Times are good for remodeling . It is normal for most remodeling companies to have a longer backlog than they’ve ever experienced. Six months or more isn’t unusual, and some companies have signed construction contracts that extend their backlog over a year.

A big backlog is great. The security of having all that work in the hopper—what a good feeling!

However, like most things, there can be some downsides. What are they and how can they be addressed so a remodeling company doesn’t watch its profits disappear?

Life Circumstances Change
Consider clients who are so happy to have their projects ready to be built and have a start date to look forward to. Then something happens: A death in the family. A change in jobs. A significant other’s health is compromised. A protracted interaction with a lender proves to be pointless. And so on.

These things are impossible to anticipate. But you must.

Consider working with your lawyer to create a clause in your construction contract regarding the need for your company to recover all costs incurred for preparation work on a project that happen after the contract is signed. Some of these might be:

  • Construction drawings being completed
  • Permit fees
  • Soil engineer fees
  • Time spent by the remodeling company to complete the job book and related documents

When the contract is being signed, make sure to slow down and talk this through with a client. Get their buy-in before the issue becomes reality.Costs Increase
Within just a few months, costs can increase for different aspects of a project. The longer the time between signing the contract and commencement of construction, the more likely this could occur.

Add in that we are in one of the longest bull markets ever. Inflation is likely at some point. Wage pressure is already a factor. Finally, throw in that we are at the beginning of trade wars with many countries.

Pretty unpredictable set of circumstances, isn’t it?

What to do so the company avoids doing a lot of work per plan and ends of making little or no gross profit due to increased costs?

1. Sooner rather than later, meet with every one one of your trade contractors and vendors. How long will their price be stable? What would cause their price to go up? How do they suggest projects with a long backlog be handled so they and the remodeling company feel well-served if prices do increase?

By being proactive, a company has more control than if they respond reactively.

2. Work with your lawyer to add language to your construction contract to address how the company will handle cost increases.

Raw costs should be paid by the client, in my opinion. I suggest that the additional gross profit on the increase in raw costs should not be paid by the client.

Get specific in the language in your contract regarding the above. Anticipate the client wanting to see the original quotes from your trade contractors and vendors and the revised quotes. How is it best that be handled?

Review all the above with your clients while signing the contract.

3. Identify the phases of the work where it is most likely that costs may increase. Again, review this information with your clients while signing the contract.

4. Include in your project price a contingency to cover cost increases up to point. You can decide whether to share this information with your client. Consider not doing that. The resulting wiggle room can help you work your way through some minor cost increases without having to go to the client for additional monies.

Like most things in life, a big backlog has pluses and minuses. By looking ahead and anticipating the downsides you can minimize the impact of projects going away and/or construction costs increasing.

Being proactive makes it more likely you will be in control. Being reactive makes it so you are not. Now that would be a big burden.