Key Takeaways:
- Florida custom home builders operate in an inverted market
- In an inverted construction market, there are more contracts and work available than qualified subcontractors available to fill those contracts.
- An inverted market reduces the leverage typically afforded to building contractors.
- Florida’s inverted market puts owners at greater risk and increases custom home construction prices.
Part 1 – The Typical Construction Market
In a typical market, there is a certain number of construction projects – both new homes and remodeling – to be built each year. In most areas, there are usually a few major Building Contractors (BC’s) that do the majority of that work. Within those areas, there are usually several established and qualified Subcontractors – or “Subs” – representing each Trade – like Carpenters, Roofers, Painters, and Plumbers – readily available to perform their “Scope of Work” for the BCs.
This work is highly desirable to the Subs because it is consistent and well-planned. But, since there is only so much of it, there is then a “demand” from the Subs for the work. They must compete to “earn” it from the few BCs. This isn’t so for Florida custom home builders.
Typical Subs strive to do this by:
- Submitting complete, professional Bids with competitive pricing for the work.
- Committing to provide their best personnel to complete the work and meet the BC’s Schedule.
- Limiting the number of Change Orders they submit to the BC.
The Subs that successfully earn the work are usually well-established. They have adequate and experienced staff for both administrative services and fieldwork, who have been employed for a long time.
In a typical Construction market, there are more Subcontractors available to do the work than there is work to be done. This creates a “demand” for the BC’s work that drives each Sub to do all that they can to earn it. Most notably, Subs know that they MUST submit competitive pricing to even be considered for the work.
Then there is another part of the story, more centered around Florida builders, where even simple tasks like finding a qualified contractor are anything but simple.
Part 2 – The “Inverted” Construction Market
Florida is an atypical Construction market, and a market where Florida custom home builders thrive. There are consistently many more construction projects to be done – both new homes and remodeling – than in most other areas of the country. Here, there are several different Building Contractors (BC’s) vying for that mostly “high-end” work.
However, in Florida, there are NOT enough established and qualified Subs, representing each Trade – like Carpenters, Roofers, Painters, and Plumbers – readily available to perform their “Scope of Work” for BCs, mostly because there are not enough qualified people available in the local labor force to staff them.
The Florida custom home builders work in an “inverted” market– there is more work than there are qualified Subcontractors available to do it.
Here, the “demand” is FOR the Subcontractors!
Building Contractors must compete for THEIR services.
Building Contractors must seek THEM out.
The typical market is “turned on its head”.
In Florida’s Construction market, the “tail wags the dog”!
Remember how simple tasks, like finding a contractor, are anything but in the inverted market? Well, this is why.
Here, Subs do NOT need to strive to “earn” work that will mostly come to them anyway. So, Florida custom home builders deal with subcontractors who:
- Submit incomplete, unprofessional Bids with pricing that the market will bear.
- Can’t (or won’t) commit to provide particular personnel to complete the work or meet the BC’s Schedule.
- Freely submit legitimate Change Orders without concern of losing future work.
Highly skilled professionals are particularly rare. That means there are even fewer qualified Subs available to perform the amount of “high-end” work there is – the work usually done under “Cost-Plus Fee” Contracts.
Often, Builders doing “high-end” work need these Subs more than the Subs need the Builders. These Subs are even more empowered than the rest. Some can “pick and choose” the work they take on. Many can all but dictate their terms – like price and schedule – to the BC. BCs have little leverage to negotiate and often don’t even try to.
The inverted market “lowers the bar” for the entire construction industry.
In the inverted market, there is more work than there are qualified companies to do it. The market forces that usually drive competitive pricing and high quality are all but absent, making it difficult for Florida Custom Home Builders to control Project costs. This leaves Owners finding a contractor exposed to high pricing and poor service, and opens them up to the risk inherent in Cost-Plus-Fee Contracts.
Naples Custom Home Cost Consulting offers a full range of Construction Project Management Services to assist Clients. When hired as their Owner’s Representative, we strive to control their Project costs and maximize value, while always keeping the “big picture” in mind. We work with – not against – Builders to navigate the “Inverted” market and achieve our shared goal: successful completion of the Client’s Project.
Summary: How Florida Custom Home Owners and Builders Can Beat the Inverted Construction Market
The Southwest Florida construction market is somewhat reminiscent of the Old Wild West. With subcontractors running loose, with little or no recourse for their actions, and a seeming absence of authority to stop these unscrupulous gunslingers, the SWFL construction market can often feel wild and unruly.
Fortunately, property and homeowners have options, and most importantly, they don’t have to go it alone! That is where the benefits of having a hired-gun like NCHCC owner’s rep services can make a difference. NCHCC’s expert owner’s representative services can help owners tame Florida’s Wild-West-like inverted construction market and work confidently with Florida custom home builders.
Cost plus fee contracts are common for custom remodel and custom home construction projects, but they don’t have to feel like a showdown at high noon. Owners struggling with finding a contractor can beat the SWFL construction market and overcome the challenges of an inverted market by protecting their investment and new custom home construction projects with NCHCC. Get a free consultation now.
