In June, six design/build remodelers met at the site of the Andersen inHOME, overlooking the mountains of the Park City, Utah, ski resort. The occasion was a series of roundtable discussions among architects, builders, and remodelers to follow up on research, sponsored by Andersen Windows, to gauge the influence of design on American housing and explore the extent to which design affects business decisions. The three surveys (and a fourth that polled housing consumers) were broadcast via e-mail and the results tabulated and analyzed by The Farnsworth Group, an Indianapolis-based research and consulting firm. Highlights from the roundtable discussions are presented here.
Back in the 1970s and '80s, even as wisdom among remodelers held that homeowners would never pay design fees, a few firms were moving in the direction of design/build. Says Mark Richardson of Case Design/Remodeling, one of the early practitioners, “I remember giving talks to remodeling groups and feeling like they were going to throw apples and tomatoes at me, saying, ‘It's impossible to charge for design.' I said, ‘We're doing it this way, so clearly it's not impossible.' But I think what's happened is over the last 20-some years, there's been an acceptance on the part of the homeowners to value the design/build process as a way of doing business.”
A combination of factors — including homeowner/consumer pressure, a desire on the part of remodelers to be more in control, and changing governmental antitrust regulations that opened the door for competition among professionals — led more remodeling firms to team up with architects and professional designers.
“In the '70s we got to be pretty good designers,” says Tom Kelly. “And we got really tired of seeing designs that we were doing for free getting built by other contractors. We'd design the job, get the client a price, and they'd go price it out with other people and we'd lose the project,” he says. “That was a big motivator for us to start charging.”
Back row, from left: Ken Klein, Frank Spivey
Front row, from left: Tom Kelly, Susan Cosentini, Tom Swartz, Mark Richardson
But what is design/build? On the most basic level, it's a project delivery system whereby contractor and architect work together as a team. Yet even among the practitioners who participated in this discussion, the characteristics of the design/build model vary. Some have architects in-house, some work with a pool of local architects, depending on the needs of a job. Richardson says there are no rules of the game. It is, he says, a business strategy. Ken Klein says, “It's not a profession; it's a process.”
Yet all agree on the benefits of design/build for the client and the remodeler. They speak about the level of control that design/build firms have because all the processes are essentially under one roof.
That control helps “to create some element of predictability,” Richardson says. “When you control the process, when you can manage a pipeline, when you know that in January when I sign this preliminary design fee and I know statistically that 72% of these become construction within 4.5 months, now all of a sudden, when I pile a whole bunch of these numbers together, I can create a business model that has predictability.”
From a consumer's perspective, having a single source of responsibility is an advantage and a convenience. “They don't have to worry about their relationship with the architect and their relationship with the contractor,” or how well those two are getting along, Kelly says. “It is much more of a solid relationship for [homeowners] to have just one entity to deal with and a team of people who are working together toward a common goal.”
The client-remodeler relationship also is not confrontational in design/build. “When clients get three bids and they're dealing with the low bidder, they're dealing with a contractor whose goal was to get that job for the least,” Kelly says. “So there's an automatic adversarial relationship because [the remodeler's] interest throughout the project is to keep control of their costs, which they [lowered] to compete. The interest of the client and the contractor are in a different direction.” In design/build, he adds, “all of our interests are the same.”
Richardson points out that the design/ build process is lower risk for a consumer. When clients work with an independent architect, “historically a relatively small percentage of those projects get built,” he says. Why? “In large part it's because you told the architect originally you wanted to spend $100,000 and it ends up coming to $200,000.”
Participants agree that architects don't always have a handle on budget and costs and make promises a remodeler can't keep. In the design/build process that's not an issue, because tracking the cost of construction is an integral part of the design process.
The Ideal Design/Build Client
Many consumers — because of a proliferation of home makeover television programs, books, magazines, and the Internet — have become more interested, sophisticated, and educated about design possibilities and about design/build. To illustrate his point about clients understanding the value of design and willing to pay to find the best fit, Kelly cites a recent example of a client with a quarter-million dollar project who “paid three design/build contractors to do preliminary designs.”
Despite the heightened awareness, not every consumer is the right client for design/build, according to the roundtable group. They see the upper–middle class as their target market.
“Middle income people are more price conscious and will go to the big box, and some of it's going to be done for them and some of it they're going to do themselves,” Kelly says.
Tom Swartz agrees. “Not until you get up to the upper–middle income is when architects come into play.”
Yet the very wealthy, too, are not good candidates for design/build. “They want to deal only with the owner … at every stage of the game,” Swartz says, “and it doesn't change and it doesn't get very pretty.” Says Richardson, “If there's a client that's too, too wealthy, we encourage them to work with an independent architect.”
If not every consumer is a match for the process, neither is every project. While costs can vary across the country, there seems to be agreement on the kind of project roundtable participants will invest time in.
Often a job is too small and doesn't require much design or is something they can easily create with CAD. Conversely, a job could be too big and require a year or more effort and a construction trailer on site and design/build is not the most efficient process. “The sweet spot,” says Richardson, “is the family room addition with a kitchen, powder room renovation, and a deck.”
The Andersen inHOME design emphasizes “wall plans,” which carefully consider how the proportions and arrangements of windows look, the views they offer, and also how they influence the home's occupants. The home features windows on two or three walls of almost every room, including interior rooms, and creates spaces that are both open and intimate using electrochromic glass that can be “switched” from translucent to opaque.
Finding a Designer
It would seem that any remodeler can find a draftsperson and call the business design/ build. But it takes more of an integrated approach to make it successful. “Design/build is very much a team process,” Richardson says. “I don't think all aspects of remodeling or architecture are necessarily a team sport.” “We actually have a real tough time hiring independent architects as designers, or as what we call a project designer, because …the concept of team is one that they've never understood.”
Finding architects or designers was difficult in the 1990s, says Kelly, because of “competition from high-tech industry and from other industries that were paying higher salaries and attracting more young people.” In his market, at least, it's become easier in the past few years.
Lucky for Kelly, he has Oregon State University, which has a design program. Students learn design from a retail perspective, he says, and the program uses “the CKD and CBD curriculum. [Students] get a light duty kind of overview of residential construction. But they come out of there fairly well trained in what we do.” Kelly hires OSU graduates and “they spend at least two years as design assistants working for an experienced sales designer.”
Several in the group suggested more architecture schools could add interior design programs to their traditional commercial focus.
Despite a degree, not every designer is up to the challenge of every project. For a $125,000 project, Richardson says,“the level of talent and level of skills that you need are very different than if you call yourself design/build and your average project is $22,000. They all have degrees in architecture, some registered some not,” but a designer's skill level needs to match the project's scale.
Not surprisingly, design and sales functions are closely related in a design/build company. At Kelly's firm, “We hire more for ability in design than we do capability in sales or estimating, and we help them do that.”
Klein's salespeople “are design sensitive,” he says, “but they are more focused on listening to the customer, figuring out what that customer wants and then saying, ‘We will get this designed.' Who designs it is immaterial.”
For Kelly the design/sales approach is vertically integrated. “If our CKD, who's also a CBD, is doing a major whole-house remodel, she's leading the design team. She's got a sales assistant who works for her doing all the interior drawings and she's got an architect from outside the company who's doing the exterior.”
Charging Ahead
Not all of the projects roundtable participants undertake are design/build — for some, design/build makes up as little as 25% of jobs — but all spoke of the high rate of follow-through from design through construction. Says Richardson, “Of what we design, 97% gets built.”
For the most part, the group says they build all the projects they design; they don't get into bidding wars and don't work as construction managers for architects.
Charging for projects is another issue that revealed only slight differences. Sue Cosentini uses an architect whom she pays hourly, and when she sells a job, people contract with her for the design phase first. “Out of the design phase comes the construction contract,” she says. She gets a retainer that commits her to both design and construction. The retainer is used to pay her architect. “Any money left over, because it's a pretty large retainer relative to the overall project, goes to the construction project,” she says.
Klein also works off a retainer. He uses six different third-party architects and designers, depending on the customer and the job's requirements. “The retainer is designed to cover not only the cost of design,” he says, “but also the cost of the estimate and the preparation of the proposal,” he says. “It's not necessarily a profit center, but it's certainly a cost center that we expect to zero out at a bare minimum.”
Richardson says that everything his firm designs they build. “We sell process. We have a preliminary design fee, detail planning stage, and then construction.” The design people, who are in-house, are also involved in sales.
Kelly says his process has some similarities, but “if the job is complex, we do what we call a feasibility retainer. If it's not very complex, we'll go right to a design retainer, which is designed to get the client to commit to working with us. But they don't sign the actual construction contract until the third step.”
But Frank Spivey says in his market, Indianapolis, consumers won't do business that way. His firm doesn't charge for design for projects under about $70,000. They bring clients a partial design and don't finish the design or drawings until after they get a contract. “We actually build design fees into the project. So everybody pays a portion in design fees.”
There is, however, a level of risk in charging design fees. Swartz says he sometimes faces the same dilemma as Spivey and has lost some work because they've “held the line” on charging a design fee. He has, on occasion, waived a fee for a past customer, or at least said, “Give us the money and we'll put it toward construction.” But he feels that once he's at a potential client's home, he's got the opportunity to build a relationship, discuss the process, and educate them.
Thinking About Design/Build?
In some ways design/build seems a natural development in the industry, with its emphasis on teamwork, centralized control, and consolidation of effort. But of course there are risks and challenges when changing any business model. It's a daunting prospect. Remodelers who are going to move ahead on this have to “understand the enormity of the responsibility that they're taking on in terms of delivering customer satisfaction, because now [they] are responsible for the entire project,” Klein says.
The first thing to do is “forge a relationship with a competent designer,” Cosentini says. “Establish a relationship with a mutually win-win setup and then go out into the world and market [yourself] as a design/builder and start doing business that way. The idea of a contractor doing CAD-generated stuff on his own— there's just not enough time in the day.”
Another area to focus on, Kelly says, is finding a niche. “We've made our success in design/build by capturing the interiors. We have an interior design staff mostly driven by CKD and CBD certifications and interior design certifications. We control that part of the project no matter what, whether or not we've got an outside architect.”
Ultimately, the remodeler has to look at their current business and focus on the specific problems they face, Richardson says. “Do you want to be able to control the process? Do you want to have a more efficient process? Do you want to have happier clients? Do you want to reduce miscommunication? Do you want to create more predictability and growth in your business? Based on those sorts of qualities, then design/build is a way to do that.
“There are different ways to go about doing it — whether you improve your own skills in terms of design or whether you partner up with an independent architect or designer,” he adds. “But what's driving the change is the “pain [you're] presently going through.”
Homeowners aren't the only ones who have to get used to the idea of paying for design. Remodelers making the switch to design/build also struggle with issues surrounding fees for design and preconstruction services. The two biggest hurdles are knowing how much to charge and asking for the fee.
“The biggest obstacle you have is … what I call ‘the weenie factor,'” Kelly says. “In other words, you go so far and you don't want to talk about money, so you just weenie out on that and you just don't talk about it. The design agreement , same thing. You're going to ask for a commitment. For some people that's very difficult.”
Another pitfall in terms of money, Kelly adds, is budgeting. “If your budgeting isn't good enough or you've got a new person who isn't experienced enough to do it correctly and you're wrong,” then you're in trouble.
Often, projects in design grow beyond the original scope. Experienced design/build remodelers increase the design fee to keep pace with the evolving project. The key, suggests Richardson, is documentation. “Case developed the first, that I can remember, change order for a design retainer. So that when the scope changed, we documented it.”
Cosentini says she documents changes to project scope via e-mail.
Looking Toward the Future
“The success of design/build is breeding our next round of competitors,” Klein says. He believes those competitors will be the “smaller guys who heretofore have said, ‘We're just contractors.' But he's waking up to the fact that he needs to be able to say, ‘Sure, I can help you design your kitchen.' Or, ‘Go to Home Depot; they'll help you and then bring it back to me.' All sorts of ways to get there. And even in our upper-middle and middle-class design/build market, we're breeding competitors of link-ups between architects.”
The way to continue to be able to compete with these people and to further the success of design/build will be to differentiate themselves, Klein says. “Pay as much attention to the construction process as we're paying to the design process,” in order to cut down on the overall time between start and finish. Second, “look at the cost factor that by controlling design we can truly have an impact on cost in a way that we could measure it and communicate it.”
What will also play a role in determining the evolution of design/build is the impact of the Internet and the big box stores.
The Internet has “made it easier,” says Cosentini, who uses e-mail on a regular basis to communicate with her clients, mostly Cornell University professors. “If I have a suggestion, I can just send [clients] to a Web site instead of doing the whole come down to the office, look through the catalog, send the catalog, and so on.”
Swartz recognizes that the Internet can be beneficial for searching for products, because many manufacturers will give the retail price. “Plumbing would be a good example,” he says. But he believes the process works best if the remodeler controls it, “rather than sending [clients] to faucets.com.”
The Internet has also made clients more educated about products, and sometimes they come to the remodeler with suggestions on better ways to build. That's when Klein allies himself with the clients and lets them know that if they do the research, he's open to suggestions. “If it's a good idea, we'll do it,” he says. It's a way of joining with the customer and not being defensive. “You've got to dispel the power of the Internet.”
The big box issue is significant, but it can go two ways. On the one hand, the group agreed that often they can't touch the price of The Home Depot or Lowe's, but at the same time, the stores aren't necessarily taking away their clients. Says Kelly, “They've potentially taken some pieces of the market away, but I don't think any of us have felt huge pain over their presence.”
As a bonus, Cosentini points out, “Their incompetence is probably going to generate work.” Plus, the level of design sophistication of a clerk at a big box retailer might never compare.
Yet it's not just design that sets the design/builders apart. “It's the overall process, including the build part of the cycle,” Klein says. When the big retailers “see how intensive that is and how costly it is from the contractor's perspective to really handle the client properly, they turn and run the other way.”
The Distress of Success
Numbers can be tricky and you can appear to suffer from success. The new, educated consumer and the popularity of design shows has proved to be “bittersweet,” says Mark Richardson.
Homeowners are more aware yet more confused because of the number of choices they have. This, Richardson believes, has led to a lot of phone calls but not as many jobs. “Our lead flow has gone up, but our close rates have gone down,” he says.
Others agreed that their close rates had gone down in the past few years. Yet Ken Klein says his close rate has gone up “because our whole marketing effort is geared to reducing the number of calls” by focusing on trying to increase the quality of the calls. “The people we call, we want to have already made a judgment decision that we're the people they want to use.”
The roundtable participants are probably closing on the same number of jobs — maybe even a few more, historically — but because they're receiving more inquiries, the close rate, which is a percentage, has dropped. Klein, by filtering his prospects, is increasing his odds of a higher percentage closing.