FIRE: Rebidding successes via AFT

Apartment Finance Today has a blog item highlighting some successful rebidding stories in “Multifamily Firms Rebid Contracts to Cut Costs”.

In a prior post, I’ve discussed the benefit of real estate tax appeals, but I have not spent much time on consultants and contractors. AFT provides a useful corrective with these recommendations:

• Analyze all of your contracts and compare them to current market rates
• Make sure you’ve got the ability to terminate the contract
• Don’t limit your efforts to construction, maintenance, and service-oriented jobs

This is good but somewhat limited advice. Probably because I hate sale retrades and because service providers like painters, landscapers, and others were usually contractors and residents in my affordable portfolio, I’m tend not to hammer contractors too heavily on price. Instead, I ask for more frequent service, better materials, or some other benefit to the property. Maintaining a good client at a current price matters to small businesses because it supports existing revenue projections and allows them to compete on something other than price. (Note: I usually find Seth Godin to be flip and lacking in both reflection and detail. However, even the blind pig finds an acorn, and this is a usefully concise summation of my point.) Maintaining a good contractor should matter to you because moving from price to service reduces the perception of your negotiations as zero sum.

On the other hand, I think consultants (attorneys, engineers, and accountants) probably should be roughed up on price or rebid. I’ve seen some egregious overcharges on standard affordable housing work by a national real estate accounting firm and I’ve had lawyers bill and call for so many expert witnesses that we eventually paid 2x in legal than we did for the settlement.

In the interest of moving the discussion forward, here’s what I’ve negotiated in the past:

• Additional flower planting or upgraded landscaping
• Additional security hours or upgrade in patrol method
• Custom accent wall painting on unit turnover
• Full roof redecking on replacement
• Lot restriping, signage, or snow plows from tow companies

In most cases, your road to financial health is not found via cost reductions, but value additions. Approach negotiations with this in mind, and most contractors will eagerly respond. Those that don’t, you never wanted anyway.