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Hi all, I have a question for you.

We do much of our work on a time & materials basis, and are generally very open with our customers about how much time we spent on their job. We will even provide a breakdown of hours by work performed, straight off our carpenters' time sheets, if they ask for it. Usually this helps us justify the cost of our work and it's been a good thing for us.

Recently we had a customer request such a breakdown, and he was surprised to learn that we had billed him for job development time - hours the GC spent meeting with the client, working up plans for his job, ordering materials, and so on. He is now throwing a hissy fit about it, saying he shouldn't have to pay for those things.

My question is: Obviously that kind of work needs to happen. But it's kind of a grey area - it's job-specific work so it makes sense to bill it to the customer in a way. But it usually happens off-site, back in the office, so the customer doesn't see it happening. So in a way it's like overhead. Seems obvious that the two ways to deal with this are to simply bill for those hours like we've been doing, same as on-site work, or you can just call it overhead and correspondingly raise your rates enough to cover that additional overhead cost. Which approach are other people using?
 

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Maker of Fine Sawdust
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Nothing gray about it. It is part of getting the job done. It needs to be billed out. Pose a question to him, when he is sitting in a meeting and mostly just listening to what is going on, but really not getting any work done. Does he expect to get paid for those hours? He wasn't producing anything. He was just there. Why should he get paid if something isn't getting done.

At least you are working on his job. It is a necessary part of the construction. It has to get done and it cannot be done without it happening. It has value. Therefore it needs to be assessed a price. And if it is work being done on his project it is only fair that he pay for it. Why should anyone work for free.
 

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Nothing gray about it. It is part of getting the job done. It needs to be billed out. Pose a question to him, when he is sitting in a meeting and mostly just listening to what is going on, but really not getting any work done. Does he expect to get paid for those hours? He wasn't producing anything. He was just there. Why should he get paid if something isn't getting done.

At least you are working on his job. It is a necessary part of the construction. It has to get done and it cannot be done without it happening. It has value. Therefore it needs to be assessed a price. And if it is work being done on his project it is only fair that he pay for it. Why should anyone work for free.
It's what waaaay too many consumers expect....starting with "free" estimates :wallbash::wallbash::wallbash:
 

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Structural Engineer
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It is a recoverable cost. Whether you cover that cost in your labor rate markup or you bill it by the hour, either way it is legit. We cover it in our labor rate, so my salary (overhead) is covered in the rate we charge.

With that said, a conversation with them before the job started would have gone a long way in making sure it didn't become an issue.
 

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Like you said- either it gets billed by the hour, or the cost gets put into OH, resulting in a higher hourly rate. Gotta get stuff like that into the contract up front though, since it's kinda tough to go back now and say "ohh, the carpenters are now at $55/hour instead of $45. Opps."
 

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Does your client complain to his lawyer too when they itemize everything down to the number of pages photocopied?

Wish I could do things with that amount of detail, but the accounting costs would far outweight the amount collected.. Oh wait, I can charge for that too!
 

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This is hard - you spend all that time - then you don't get the job? I am working with 2 architects ( young I might add ) they really like my ideas and organization - then ask for a detailed bid - no specs - and then I find out that contractor 2 knows more than I do and our pricing doesn't compare.

I asked politely - would they do free drawings - let me bid a job off free drawings - then if I like the drawings and the job goes through - I might pay them. They didn't understand.

I , of course spent 2 - 3 days on their bid - (really probably teaching them how we are detailed in our bidding). They asked about specific items and I said where did these come from. The other contractor knew what cabinets and appliances , lighting etc. and we didn't ( we put in our standard stuff )

I would like to be in early and act as a consultant - getting paid to bid and outline the specs.

Terry
 

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Recently we had a customer request such a breakdown, and he was surprised to learn that we had billed him for job development time - hours the GC spent meeting with the client, working up plans for his job, ordering materials, and so on. He is now throwing a hissy fit about it, saying he shouldn't have to pay for those things.

Which approach are other people using?
One of the downsides of T&M is that there can be confusion regarding what time is being billed and what the material markup is. A contract usually details the price for work and the scope of the project.

Shouldn't the T&M agreement also clarify the details?

It seems like a simple list of what time is going to be billed should be written in an agreement as well as the material markup, as well as the usual terms and conditions. I wonder if it isn't paperwork laziness or an expectation of mutual trust that would lead someone to say "I charge $50 per hour", watch for a nod from the client and then start buying and installing materials.

One of the downsides of T&M IMO is the itemization/breakdown and the questioning of items. I know this isn't a T&M vs. contracts but it simplified my life to switch to contract-only.

Now if I take a break or talk with a client for 1/2 hour or take a long lunch it's never an issue about the time I took. If I make an extra two trips for materials it's not an issue.

Basically IMO it's a problem of clarity in the original agreement.
 

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Lack Of All Trades
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Auto service stations will charge a $68 diagnostic fee to look at your car. This is in place, simply so the consumer will not waste the technician's time. There is no included 'waste-my-time' hours. Charge for that.
 

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I keep track of hours I spend preparing for a job, it's pretty easy, if the job is t&m I make it clear that I will charge them for those hours when it looks like the job is mine. Never does the customer get to touch those worksheets until they have paid for them.

I give people I haven't worked with before two numbers time and material. Simple. It may turn them off but you have to protect your time invested. I tell them I'll be happy to sit down and explain how I came up with those numbers. I used to give customers a nice detailed break down of how long each step should take and a nice list of materials. Thinking that would prove to them I know what I'm talking about.

instead they pass that info onto their brother in law or some other idiot who claims to be a contractor and under cut me. They go down to home depot with all my info and do the job for me. I just lost 3-6 hrs of my time.
 

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JimmyS
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agree

I agree with Leo. "Job development time" makes it sound a little like marketing or self-promotion, but the tasks you described are job-specific.
When you bill T&M, don't your bills show each cost line by line? Enter costs that relate to the specific job as billable to that job, and bill them.
Design, meetings, ordering materials - all for him alone. First job meeting, preliminary estimate - maybe not billable, depends how you run your business. Post those to your overhead accounts so they don't get billed out.
And yup, tell the customer ahead of time that you're going to bill him for time you worked on his job. I also agree with Tiger that contract work makes for many fewer problems of this sort.
Jim
 

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The work that you did off-site was job specific. Putting it into overhead is not perfectly correct. You can take last years numbers for this work and break it down to how much is spent per dollar sold and bill every client the same way as a part of overhead, but again, its job specific.

The client pays for everything. How you get them to pay is where your business acumen comes in. How you present this to the client and get them to buy into the fact that they are gonna pay for every single aspect of their work is what will make or break your company.
 
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