the average age of the person getting out of the trades is at the lowest ever — 33 years old. Consequently, the construction industry has had a skilled labor shortage for several years, and it's getting worse.

So add to the above the local booming economy and you can understand why all contractors are literally swamped with business. That means we must allow for what we call "lead" times, just how long it will be before a subcontractor can start on your particular project. The delay of one subcontractor can mean several more delays down the line, like a domino effect.

In addition, special-order materials may take as little as one week, or, in the case of cabinets, for example, up to16 weeks. Special countertop materials like Corian and granite may take up to several weeks to obtain, not including their installation timeframes.

Patience in this "category" is recommended. Again, it's all part of the process of remodeling.

O.K. On to the "almost" finale: Bringing it all together.
The scheduling is decided here, not by a pending special occasion or when "we" want it done, but by the process. You see, this process too is subject to Murphy's Law.

Once everything has finally been decided upon, we contact each subcontractor and check their lead time and their deposit and payout requirements. We also check with the material suppliers and their lead time for any special orders.

Next, we create the contract. The contract contains several sections, and its financial arrangement is based on the requirements of the subs and vendors as well as our own requirements.

Adhering to the payout dates is crucial to maintain our relationships with your subcontractors.

When payouts are delayed, subs may start another job. Then we must wait for them to return — on their terms. In other words, when payouts are delayed, a major interruption occurs in the process. It's not unusual for work to come to a halt.

The contract also includes all material selections, model numbers, colors, etc., and the agreed upon schedule — see the next section.

Finally, the schedule: When will it be finished?
Because of the critical labor shortage and Collier County's tremendous construction activity, and for several additional reasons, we allow plenty of
time for each project, considering the following:

1. Emergencies. A sub might be detained on another job due to the bane of all contractors — change orders. You will initiate some of them as well, as we mentioned earlier. It's just one more part of the process.

2. Miscommunications from one employee to another. Remember, we're not building washing machines here in a factory, where hundreds are made daily on the assembly line. We're building a single, customized "prototype" that's never been made before.

3. Delivery of a defective product.

4. Waiting for building permit inspections — as many as a dozen.

5. Mistakes — they happen — both yours and ours.

6. Weather, if exterior construction is involved during our rainy season.

7. Change orders. As the project takes shape, you may decide to make a change, or you may say, "While you're here, can you also…?" Contractors call them, appropriately, the "While you're heres." Hidden problems or a building inspector's demands may also require a change order. No change order work is initiated until you have approved and signed off on it.

Prior to starting your project, we create the schedule and give a copy to everyone involved including you.

Glitches & changes
As we mentioned earlier, they happen. That's why a project that would normally take 6 weeks is scheduled for 8 weeks. We don't want to promise or deceive you, and we feel that being above board is critical to what is really our limited "partnership."

Communication is imperative. This can be a fun venture, but only if we are all realistic about the entire process, its highs and lows, understanding the entire process in advance.

Again, please keep in mind that changes and delays are not unusual but typical when building a prototype, which every remodeling project is, and especially when involving so many companies and people other than our own staff.

One of our #1 problems involves clients who do not make timely decisions about product selections. Planning is crucial and cannot be dismissed in a cavalier manner.

Well, we hope that we have explained the process to your satisfaction. Please be neither apprehensive nor anxious about it. We will guide you step by step through the entire journey.

The purpose of this "synopsis" is to provide you with the basics of standard practices in the remodeling industry, as well as our own preferences, to ensure a smooth flow of the work to be done.

As kids we were taught to be nice, fair, honest. Some things shouldn't change as we become adults. In fact, a key word in The Lykos Group, Inc.'s culture is "ethics" — an old-fashioned value we guard carefully.

Upon completion, the thing we want to hear from you is: "I'm thrilled with everything. It's been swell, and here's your final check. We'll see you
In a couple of months for the first warranty inspection."

From all of us at The Lykos Group, Inc. — where "ethics" is defined!
P.S. Here aresome earlier postings in this blog where I reference The Process. You can review these postings for additional insights and comments into its practical use. (Some of the links within these postings may not work because they are quite old.)

The Process
The Process (2)
The Process for Smaller Projects

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