Canadian Contractor December 2011

A Renovation Rescue Pg. 16 | Contractor Roundtable Pg. 28 | Why Specialize? Pg. 38

December 2011

$9.95

www.canadiancontractor.ca

Landlord/Builder The Ottawa builder that is changing the city landscape one infill property at a time. Pg. 22

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Contents

page

Features Cover Story 22 Landlord Builder

An Ottawa builder plays a high-risk game with high-end spec builds

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Stuff we like 34 Trim Framing for profit 36 Product file: Bosch, CGC, Irwin, Milwaukee The Holdback 38 It’s best to specialize

16 White Knight

Saving a homeowner and an industry in one renovation

28 Contractor Roundtable The regulatory environment

Facts and Ideas 8 The form/function junction

Sometimes, the structural feeds the asthetic

11 Letters

Working on your business, not in it

Departments 5 Editorial

The future of renovation

12 Contractor University Grow your company, Part 4 www.canadiancontractor.ca

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CANADIAN CONTRACTOR â?™ December 2011

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Editorial

The

renovation revolution Your business in 40 years

The renovation industry in Canada is in the same position the hardware and building materials industry was 47 years ago when it was suddenly re-imagined by a man named Walter Hachborn. Hachborn is the founder of Home Hardware and, by extension, the father of the modern hardware and building supply industry. The renovation industry today is about to go through the same kind of transformation; from an industry made up of small, independent unconnected companies that live or die on their own, to an industry made up of nationwide franchises, corporations and buying groups that join these companies together in the common cause of growth and profit.

These national renovation company chains will be as varied as Home Hardware, Castle Building Centres, Sexton Group, RONA and the other home improvement retailers are today, offering independent renovators a variety of business options.

corporations, where the renovator pays some annual fee or user fee for the services provided. Others will be traditional franchise operations, with significant business connections and strong branding and leadership from the franchisor. Some will act like brokers, taking as income a percentage of the value of the transactions they perform on behalf of the renovator.

Don’t think so? It’s already happening. One of the bestknown brand affiliations available today is RenoMark, which most of you you know as a branding and education opportunity. The next one I became familiar with four years ago was Remodelers Advantage based in the U.S. Its emphasis is on peerto-peer business modeling and growth. Recently, Renovatage Inc. has come to the GTA to bring reno companies together to buy in common, use common administrative services and provide local branding on a national level. GoRici, a sponsor of a recent round

“These national renovation company chains will be as varied as Home Hardware, Castle Building Centres, Sexton Group, RONA and the others are today, offering independent renovators a variety of business options.”

Some will be primarily buying groups, where the organization works in the background to make large purchases of building materials at better pricing for its members. Others will buy on behalf of the independents, but also offer information and education plans, group pension options and even branded magazine and marketing services. The more sophisticated will be full-service options, where the brand of the national entity will be in the forefront. Some will be a mix of corporate-owned renovation companies and franchises. The hardware and building supply retailing industry has proven that there is no end to the ways these third-party organizations can be conceived.

Their business models will also be different. Some will be cooperatives, with a board of directors and ownership made up of the renovator companies themselves. Some will be fee-for-service www.canadiancontractor.ca

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table discussion this magazine conducted at Construct Canada, has started as an Internet play, and will gradually add essentialservice and bulk-buying opportunities on things like insurance and employee pension and benefit plans. There is virtually no difference between the appearance of these companies and what Hachborn started 47 years ago.

There will be bumps in the road, and some starts and stops.

Some of these third-party companies will fail. But in the end, the renovation landscape will look a lot different that it does now, and a lot more like your supplier’s industry. Head down to your favourite builder supply store and take a look at your future.

—Robert Koci rkoci@canadiancontractor.ca Canadian Contractor y December 2011

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www.canadiancontractor.ca

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Facts & Ideas

Form&

function junction The best design ideas are the ones that look great solving structural problems. By Rob Koci

J

ane Andrews, partner with builder and architect Michael Fobert of Traditional Styles in Coboconk, Ontario is always looking for ways to combine aesthetics and function in a single feature. This Great Room attached to a traditional, high-end Ontario cottage may be the best example of her matchmaking abilities.

“The crossed rods were initially a design detail,” she says. There were other ways she could have planned to support the lateral loads on the walls created by the domed ceiling. “We could have designed a heavier eave plate and more securely locked the octagon at the corners, or we could have introduced a metal banding around the outside perimeter.” Those options would have opened up the dome to an unobstructed view, but, “As an alternative,” she says, “the crossed rods worked well and added a ‘wow’ factor that can’t be ignored.”

The engineer incorporated the aesthetically pleasing crossed rods into his structural plan, which then allowed the structural element of the design to return a benefit the aesthetic; The load on the bars make them sit perfectly horizontal. “The weight of the iron and the fact that the bars are perfectly horizontal is a good indicator of the stress that is loaded on it,” says Andrews.

And if there were any objections coming regarding the design/engineering combination, they weren’t going to come from the local building authority. The reputation of Traditional Styles in the very specialized market it works in paved the way for the approvals. “As in all of the timber framed projects that we have undertaken, the inspector’s position was remarkably favourable. No issues, whatsoever,” Says Andrews. CC www.canadiancontractor.ca

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Facts & Ideas

READER’S LETTERS Working on your business, not in it The editorial in the October/November issue inspired this letter from Lee Tokar, a cabinetmaker in St. Catharines, Ont. Hello R. Koci, I just read your article about the importance of working “on” a renovation business, not “in” it in order to achieve growth.

I am a seasoned renovator on the tools since 1969. Business has dropped off over the past seven years, the main reason being that I have allowed myself to be trapped by the tools of my trade.

In the spring of 2010, I made a definitive change: I established an account with a prominent kitchen manufacturer and supplier, chose a new company name and logo, subscribed to the services of a good friend who was a web developer and software specialist and began promoting my new business on the Internet, through Google Adwords. Now that I have a solid product to sell, I am no longer a part of the underclass of

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wannabe renovators that had saturated the market and slowly eroded my competitiveness.

There’s no guarantee in this economic climate that any startup will succeed and grow, but I truly believe that the Internet has been a huge benefit to my new effort. The combination of a dependable supplier, substantial online presence and undying work ethic are the hallmarks of this success story.

Of course I’d be fudging the facts if I said there are huge profits. However, with a continued effort in this new enterprise, I have found a new optimism in business at an age when most people are settling into retirement. I still love sharing my expertise with homeowners who are seeking to fulfill a dream of their own by recreating the most important space in their home.

The dream lives on.

Regards, Lee Tokar Canada Brand Cabinets, St. Catharines, Ont.

CANADIAN CONTRACTOR ❙ December 2011

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Contractor University In the last issue of Canadian Contractor we took a look at how important a project manager and an automated marketing CRM system is to growing your renovation business from $1 million to $2 million. The following is the fourth and final part in a four-part series that examines the road to the $3 million company. For a renovation contracting business to grow to $3 million and beyond, the contractor will face critical changes and milestones. However, it is possible to overcome the challenges.

The 3 million

dollar road

By Mike Draper

Part 4:

Taking it to the $3 million house...and beyond

M

aking it to $2 million in sales per year doing renovations and additions puts your company in a very elite group. It’s not unusual for infill and custom homebuilders, but only a small percentage of renovation companies make it this far.

Before growing from $2 million per year to $3 million and beyond, a contractor needs to make sure his business is running at a very profitable level. There is no point in continuing to grow from $2 million if it’s not. Your business plan can’t be to grow into profitability. At $2 million you are generating enough sales that your business should be running efficiently and profitability. You

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should be paying yourself a salary of approximately $120,000 $160,000 per year. This is money that you are taking out of your business to pay yourself for all the work that you do in running your business. It is not how much profit the business is making.

Establish your profit first Your company should be making a net profit of at least 10 per cent of sales, which would be a minimum of $200,000 in net profit beyond your salary, and should generate solid positive cash flow. If your business is not achieving these results, then your focus for this year should be about making your business more www.canadiancontractor.ca

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Contractor University efficient and productive, streamlining your processes, reducing your costs and/or raising your prices. You are better to stay at $2 million in sales and focus on getting your company running properly than you are to focus on growing your sales.

This might seem counterintuitive, but it is easier to focus internally when you have a comfortable workload. Since you just finished the year at $2 million, you most likely have the staff that you need and the trades that you need to complete that volume of work. If you push to sell more, then you will be pushing all of your people to work harder to handle the increased business.

But, if they work harder without changing how they work, the results will likely be the same or even worse than they are now.

So you have to slow down and focus on your internal processes.

Your business is no longer solely about doing great renovations. It is about running a successful company. What is the definition of a successful company? We define it as “A commercial, profitable enterprise that works without you.” It is now that you have to increase your focus to working “on” your business to a much greater extent. It has to operate by systems and processes, not by you doing the work and staying on top of everything.

Consider this business philosophy:

▲ Systems run the business ▲ People run the systems ▲ Owners lead the people Your primary responsibility to your business is to run it as a business. You must have the systems in place so that it runs without you. You can then choose to work or not to work, but the systems have to be there whether you are there or not. It is absolutely critical for your future success.

There are two reasons why this is so critical: 1) So that your business can continue to scale up in size.

2) To have the capital to invest in property for future growth and development.

It is around this point that you need to make a strategic decision as to how you will achieve the next level of growth. There are two main options: 1) Continue with the traditional renovation projects that you have been doing until now, increase your marketing and take on more projects 2) Start to take on more of your own projects and do more spec work. Adding spec work increases your risk, but you become your own customer.

Let’s look at the pros and cons of both approaches to grow your business to $3 million and beyond.

The traditional route Should you decide that you are going to follow your traditional

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renovations model to grow your business, you already have the solid foundation upon which you can continue to grow from the $2 million mark. The continued push on sales will be a primary driver to grow to $3 million and beyond but it takes a big commitment to marketing, advertising and sales; word of mouth alone is not enough to get you there. You will need to spend at least three – five per cent of sales on marketing and advertising. So if you have your sights set on $3 million, at a minimum, you will need to budget at least $100,000 $150,000 for marketing.

Although this sounds like a lot of money, it can actually be spent very quickly. Careful budget planning is needed to make sure that all of your marketing and advertising activities are laid out at the beginning of the year, and then all expenses must be tracked to the budget. Without being diligent in budgeting and tracking your marketing spend, you will either under spend and stifle your growth or you will quickly over spend and likely not get the results that you planned..

Measuring your advertising success John Wanamaker, who lived a 100 years ago, once said “Half the money I spend on advertising is wasted; the trouble is I don’t know which half.” When spending so much on advertising, it is critical to test and measure the results that you are getting from each form of advertising. In today’s era, if you don’t know what your advertising is producing and how much it is returning in sales and profit, then you are letting yourself down.

There are many ways today to track the effectiveness of your marketing efforts. You need to be very diligent on tracking your conversion rates and Return on Investment (ROI). It is only by measuring and tracking your results that you will know what advertising you should continue and what advertising you should stop immediately. As a renovator, you can’t spend money building a brand because you are too small. But, you can spend money to generate good quality leads, referrals and repeat business. This has to be the focus for your advertising expenditures.

Perfect follow up With your advertising maximizing its return, your sales process has to be running like clockwork. As you approach $3 million in revenue, you have to have a least one person dedicated to sales.

Their sole function is to respond to marketing leads and referrals, scope out a homeowner’s requirements, present your proposal and close the sale. I realize that there are many other steps in this process, but the point is that you must have dedicated sales professionals in order to cover all of the opportunities. This is not the role of your project manager and it shouldn’t be your primary role either.

Continuing to grow through renovations is simply an expansion of what you have been doing to get your business to $2 million. That is why it is so important to make sure that you are running efficiently and productively at $2 million. www.canadiancontractor.ca

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Adding speculation

Speculation should be quicker

Now, let’s say you decide to do some of your own speculative work to help with the growth instead of just adding more renovation projects. This would mean taking on more financial risk, learning how to research properties and being able to assess construction costs and the final selling price of the spec work you do. However, your financial risk is going to increase the number of jobs that you need to do and the amount of advertising you need to do will be much less than renovations. You also become your own customer, which means less interaction with homeowners. On the risk side though, if your costs are not contained, if your choice of finishes are not what the neighborhood’s buyers want, or you overestimate the final resale value of the home, you can lose a lot of money. During the last housing market slump there were many custom homebuilders that were caught holding one or more properties that dropped significantly in price. The banks stepped in and pulled back their loans, causing builders to sell properties at drastically reduced prices. So before jumping on the spec path make sure that you have done your research and have looked at the potential risks associated with this strategy.

Once you have purchased your property, you will need to line up all the work that needs to be done. This process is no different from your renovation business. The one major opportunity that you have available is that since there is no one living in the house you should be able to complete the project in far less time. You have no homeowner changing their mind part way through a project, so if an item is out of stock you can simply select another item and continue on with construction. You can also have far more people working on the house at the same time, thereby reducing the total renovation time.

Reducing the renovation time is key since you are covering the carrying costs of the project. Every day that goes by is costing you more money and exposing you to more market risk. So line up the trades, schedule the work in advance and make sure that you stay on target. After all, you are your own customer. If you can’t stay on track for your own projects, how will you ever stay on track when doing a client renovation? This is why we talked so much about having your production process in place before moving beyond $2 million. It doesn’t matter if you are renovating a client’s home or doing one for yourself, you to have the systems in place to run efficiently and productively.

At this point in your business, you can see that you have to make a very strategic decision. Do you continue to run your business as you are today and do more of it, or do you start to add in some spec work? Both models work, but they have different risk profiles. I realize that we have just scratched the surface of these two possible paths, but it is impossible to cover each in detail here.

Financing your growth A profitable $2 million-a-year company with capital in the business, now becomes attractive to a bank for financing. Being “bankable” means that your business can borrow the money it will need in order to take on larger spec projects. Borrowing money for your larger projects will keep your cash flow positive so that throughout the project you have the money to buy material and pay your people. Since these projects take longer and your company is paying the cost of the acquisition of the property and the total renovations, you have to have a large sum of money available to you. Most businesses do not have that much cash available, but they do have the ability to borrow the funds.

If this is going to be your first venture into the spec market, then you need to do a lot of research before buying your first property. The very first thing I would recommend is that you interview a number of real estate agents to find the one that has the most experience finding properties that make for the ideal investment opportunity. A real estate agent with experience and knowledge of a neighborhood is a critical component in your success. It is often said “You make your money when you buy a property, not when you sell it”. What this means is that the selling price is what the market will pay, not what you think it needs to sell for based on your cost and your expected profit. You will only get what someone is willing to pay for it. When you buy, the price that you pay will be your cost base. The better you buy, the more money you will make. A good agent will be able to determine what it should be worth once renovated. This will help you decide whether there is enough upside to make the project worth the effort and risk. www.canadiancontractor.ca

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Beyond $3 million There are three paths you can take from here: 1) Continue running your renovation business as you have always done and get the results that you always have 2) Take the ideas from the four-part series and try to implement them on your own 3) Hire outside help. (A major Canadian bank did a study that showed that companies that regularly use outside help grow 87 per cent faster than those that don’t.)

It takes hard work, focus and determination to work through the many stages to grow your business, but you don’t have to go it alone. Renovantage specializes in working with contractors to help them achieve their business goals. Should you wish to contact Mike Draper, Renovantage Master Coach, he can be reached at l-866-334-3940 or email mike.draper@renovantage.com. CC Renovantage Inc. is a first-of-its-kind home renovation group of contractors specializing in everything from room renovations to complete additions. Renovantage takes the risk and worry out of home improvement by giving contractors the business tools, systems and services they need to operate efficiently and reach the next level of growth.

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e t i h t W igh n K to

ue resc

a

slie

in nna Le s p um . By Bry j y an ustry p m o n ind c n atio and a v o r n A re eowne hom

H

omeowner Rick Naughton was $100,000 in the hole and had already been through two contractors in eight months. All he had to show for it by mid-August was an uninhabitable bungalow, a rocky foundation, and a marriage on the brink. It’s every homeowner’s worst nightmare. But what does it mean for the contractor who comes in to finish the job?

“When I first got the call, I agreed to go and have a look at the site,” says Jerry Stockla, owner of Newteck, a renovations company in Ajax, Ont. “I didn’t have any intention of stealing a job from anyone, but I thought maybe there had been a misunderstanding between the client and the contractor, and I could help get the ball rolling again.”

Stockla agreed to visit the building site, a 1950s home in an established neighbourhood of Pickering, Ont., a rapidly-growing commuter hub east of Toronto.

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Disaster reno “Some real alarm bells went off,” explains Stockla. “The goal had been to put a second-storey addition on this bungalow. It was obvious that a demolition had been done and the house had been destroyed, but the structure that was there was completely unusable. They had ripped the drywall off and the insulation out, but there was no framing to support a second storey, no headers, and it appeared very structurally unsound. My initial feeling was that there was no way they could build a second storey on this house.”

The biggest problem­—and what had put the work on hold in the first place—was the foundation. The previous contractor had stopped work following the upper-level demolition, arguing he needed to reinforce the foundation before any further construction could be completed. That was going to mean an additional unexpected $27,000 cost to the homeowner, who had already paid out in excess of $60,000, according to the draw schedule that had been pre-arranged. It was at this point that Naughton www.canadiancontractor.ca

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Photos: Arnal Photography

Jerry Stockla, Newteck, Ajax, Ontario

www.canadiancontractor.ca

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White Knight

The house as it was left by the second contractor.

sought out Stockla’s advice on the project.

Before agreeing to get involved, Stockla recommended the homeowner spend a couple of days digging down the side of the foundation pillars to determine absolutely if there was any way the bungalow’s foundation could support a second storey. They quickly discovered that, typical of the houses built in the 1950s, the house was resting on pillars, but there were no footings underneath.

“I felt badly, but I said to the homeowner, ‘Rick, this is bad news,’” recalls Stockla. “’There is no value here. The foundation has no footings, and the structure is in the way of putting footings in. The only way to recover the project is to demolish the house and put in a proper poured-concrete basement with footings; in other words, rebuild from the ground up.’”

Permit-free contracting “The biggest question in my mind was why the contractor hadn’t checked the foundation before he started the work,” says homeowner Naughton. “It was only after the demolition had been completed that I called the city and discovered the contractor had never requested a building permit. The thing is, they would have required an engineering report and completed drawings to get the permit, and they didn’t have that either.”

Naughton wanted to sever relations with the contractor immediately, but Stockla initially had another plan.

“I told Rick he needed to confront the contractor and get some of his money back, at the very least the $20,000 retainer fee,” explains Stockla. “For a bit of sewer work and the demolition, he had already handed over more than $85,000. I valued the work done at less than half of that cost.”

Stockla offered to mediate a discussion between Naughton and the previous contractor to help negotiate the way forward. “I could tell that Rick didn’t have the fight in him. The contractor had been throwing all kinds of terms at him and trying to confuse him with contractor jargon, so I agreed to sit down with both of them, and

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try to work out some way to get the project going again.”

Stockla arranged a “Tim Horton’s power meeting” with Naughton, the previous contractor and himself. By the end of an hour-long sit down, they had come to a verbal agreement that would see the contractor return the $20,000 retainer fee to the homeowner and deliver a completed set of drawings and a building permit within four days. “I figured if the contractor could give that retainer fee back as an act of good faith, they could start over again,” says Stockla.

But the deadline for the money and the documents came and went with no result.

“By that time I realized this was not the right contractor for Rick,” says Stockla. “At the rate he was burning through money,he was going to be hundreds of thousands in the hole with no place to live, because the job just wasn’t going to get done.”

“I told him you need to move on and find someone you can trust,” says Stockla.

White Knight Renovations Inc.?

With some hesitation, Stockla agreed to take on the job. “It’s a bit of a Robin Hood project for me,” he admits. “I felt bad for the client, and frankly, I felt bad for the industry. It’s stuff like this that gives all contractors a bad name, and I think there’s a lot of distrust out there toward contractors among homeowners.”

Stockla had originally been matched with Naughton through Renovantage, a consortium of contractors, trades’ people and suppliers in the Greater Toronto Area (GTA) that are attempting to raise the bar of professionalism in the home renovations industry. “The issue in the residential renovations market is that there’s no common brand,” explains Renovantage founder Mike Draper. “People trust national brands, and businesses can benefit from having a brand attached to their names that represents a mark of quality.”

“Rick is kind of like a poster boy for the program,” says Stockla. “After being disappointed by several previous contractors, he was looking for a contractor that would form a professional and trusting relationship with him, one where he’s protected as well as the contractor. So he went looking for a brand that guaranteed that quality.”

Going again The project in Pickering has since been completely reconfigured.

The existing house was almost entirely demolished in mid-October and work for a rebuild of a two-storey, three-bedroom house began a few weeks later. It’s estimated the project will take six months and cost the homeowner up to $300,000.

“The homeowner was pretty up front with me and told me he was short for the price I’m charging, but he’s looking to borrow the money from somewhere else,” says Stockla. “I have to www.canadiancontractor.ca

11-12-08 10:53 AM

The

Renovantage way

E

ach participant in Renovantage undergoes a rigorous certification process, which includes a thorough review of previous work, a driver’s abstract, an extensive criminal background check, confirmation that the company has a minimum of $2 million in liability coverage, a minimum of $300,000 in annual revenues, a valid HST number, and a valid WSIB clearance certificate. Participating companies then pay to put the Renovantage stamp on their businesses, which includes a $25,000 performance guarantee for the homeowner on each project, access to business coaching advice for the company and access to a standardized contract addressing all legal and financial elements of a project.

Established in February 2011, Renovantage is still in its infancy. Stockla, for one, felt the Pickering project was a great way to demonstrate how the Renovantage brand works.

book. But since the client wrote the first cheque and has continued to submit payment weekly and on-time, as agreed in the contract, he believes there is no more risk to this project than to any other. “It was always the plan that he would refinance, and he’s done that,” says Stockla. “We have the plan on paper, but mostly we have developed a very open relationship.”

Shiner points to the fact, however, that Stockla is the third contractor on the Pickering job. While the first contractor didn’t get past the design stage, the relationship between the homeowner and the contractor did end on a sour note. The homeowner paid $10,000 for a design and an engineering report, which was completed but never delivered once the relationship had been severed.

“This kind of thing happens all the time,” says Shiner. “One of my clients was in a similar situation. He took over a job from someone else. The homeowner, a woman, had fired the first contractor and hired the second. In the first few months, she stroked his ego and played the victim card, but in the end, she was impossible to work with.”

go with my gut on these things. It’s kind of like the old-fashioned gentlemen’s handshake.”

Stockla has a contract in place, but no formal payment schedule. He’s verbally agreed to allow the homeowner to pay him in weekly instalments upon completion of each stage of the work.

While Stockla admits this kind of arrangement may look risky from the outside looking in, he feels confident the project will turn out well. Others are not so sure.

Another opinion “This contractor wants to be the knight in shining armour,” says Leslie Shiner, owner of The Shiner Group, a financial management consultancy for the construction industry in California. “At the same time, he’s opening himself up to working with someone who has unreasonable expectations, or to someone who is just clearly a bad communicator.

“It’s admirable that the contractor wants to go in and protect the reputation of his industry and be the hero, but the reality here is that this client has a history,” she adds. “Maybe the client has had bad luck, but maybe he has unreasonable expectations. The contractor has to keep his eyes as wide open as possible to find out if there’s more to this story than he knows.”

Stockla admits that his current project is anything but textwww.canadiancontractor.ca

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The faux stone finish hides a foundation unable to carry a second floor.

Canadian Contractor y December 2011

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White Knight

“It was a $40,000 addition that cost me $145,000 by the time we adapted everything to meet the homeowner’s changing expectations.

I had to swallow that loss.”

— Shawn McCadden, building consultant

Plan for the worst Shiner recommends contractors go into these types of situations as if they will eventually go bottoms-up. “He has to document everything religiously. Every conversation needs to be followed up with a written e-mail. Every agreement, however casual, must be put in writing,” explains Shiner. “He has to treat this job as if it will go bad, and ask himself what sort of documentation is he going to need six months from now or two years from now when the job falls apart and people are suing each other.”

“He doesn’t have to go in with the attitude that the job will fail, but he has to document it as if it will.”

The backstop For that Stockla is leaning on Renovantage and its preset administrative structure that starts with the Renovantage contract, which Draper says has been designed to be a pillar of security on every project. Its most important value to the contractor is the level of trust it inspires in the homeowner.

“We’ve put together a fairly detailed contract that we suggest all contractors use for their projects,” explains Draper. “There are guidelines for the homeowner on payment schedules and guidelines for the contractor on how not to get too far head of that payment schedule. To raise the comfort level for the homeowner, we recommend a $25,000 performance guaranty that we keep in trust in case the builder fails to finish. If anything goes wrong, we can use those funds to instigate a dispute resolution process – which is clearly defined in the contract – or we’ll find another contractor to finish the work. It actually benefits the contractor, too, because everyone knows where they stand.”

“My personal experience tells me I would run from that job as fast as I could,” says McCadden. “It is bad business to put his business at risk because he wants to be a nice guy.”

It’s his opinion that failing to collect payment and deposits up front is a common practice among contractors, many of whom are great at swinging hammers, but find themselves in the position of being the ‘accidental businessmen,’ unsure how to properly manage the financial side of the business.

“Dell Computer is not going to build you a computer until you pay for it, and it’s the same thing here,” McCadden says.

“This contractor is taking a huge risk by not taking the money up front. Unless this guy wants to file to be a non-profit business, he has got to go into every project with a mind to protect his profit.”

Too often, he says, contractors learn this lesson the hard way when they’re unable to collect the money required to cover not just the material and labour costs of the project but also the money needed to keep the business running smoothly.

“It happened to me once early in my business,” admits McCadden. “It was a $40,000 addition that cost me $145,000 by the time we adapted everything to meet the homeowner’s changing expectations. I had to swallow that loss, but I told myself never again. I learned from it and my whole team learned from it; not only who we would carefully choose for customers in the future, but how we would manage those customers. The accuracy and detail of my paperwork went up dramatically after that.”

Good faith Stockla argues there are few independent contractors in the business who get proof of financing in advance of a project. As long as he’s receiving his money weekly, as per the verbal agreement with his client, he’s comfortable continuing the work.“There are

Warning signs Shawn McCadden, a remodelling specialist and business consultant in Chicago, spends many months each year running seminars on how contractors can avoid these types of risky business situations.

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The lockstone will be the only material saved from the original home. www.canadiancontractor.ca

11-12-08 10:54 AM

hundreds of cases where a new homeowner puts a $10,000 deposit down on a half million dollar home,” says Stockla. “And the builder goes ahead and builds it and doesn’t collect another cent until the closing date. If anything goes wrong, we have the option, within thirty days, to put a lean on the property, which goes against the deed.”

Be a control freak Still, McCadden believes the best way to avoid any haggling over money is to have the project plan completely laid out before any work begins. “Most contractors I know are control freaks,” says McCadden. “So why not go into every situation as a control freak? A lot of people say, ‘We’ll cross that bridge when we come to it,’ but the problem with that is it presumes there will be a bridge when you get there. Why not know for sure if there’s a bridge, where the bridge is, and how you’re going to cross it before you start?”

Not only does this protect the contractor, says McCadden, but it goes a long way toward protecting the homeowner as well. “It’s a way of managing expectations,” says McCadden. “It’s working out how you’re going to play the game and what the rules are before the first pitch is ever thrown. Both parties agree what each other’s responsibilities are, and if something changes partway through, a change order is required. No additional work or changes should be made until that change order is written and signed off.”

Similarly, says McCadden, no work should be done until it’s been paid for. Payment schedules, he says, should always be based on milestone completion of the project. And if the homeowner misses a payment, the contractor has every right to stop the work until he receives the money owed to him.

“Good business means a project is properly specified and properly estimated in advance,” says McCadden. “The cost estimate needs to be broken down and done in the same critical path order in which the project will be built. A good business should be able to anticipate cash flow needs.”

“In this case, the contractor has admitted that the homeowner may not have enough to pay for this project. Where’s the money going to come from?” asks McCadden. “What happens when he gets to the point where the money is exhausted? The contractor is going to have to walk away, fine. But depending on how the rest of his business is set up, it’s not very easy to stop work on a Friday on one project and remobilize in a matter of a few days to start another project on Monday. How can he maintain his overhead when the carpet has been pulled out from under him?”

So far so good But Stockla says he has his ducks in a row, and he’s confident that the project is as safe as anything he’s undertaken in the past. “We

“A demolition had been done and the house had been destroyed, but the structure that was there was completely unusable.”

— Jerry Stockla, Newteck

have the Renovantage contract in place, they’ve paid us money on time when we’ve asked, they’re paid up to date, and as far as I understand it, they’ve secured financing to finish the job,” says Stockla. “I don’t expect him to finance my company and I don’t expect me to finance his project. As long as we keep that understanding in place, we’re fine.”

“A written-out draft is more standard, but sometimes you have to go with your spider senses,” says Stockla. “I’ve had cases where I’ve had ironclad documents in hand and things have still gone wrong. In this business it’s all about relationships, and I have a very good and trusting relationship with this client.”

Still, McCadden often tells his contractor clients that, no matter how nice they are, they are in business and they have a responsibility to protect their business assets and their employees,and to make a profit in every situation.

“It’s okay to be empathetic, but don’t be sympathetic,” says McCadden. “Sympathy means taking ownership of the problem, which is what this guy seems to be doing, and becoming a part of that problem. Empathy is saying, ‘I feel bad that happened and I’m here to help you through it, but I don’t own this problem. It’s your problem; it’s your house. And he’s got to be prepared to just walk away.” CC ®

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11-12-08 10:54 AM

Design Build â?˜ Real Green Buildings Group

d r o l d

Photos courtesy of RGB Group

n a L

The Ottawa builder that is changing the city landscape, one infill property at a time. By Brynna Leslie 22

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www.canadiancontractor.ca

11-12-08 11:16 AM

Buil

der

W

hen Rolf Baumann first started renovating heritage homes in Thunder Bay, he used to sketch drawings on the back of pizza boxes, napkins, whatever he could get his hands on. That was 30 years ago, and while he “still has a tendency to doodle” his www.canadiancontractor.ca

DesignBuild.indd 23

inspirations, Baumann’s design techniques and his business model have since become a lot more sophisticated.

The owner of Real Green Buildings Group (RGB Group), 50-year-old Baumann has made a name for himself as a creative custom design builder, known for demolishing or renovating Canadian Contractor y December 2011

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Design Build ❘ Real Green Buildings Group

dilapidated homes nestled in with mansions and chic condominiums in some of Ottawa’s hottest neighbourhoods and, in their place, creating luxury rental units.

“The houses I buy don’t need a contractor; they need a priest,” says Baumann. “I look for downtown properties that are so badly in need of repair that, often, it would cost more money to fix them up than to read them their last rights.”

International demand Baumann’s first major renovation in Ottawa twenty years ago included three Victorian row houses in the city’s Golden Triangle, adjacent to the Rideau Canal and Ottawa’s City Hall. He’d barely hammered a nail into what were to become a triplex of luxury townhomes when international embassy representatives in the local area began inquiring when the properties would be available for rent.

Baumann has since gone on to develop 24 similar multitenant properties. His construction efforts have shifted from the renovation of existing units to demolishing and rebuilding on some of the city’s most lusted-after infill locations, at the same time increasing densification in the city’s urban core. Baumann began building LEED-certified a few years ago, guaranteeing his tenants homes are made of top quality materials, allergen-free, and energy-efficient. Last year Baumann was the first builder in Ontario to achieve LEED-Platinum certification of a multi-family development for a series of nine townhomes he constructed in place of a bungalow at the south end of the Rideau River.

NIMBY time

Leeds certified and earthquake proof, in construction (top) and conception (above).

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But Baumann admits it has all come at a huge cost and with huge risk.

For one thing, RGB Group has yet to break ground on a property without coming up against massive resistance from the local community. Baumann has frequently forked over tens of thousands of dollars or more to fight community groups hell-bent on preventing the demolition of a property.

“It’s the same old story,” says Baumann. “Not in my backyard, not in my neighbourhood. A lot of these areas haven’t seen any kind of development since the 60’s, and all of a sudden a guy’s coming in there with a bulldozer.”

But as in many cities across the country, planners in Ottawa encourage developers to tackle infill sites to build density and Baumann’s plans fit well into the City of Ottawa’s intensification plans. “When I bought the place [for the townhomes] and brought it to the city planner, he said ‘this is exactly what our city intensification plan is all about,’” says Baumann.

Well, maybe not exactly. Baumann had initially applied to construct 11 homes on the property, but “the public went nuts,” especially since his plan exceeded the already-increased densification outlined in the neighbourhood’s rezoning docuwww.canadiancontractor.ca

11-12-08 11:09 AM

ments. Communities are always given the option to fight rezoning measures, and Baumann spent nearly a year trying to get approval for the nine houses that he eventually built.

Money for nothing?

“Each one of the townhomes cost me more than $100,000 in soft costs;” admits Baumann, “legal fees, surveying, going through approval to get the rezoning.”

Legal fees for the townhome development alone cost Baumann $170,000. But he’s has come to accept the legal process, and the costs associated with it, as one of the integral risks to his business model.

“As a small developer doing what I do, I’m like a pioneer,” says Baumann. “The pioneers get the arrows and the settlers get the land. If you’re out there frontiering as a developer, trying to do new things, you have to accept the resistance to change that is part of that. Once it’s all done, the settlers get to live peacefully. All the risk has been done for them.”

Because Baumann thoughtfully designs his properties to blend in with existing architecture, and now to impeccable green-building standards the neighbourhoods—once against him—are often more than placated in the end.

“Every time I’ve done a development, the neighbourhood has turned around and said, ‘Oh, we didn’t know it was going to be this nice,’” says Baumann with a laugh. “$170,000 in legal fees and one of the guys that fought me tooth and nail for a year actually came to me when it was all done and asked me, ‘Could I live here?’”

Legal costs account for just a portion of the phenomenal capital investment Baumann requires to build these custom properties. Other huge costs include the acquisition of prime urban land, the purchase of top-quality materials, and the labour, all of which are highly leveraged. That’s because Baumann never sells his properties, and he borrows the capital for every new project.

“The Caisse Populaire is my financial institution of choice,” says Baumann. “I do a business model, backed by legal appraisals to value the land now and to determine what the building will be worth in the future when it’s done, and they approve a mortgage for me.”

Risky business RGB’s latest development is on a 100-by-25-foot lot in Ottawa’s prestigious Glebe neighbourhood, where a run-down 19th Century single house once lived. It cost him $430,000 to purchase the land in August 2010, a steal in an area of the city where single-family homes sold for an average price of $850,000 this year. But add to that the cost of demolition—approximately $50,000—and several thousand dollars in legal costs to placate www.canadiancontractor.ca

DesignBuild.indd 25

the usual neighbourhood resistance to RGB’s densification project, and you’re looking at costs of close to $650,000 before the ground was even broken, all of it financed with borrowed funds.

Some say it’s a highly risky strategy in a volatile rental market.

“What kind of investor would put nearly a million dollars into a two-unit rental property?” asks Natalie Belovic, a broker with RE/MAX Metro-City Realty in Ottawa. “For the same price, he could have invested in a 15-20 unit building with lower rents, but the risk he’d carry to finance his deficit would be spread out.”

But Baumann fully expects the duplex to be a rental manager’s gold mine when it’s done in January. As a single-family home, the Glebe property, with its proximity to the city centre and the Rideau Canal, was valued at $1 million alone upon completion. As the 4,000-square-foot, earthquake-proof, LEEDcertified duplex it is destined to become, it is estimated the property will be worth close to $1.8 million by the time the project is completed next year.

Ottawa hold’em Of course, Baumann has no intention of selling the property any time soon. “I design the properties, I get all the approvals from the bank and the planners, I build them, and I keep them,” says Baumann, who believes renting offers him a greater return on his investment. “There’s been a 6.5 per cent property price increase in Ottawa per year for the past six years, so right now these tenants are helping me pay down my mortgages. If things keep going the way they are, I’ll end up with a minimum return on my investment at 12 per cent per year. You’re not going to get that in mutual funds.”

Barry Humphrey, the real estate agent who sold Baumann the Glebe property adjacent to his own condominium complex last Canadian Contractor y December 2011

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Design Build ❘ Real Green Buildings Group Flip to condo costly

year, adds that the luxury rental market is more steady in Ottawa than in other cities. “The economy is always strong in Ottawa,” says Humphrey. “You have government MPs, executives, embassies. All these types of people have fairly high-end budgets, and a lot of them want to rent, especially if they’re only here on a two-year term. Given the right choices—being close to downtown -- people are willing and able to pay big money for it.”

Hedging the bet Baumann has done his market research. He knows downtown luxury rentals are a hot commodity, and he rarely breaks ground on a project before securing tenants willing to sign on to a minimum two-year lease terms along with the spoken intention of staying a decade, long enough to pay his capital costs. He always views his multi-year tenants as potential future buyers of his properties. In a way, he says, offering luxury rentals is part of his company’s long-term marketing strategy, and he’s not completely averse to the idea of selling up at some point.

“Every single one of my tenants wants to buy the properties they’re in,” says Baumann, who also happens to be a certified real estate agent. (He got bored one winter six years ago). “And I’ve always got a price in my head. If they find the right price, I’ll sell. Until then, they can continue to pay down my mortgage and fund my RRSP.” But Belovic points out that selling the units on a dime, especially the two in the Glebe, could prove to be a very tricky process. “To make his $1.8 million, he’d have to sell each unit for $900,000,” says Belovic. “There is a very small retail market in Ottawa for condominiums in that price range. This year to date, there are only nine condominiums in the entire city that have sold for more than $800,000.”

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December 2011 y Canadian Contractor

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Belovic also points to the complicated process that RGB Group will have to undertake in order to convert the rental units to condominiums so they can be sold as individual units. “If he’s built it physically to meet the specifications of a condominium, like having sprinkler systems in the right places and fire precautions, he’s one step in the right direction,” says Belovic. “But it is very costly to do the conversion to a condominium after the fact. Most developers, if they have any notion to sell the properties as condos in the future, would have them zoned and approved as condominiums during the building process. ” But Baumann fully understands all the logistics involved.

He’s currently looking into converting his nine townhomes south of downtown into freehold units, a somewhat easier process than “condominiumizing” a duplex, but still expensive and complex.

“Typically, you would go through this process as you’re building it,” says Baumann. “I didn’t do that because my intention is to keep them as investment properties. But as we move forward, if someone approaches me and says, ‘I have to have it’, I’d like to be in the position to say, ‘Okay, well you understand the process will be a year and cost $20,000. Cut me a cheque.’”

1,000-year plan After two decades leveraging everything he’s had and struggling to define a niche in the competitive Ottawa development sector, Baumann has his eyes wide open. He does his market research, he’s grown his business model to include LEED-certification (a niche within his niche), and he believes all the risk will be worth it in the end.

“People could lose their shirts operating a business like mine,” he admits. “The first twenty years were extremely painful and frustrating, putting my entire net worth on my sleeve and rolling the dice.

“But this is my RRSP, my Freedom 55,” says Baumann. “And the reality is that I could retire in five years. In fact, if I really wanted to, I could pull the plug now. But I wake up at 4:30 every morning thinking about building something that I know will still be there 1,000 years from now, and I fully intend to do this until a week before I’m in the grave.” CC www.canadiancontractor.ca

11-12-08 11:10 AM

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Part 2:

The regulatory environment Because regulating construction falls to the province, there are differences in the regulatory environment for contractors across the country, both in the rules that apply and the impact of the provincial regulations on business.

Our national panel of renovation contractors find out why they have it so good…or not.

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www.canadiancontractor.ca

11-12-08 10:57 AM

Canadian Contractor Roundtable

I

n April of this year, six contractors from across Canada met with Canadian Contractor staff for a roundtable discussion: Steve Barkhouse, Amsted Consruction Inc. in Ottawa, Pawel Matonog, Archer Construction, of Mississauga, Ont., Dennis Bryant, Bryant Renovations in Toronto and Mark Hofstee, Rammick Consruction, Guelph, Ont. and John Friswell, CCI Renovations in Vancouver. Part of the discussion dealt with the challenge of greater regulation and oversight. Editor Robert Koci moderated the discussion.

KOCI: The H.S.T. was introduced to Ontario and B.C. (since voted down in B.C., Ed). We have increased oversight by the safety community, Ministry of Labour, WHMIS, etc. Worker’s insurance and the CRA are working together to ensure you pay your taxes. It all adds up to, I think, greater costs for those of you who want to be legitimate and a tougher time competing with the underground. I’d like to hear your perspective on all of that.

HOSFSTEE: Well, we do 15 to 20 jobs a year and average size around $50,000. So, most of the customers who are spending that kind of money are not interested in doing cash work simply because they want to have the warranties and the guarantees that come from that. And they want to know that they’re not going to be liable if there’s a problem or an accident on the site. But still, out of those 15 to 20, I’m getting one or two people a year who ask me whether or not we would accept cash for jobs. And, of course, we say no, but obviously there’s people out there who are accepting cash jobs for those size of projects or else they wouldn’t be asking. So, yes, it is still something of a concern, although I don’t see it as a huge concern for my company at our size at this moment.

KOCI: John (Friswell), you’re in B.C. and the HST seems to be more of a controversy. Tell me how it’s affected you.

FRISWELL: Certainly our clients, although they shudder and shake when they see the number at the bottom line, are dealing with it and that’s not causing any issues for us. However, the guys that are doing these jobs that are under $50,000—I have one that’s in our association that I mentor and pass jobs on to that I can’t do.

He’s faced with that daily and he’s suffering quite a bit. You’re seeing a lot more of that on the lower end of the scale.

KOCI: Steve, tell us your perspective. I know you had www.canadiancontractor.ca

Roundtable.indd 29

pretty strong feelings about the HST a couple of months ago. What do you think today?

BARKHOUSE: We’re getting it from the new home builders, and I guess we (renovators) are their competition so I can’t blame them. They get a (HST) rebate, we don’t. That’s huge. I don’t want to beat a dead horse—you’ve heard all of the arguments. The underground is taking off with low-end (renovations) for us in our area, under $50,000. For me, I’m much like the other gentlemen here, we do larger projects so people aren’t inclined to go underground for a larger project, although I am seeing it. For clients, it adds $30,000, $40,000, $50,000, $60,000 onto the cost of the project. That’s a big hit for a lot of people. We’ve seen a lot of (projects) getting put off, a lot of (customers) not doing the projects. I think project management is the way to get around it. I’ve seen a lot of reputable companies that don’t want to go underground going that route. It’s a little grey as to whether or not that’s legitimate, but certainly that’s what they’re doing and it seems to work.

KOCI: You mentioned something that I wanted to elaborate on, that is the workarounds. It occurs sometimes that the customer will say, “I’ve got an HST bill of $60,000; How about if we don’t do the interior of the house and reduce the overall costs of the renovations to $100,000 and then do $100,000 of the work in cash where the HST doesn’t appear?” That’s one of the workarounds. There may be others, for instance, the customer will simply say, “I don’t want to do certain elements of the design.” They will finish the reduced work with you because you will charge the HST and then move to a cash contractor to do the rest, work that you otherwise would have done had the HST not been there. Let me go to David Litwiller.

LITWILLER: I haven’t been asked for cash for many, many years. My feeling is that the smaller renovation—$10,000 and under, sort of thing—that’s where most of the cash deals are happening. But I want to ask Steve, how does project management save the customer on HST? BARKHOUSE: They’re just paying you HST on your project management fee. Typically, project management is a fee or a percentage at the end, so if it’s a $500,000 job and you charge $50,000 to manage the project. They pay HST on that and then they’re paying the subs directly and that’s where they go in cash.

Canadian Contractor y December 2011

29

11-12-08 10:58 AM

Canadian Contractor Roundtable

BARKHOUSE: Maybe not.

“I’m getting one or two people a year who ask me whether or not we would accept cash for jobs.”

Mark Hofstee, Rammick Consruction

BRYANT: As far as cash jobs go, yeah, about once a year I get somebody that wants to do that, usually it’s somebody like a lawyer. [laughter] BRYANT: It’s really surprising the ones who want to do cash.

MATONOG: I feel that the cash question is sometimes a test of how professional you really are.

BRYANT: The important thing about regulations is that they’re clear. And right now in Toronto there’s a whole schlmozzle going on around zoning. There’s a real issue with regulation gone bad, as it were.

LITWILLER: Okay, so the subs are willing to work for cash and you just manage the project and you don’t take cash?

Can I just talk for a second on that? You sort of implied that 10 per cent management fee. We, here, are running 24 per cent.

That is a cost-plus arrangement with 24 per cent management fee on top.

KOCI: Okay, I think that’s a different structure. I think when you talk about cost-plus on the one hand and project management on the other, you’re talking about two different payment structures. Am I right, Steve Barkhouse?

BARKHOUSE: Yeah. I did use 10 per cent because I’m not too quick on the math. We charge more than that. [laughter] KOCI: I’m going to ask Dennis Bryant to comment on the regulatory environment he is working in and particularly the HST and the underground economy.

BRYANT: Well, I would agree with a lot that has been said— it’s the smaller jobs. The interesting thing is the HST is added to the cost but it adds up to about 2.5 per cent (if you consider the elimination of the PST on materials purchases), so for larger jobs it doesn’t really make any difference at all.

MATONOG: That’s because you’re backing out the previous PST? BRYANT: Yeah, well, everybody is, I presume.

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December 2011 y Canadian Contractor

Roundtable.indd 30

KOCI: Tell me about that.

BRYANT: Well, for instance, we had a job a year ago that went through Committee of Adjustment that was approved, and in the fall they wanted to re-review it and they wanted to charge us more money and we had to go through a re-review and now some things that were okay in April are no longer okay because there are some new by-laws. It was just costing us huge amounts of money because it’s not straight. And just this past week we thought it was going to be straightened out at City Council and it wasn’t, even though the sub-committee who has to do with development in Toronto said that we should rescind that by-law and it’s still in the nether worlds and it’s resulted in something like 694 OMB appeals because of this. So, anyway, it’s a regulation where there’s been a real problem. It’s not that the regulations are necessarily bad, but it’s this whole way it’s been implemented or not implemented.

KOCI: Mark Hofstee, are you seeing issues around permits or regulations with these issues? Are they becoming more complicated, more of a challenge, are they becoming easier for you?

HOFSTEE: Well, It’s actually becoming easier for me as I develop a relationship with the building department in Guelph. It’s pretty small; they only have three plans examiners so I know them all pretty well and we work well together over the issues that we have with our permits. So that end of it is actually getting easier as I become more experienced and as they become more experienced and as we decide to work together. www.canadiancontractor.ca

11-12-08 10:58 AM

Part 2: The Regulatory Environment

KOCI: David Litwiller, what are the regulatory issues regarding building permits and things like for you in Calgary?

LITWILLER: Well, I share some of the stories when I’m sitting on Canadian Renovator Council. In Calgary we’re getting a building permit in two or three weeks, and a development permit in six or eight weeks sometimes. I’m finding Calgary is very quick in response and easy to deal with. No real issues as far as I’m concerned. You might get the occasional guy that wants to bull-headedly pursue a really odd or awkward building and that kind of thing and sure, he’s going to have some problems. But no problems here, as far as I’m concerned.

KOCI: Let’s go to John in Vancouver.

FRISWELL: We deal with about five different municipalities and we have varying degrees of success with all of them. Vancouver, as many of you may or may not know, has got its own building code and its own direction so it can be very cumbersome. Permits at my local here, we can get them over the counter for some of the smaller renovations and I could spend up to 10 weeks at places like West Van and Vancouver. The other thing that’s really big that’s really hit the Canadian Renovators Council, for us, that’s probably our major thing right now, is asbestos removal. We’re huge into that now and every job that we do now has to have that comprehensive environmental report and then we have to bring in the hazmat guys pretty much 50 per cent of the time, so it’s increasing our costs. It’s not happening everywhere in Canada, so it’s a concern for us.

BARKHOUSE: John, isn’t there something about lead paint that you’ve got to deal with now on every job also?

FRISWELL: That’s coming down the pike. It’s big in the States right now but, so far, it hasn’t hit us.

KOCI: Lastly, let’s just quickly talk about the WSIB. The WSIB in Ontario has an $11-billion dollar unfunded liability that they are trying to deal with. There’s a very high expectation that the burden of that debt will fall on the owners of the companies that are now collecting WSIB or paying WSIB, on behalf of their employees. It’s a real challenge here. It’s not as much of a challenge in other provinces as I understand it. They have a much smaller or no unfunded liability at all. I’d like to hear the good news, perhaps, from other provinces first. Let’s try John again. What’s your Workers’ Comp situation there in B.C? FRISWELL: Well, as you say, the Workmen’s Comp are the www.canadiancontractor.ca

Roundtable.indd 31

ones that are pouncing on this asbestos right now, so it’s a huge issue for us. Other than that, they are starting to set up satellites, they’re going after building permits and they’re starting to come on to the jobs to look at what’s going on and who they can make a bunch of money on for fines and they are fining hugely right now, too. And they’re adding to their pot. I don’t think that these guys are suffering at all out here. [laughter] BARKHOUSE: Don’t encourage them to do it here.

KOCI: Let’s go to Calgary and what’s the Alberta situation like?

LITWILLER: I’m not aware of any issues, problems coming with WCIB. I know that my little company, I think I’m paying 2.8 or 3.2 per cent Workers’ Comp.

KOCI: David, (on conference call) I have to tell you that the jaws just dropped in the room here. Dennis and Pawel, what do you pay?

BRYANT: 8.71 per cent.

MATONOG: Bill 119 that’s being introduced January 1st, 2012 is that introduced everywhere else, too, or is it just Ontario?

KOCI: No, it’s just Ontario. Tell us about Bill 119 and its impact here, Pawel.

MATONOG: Every sole proprietor and president and, really, the executives will have to pay on their own income the 8.71 per cent. I believe it’s up to $76,000 worth of income. And one executive out of every corporation, my understanding is that one executive can opt out of paying under the assumption that they never actually visit a job site. So you have the choice.

KOCI: Well, what about that? I know that in Ontario one of the frustrations of WSIB is that you have to pay 8.71 for the secretary that sits in your office and never visits the site as well as the guys that are on site. Is that the same in Calgary and in Vancouver?

MATONOG: It is in Vancouver, yeah. We’re aghast that we just crossed the 4 per cent mark. So I don’t feel so bad anymore. [laughter] Canadian Contractor y December 2011

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11-12-08 10:58 AM

Canadian Contractor Roundtable Part 2: The Regulatory Environment

“Every job that we do now has to have that comprehensive environment report and then we have to bring in the hazmat guys.”

John Friswell, CCI Renovations

MATONOG: The roofers and the concrete forming guys are paying here, I think, 18 or 19 per cent.

FRISWELL: Wow...

BARKHOUSE: We have a huge deficit (in Ontario) and we are charged 8 to 12 per cent. We can’t make a claim at the WSIB because we can’t afford the penalty. So no one makes a claim. It’s poorly run, it’s mismanaged, they’re just losing money because they’re spending it. It’s painful to hear you guys are running a balanced budget at paying two or three per cent. And it’s just increasing the gap between us and the underground.

BRYANT: WSIB costs are more significant in terms of people going in the underground than the HST. It’s a lot bigger number.

KOCI: It’s a scarier thing, too. A tax is tax and we know what the amount is even if it’s a lot. The WSIB seems to be a big question mark because you don’t know if a guy’s going to fall off a ladder on your site tomorrow and you’re going to be back-charged for the costs of his rehabilitation, etcetera, etcetera. I mean, you just don’t know. It sounds to me that the WSIB, as you suggest, Dennis, their accounting is not necessarily predictable. Is that a fair assumption?

BRYANT: It’s not understandable. It’s predictable because you know what they’re going to take.

KOCI: David, what do you pay in Calgary?

LITWILLER: The roofers are about 20 per cent. Same thing.

KOCI: What about you, though, what do you pay?

LITWILLER: My own? I’m right in that 2.8 or 2.2 per cent, somewhere in those ranges. Also, as an owner of the company I have elected to not cover myself under Workers Comp. So I personally am not covered.

KOCI: Anybody else want to weigh in on WSIB? BRYANT: Well, another thing about it that just drives me crazy is I get a credit, and they send me a cheque because I’ve overpaid in some way. Then the next week they’re telling me I owe them money and they’re going to fine me ‘cause I’m behind.

BARKHOUSE: Just when you (think) you understand it—because it’s a very, very complicated formula with a huge number of variables—they change it. My point is, it’s an insurance policy, plain and simple. It acts like an insurance policy, it is an insurance policy.

There are insurance companies that will offer insurance policies.

We should have the option to use them.

MATONOG: Yeah. I think it would be more acceptable if it was a level playing field. I guess that’s part of the reason that Bill 119 was introduced here. If everybody would follow the same rules and would have to make the same payments, it would be easier. But this is, as Dennis mentioned, this is really what’s driving the underground economy.

BARKHOUSE: Not only do you not have to pay the same, but the guy that chooses not to pay WSIB and go underground, if his guy falls and gets hurt, you pay for him, too.

BARKHOUSE: And with interest!

HOSFSTEE: That’s right. He’s still covered.

BRYANT: And interest. And then a few months later they send me another cheque because I’ve paid too much and then I...

I have absolutely no idea how this is brought about, what is the meaning of all this. I take the money, okay. Then I have to give it and it’s really frustrating.

KOCI: Steve, do you find that same thing happens to you in Ottawa.

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December 2011 y Canadian Contractor

Roundtable.indd 32

MATONOG: So why would you pay if you didn’t have to?

BARKHOUSE: Exactly.

If you want to weigh in on any of the topics discussed here, go to www.canadiancontractor.ca. You’ll find the discussion posted and an opportunity to leave a comment. CC www.canadiancontractor.ca

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Image: Thinkstock.com

Stuff We Like

TRIM FRAME CARPENTRY

PREBUILT TRIM FRAMES WILL ELEVATE YOUR GAME

By Steve Maxwell 34

December 2011 ❙ CANADIAN CONTRACTOR

Stuff We Like.indd 34

www.canadiancontractor.ca

11-12-08 11:00 AM

D

o you want faster, neater trim and moulding installation with joints that never open up?

You want to learn how to trim frame. Add to that trim framing’s reduced callbacks and you have a compelling argument for learning how it’s done. Instead of custom-cutting pieces of trim individually before nailing them to the wall one by one, trim frames are cut and assembled ahead of time into three or foursided frames, then mounted as one unit on the wall. It demands a completely different way of working, but the advantages are worth it in many situations. For instance, there’s no beating trim frames for stain-grade work or any kind of composite trim designs with multiple moulding elements.

Why Trim Frame?

There are three main problems with traditional cut-and-nail trim installation. The process is inefficient because you’re always run-

www.canadiancontractor.ca

Stuff We Like.indd 35

Humbling Proud Drywall

It’s not unusual for drywall to stick out proud of the interior edges of door and window jambs, and even a little bit of this nonsense is a big problem because it stops trim from contacting the jamb tightly. The traditional fix involves the dirty proposition of using a Surform plane to work the excess drywall back, but this is too messy, slow and inaccurate for anything more than occasional situations. An alternative is to install the main part of the trim on the existing drywall, but back a little further from the edges of the jamb than usual.

This extra space allows room for an inner run of small bullnose trim or beading that can extend down to touch the edge of the jamb, spanning the gap caused by a jamb that doesn’t extend far enough. This is faster than the Surform and looks terrific. —SM Canadian Contractor y December 2011

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11-12-08 11:00 AM

Stuff We Like

Product File

On the level IRWIN Tools has launched a new line of levels loaded with featured designed specifically for tradesmen, and they are guaranteed to remain accurate for the life of the tool. The line includes box beam levels, I-beam levels, torpedo levels, along with some specialty levels and a full range of squares.

Some key features of the new IRWIN level line include a Plumb Site window that allows for viewing from multiple angles, and the continuous edge allows the user to scribe complete and accurate level lines. All the box beam levels in the line have either remove able end caps or spring-loaded retractable end caps. The I-beam levels in the line are constructed of heavygage aluminum strong enough to resist twisting in the tool that can compromise accuracy. Visit www.irwin.com.

Bag the sag In an effort to make life easier for drywall installers, drywall manufacturer CertainTeed Gypsum has introduced Easi-Lite Interior Ceiling Board in the Canadian market. Designed to be a more ergonomic alternative to typical ceiling board, Easi-Lite Ceiling Board is up to 30 per cent lighter than other interior ceiling performance boards, according to the company.

Easi-Lite Ceiling Board has

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December 2011 y Canadian Contractor

Stuff We Like.indd 36

ning back and forth between chopsaw and wall.

The deck is also stacked against tight trim joints because door and window casings typically aren’t flat. And even when you do manage to get tight trim joints, there’s no guarantee they’ll stay that way because unconnected wood joints move seasonally. Trim frames solve all these problems while offering a special advantage for stain-grade work.

When you can’t hide your sins under a layer of latex caulk, you’ve got no choice but to be good.

Trim frame construction starts with a tape measure. Carefully measure the size of each door and window jamb you’re trimming, note the results, then add an allowance for a reveal along the inside edge of the jamb before making the frames to fit.

Good biscuits In most cases the trim frame approach is only possible because of biscuit joinery. Biscuits are ovals of compressed, manufactured hardwood that fit into slots cut with a hand-held power tool. The result is an ultra-strong and hidden joint, but the way you use biscuit joints for trim frames depends on the kind of trim you’re working with. I use #20 biscuits for most trim frames, though the smaller #10 size is also useful.

The easiest trim for making into frames is flat, wide casings that have no profile. This is the basis for traditional, extra-wide trim and moulding designs, with smaller trim and moulding elements added afterwards piece-by-piece to enhance the look. Flat trim is usually thick enough that it’s easy to cut biscuit slots on the ends and edges of adjoining pieces of butt-joined trim. Cut the pieces of wood to length that you need for the top and sides, mill biscuit slots into adjoining ends and edges, then swab glue into the joints with a plumber’s flux brush before bringing parts together with biscuits and clamps. A sheet of plywood or particleboard on sawhorses makes a perfect jobsite workbench, and you only need to leave the joints clamped for 10 minutes before carefully taking the frame out, setting it aside to dry completely, then assembling another frame with the same clamps.

Sand, stain and urethane your trim frames when they’re completely dry and before they go on the wall. Since door frames only have three sides, temporarily fasten a brace to the back of the trim frame at the bottom. You’ll remove it just before installation on the wall.

Since trim frame joints are held together A snug fit within slots is one reason securely at the corners, you don’t need nearly biscuit joints are so strong, but someas many fasteners to secure a trim frame to the times humidity can swell biscuits so wall. A few 2-inch long, 23-gauge pins every foot their too tight to go into their slots. or so will hold the frame nicely. If you want to Twenty minutes in a toaster oven at use even fewer fasteners, daub construction ad300ºF dries out the wood and shrinks hesive on the back of the trim frame before it the biscuits so they slip right in. —SM goes down.

Toasting Biscuits

www.canadiancontractor.ca

11-12-08 11:00 AM

Product File a uniform high-strength, sagresistant gypsum core with 100 per cent recycled face and back paper. It can be used on interior ceilings with framing up to 610 mm (24 in.). The lightweight core makes Easi-Lite installer-friendly without compromising the

Pocket Screws for Thicker Stock

Biscuits are great for joining trim frames, but pocket screws are faster when you can use them. Trim thickness and shape are the deciding factors. If you’re dealing with wood that’s at least 5/8”-thick and flat, pocket screws are the way to go.

Parts for fireplace mantels, box newels, built-in cabinets and bars are all applications where pocket screws shine. The fastest approach uses a stationary machine for drilling the required angled pocket screw holes. —SM

The Moulded challenge Trim with moulded profiles is more challenging to join into a frame with biscuits ahead of time because you don’t have the chance to sand exposed surfaces flat after assembly.

Depending on the complexity of the profile you’re working with, and how accurately you find your biscuit joinery turns out, you may want to try plunged biscuits. Assemble the mitre joints with glue, aligning the surface profile perfectly. Let the glue dry completely, flip the trim frame over gently, then plunge biscuit slots in from behind, making sure they don’t come out the front. Swab glue in the slots, add biscuits, then trim off the excess biscuits after the glue is dry. Plunged biscuit joinery isn’t nearly as fast because you need to wait for the glue to dry completely, but it is a lifesaving technique when all else fails.

The further along you progress on a project, the slower and more finicky the work gets.

Trim installation proves it for sure. Your crew might start off as a lean, mean framing machine, but eventually someone has got to pretend they’re a cabinetmaker. Putting up trim demands that you get pretty close to that challenge, and trim frames can certainly make you better than you might otherwise be. CC

When Frames Won’t Work

Trim frames depend on square window and door frames, and prehung doors and modern windows almost always deliver the kind of accuracy required. But just to be sure, check your doors and windows with a 24” carpenters square before you build frames. You may need to enlarge the inside measurements of your trim frames a bit to allow for a small out-of-square condition. —SM www.canadiancontractor.ca

Stuff We Like.indd 37

superior sag resistance needed in high-performance ceiling installations. And lighter weight means quicker installation and a better bottom line for installers.

Visit www.certainteed.com.

Six tools in one Milwaukee Tool has expanded its hand tool line once again with the introduction of a sixin-one Diagonal Cutting Pliers. Designed to cut down on the number of tools in the user’s tool belt, these pliers can be used for reaming pipe, cutting wire, pulling nails, cutting nails and pulling staples. These pliers are available in 6-, 7- and 8-inch lengths and feature integrated #6 and #8 bolt cutters and a new reaming head designed for easier deburring of metal pipes up to 1-1/2” in diameter. A 15-inch offset head allows for quick and easy prying and pulling. Visit www. milwaukee.com.

Canadian Contractor y December 2011

37

11-12-08 11:01 AM

The Holdback

Harvis Barklay Inv. Inc. specializes in high end, energy efficient, technologically sophisticated homes.

specialization is the only way to profitability There are contractors that like to have their hand in a lot of things.

There are others that like to stay focused.

Which way provides the best chance of success?

A contractor weighs in. By Steve Greer

I

have been in the building industry now for 25 years, and if I know one thing about it, it is this: specialization is the only way to profitability.

Even in my first job selling lumber to custom builders I had a niche; I had an architectural and engineering background, which was something none of the other sales guys had.

With the knowledge I had I could help my clients take a close look at their designs and see if there was a more efficient way to frame using engineered lumber products.

Twenty-five years ago very few people really had a handle on that. As a specialist in engineered lumber, I was saving contractors money on design and not compromising the structure and they wanted to do business with me because of it. That meant my lumber pricing was not being haggled down like the other sale guys’ pricing.

38

December 2011 y Canadian Contractor

The Holdback.indd 38

Contractors saw value in my specialty.

Today I build high-end luxury homes and renovations. When the market is good, a lot of builders and contractors come out of the woodwork looking for easy money. As a general contractor, you can find yourself pricing jobs with subtrade bids ranging as much as 40 per cent—sometimes even more.

But when the bad times are back and there is less work out there, pricing gets tight. You seem to lose a lot of the easymoney guys. The best defense so you don’t get caught up in the highs and lows of the business and the unbelievable range of pricing is to specialize.

And by specialize I mean even within the custom home building sector I have developed a specific offering. I build energy efficient and environmentally friendly homes with very complex systems for

home entertainment services. It’s a start-tofinish package: help in finding a property, design services, building construction services, permit applications and landscaping.

It’s pretty high-end. We build much more complex HVAC details. I am constantly studying new products so we can offer our clients up-to-date homes with the latest technology. We are now starting our first LEED-certified home. There are a lot of items that you have to take a close look at if you want to have this certification—Energy Star, air quality, low VOC paints, energy star, insulating below the slab and using spray foam throughout the house. We try and stay so far ahead of our competition that we will eliminate a large portion of that competition and get the jobs that others can’t or won’t do. We can only do that because we specialize. In my book it is the only way to go. CC www.canadiancontractor.ca

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