OK guys I poke around this forum even though I am not a business owner.
I have noticed that the terms Contract, Flat Rate, T&M get used a lot and I don't think we all use them to mean the same thing.
Maybe it is I that use them wrong, I would like to provide my definitions of these words.
Say a customer calls and asks us to install 15 hi hats and 20 receptacles.
We could handle this a number of ways.
T&M, Time and Material. This is work that we charge out each and every hour used, including travel time. We also charge for each and every item of stock.
Many times we do this after giving the customer a "Price not to exceed" for a given scope of work.
Another way to handle it is by contract price.
Contract Work This way of working we carefully consider all the costs involved, make a site visit, check the specifications etc and provide a total price for the job.
Finally there is "Flat Rate"
Flat Rate To me this means we have a set price per item, we don't go to the site, we don't carefully price shop. We simply say each hi hat fully installed is $125, each switch, is $75, each outlet $100 etc.
With flat rate we can provide an instant number but it is a gamble that sometimes we may lose but most time the customer will pay more than if the same work was done contract or T&M.
Anyway do my own definitions fit in here?
It strikes me what LK calls "Flat Rate" is better described as "Contract Work"
Now the problem LK might have with this is that he is required to always have a contract, I suggest that (at least in my area) "Contract work" work is not the same at all as "Flat Rate"
This in spite of the fact that both contract work and flat rate let the customers know in advance the total cost of the project.
Bob Badger Construction & Maintenance Electrician Massachusetts
In my business there isn't any difference between flat rate and contracting. I use the per item rates to calculate the contract price.
As an example, say I have a price for pulling power to the first can or switch, add that to the switch leg and dimmer, add a can, trim, bulb task multiplied by 6 cans and I have a total price. I present it as 6 cans on a dimmer.
On larger jobs, I'll do a T&M double-check on the final price, but it's still offered as a contract.
I'm all for anything that makes it simpler for me to figure & simpler for my client to understand.
"It strikes me what LK calls "Flat Rate" is better described as "Contract Work"
The term flat rate, is nothing more then a contract price, many service providers, such as auto repair, appliance repairs, and others, have been using a flat rate for years, they get this flat rate from using actual or book rate labor hours, then adding material costs, along with a desired profit, the same way we put together a contract.
"Flat Rate To me this means we have a set price per item" we don't go to the site, we don't carefully price shop. We simply say each hi hat fully installed is $125, each switch, is $75, each outlet $100 etc."
There is no set price per item, the price sheets are only meant, to be a guide, in figuring your final contract price, we do go the the site, and look at the job conditions, and carefully adjust the sheet price according to each job.
"With flat rate we can provide an instant number but it is a gamble that sometimes we may lose but most time the customer will pay more than if the same work was done contract or T&M."
If the flat rate sheets are used the proper way, you can give an instant number, that is not a gamble, and the customer will most likely pay less then T&M.
Now with that said, many do not understand how flat rate systems work, they work the same as a contract, except you have the information for accurate estimating in a book of pricing sheets.
The problem is, some do not know how to use the pricing sheets, and others use sales sheets, with inflated prices, and in this case your comment on "the customer will pay more than if the same work was done contract or T&M." is true.
A properly managed flat rate system, not only works well, but it can save both the contractor, and customer money
The consistency and accuracy in the use of terms is important, especially in the public and private exchange of ideas that this forum so capably facilitates.
T&M is pretty clear and fairly undisputed in terms of what it is referring to. I'm sure there are slight variations as to how some apply the concept, whether a ballpark estimate to accompany, or a not to exceed price, whether one marks up the material etc.
When the term flat rate is used, I picture a process that uses what LK calls "actuals", a book that has the tasks broken down with labor units assigned based on tracking how long it has taken in the past. You can assess the job in person or over the phone if accurate and pertinent information can be collected. Then you assemble the price using the variables:
5 remodel cans on switch
1st (4) $150 each 5th can $125 plaster adder per can $40 no attic access above adder per can $20 wall fish switch $125 plaster adder $20 feed power from unfinished basement $65 site visit to estimate $55
Total = $1290 Then you make sure they understand that some plaster repair and paint is likely.
All those items can vary and you would assemble your final price accordingly.
The use of the term "contract pricing" is where it gets a little vague. (One could even consider the agreement to the terms of T&M as a contract, leaving the "pricing" part of the term as a variable") It is my impression that it somewhat universally accepted that a contract price means a fixed price for a fixed work scope. It would differ from flat only in how the price is figured. One could figure up a contract price using a flat rate strategy, which would make it both a contract price and a flat rate. Or one could arrive at a contract price by guessing what the labor and the material would come in at using more of a T&M model, but then throwing a little on top to account for risk. A contract price, but not necessarily flat rate in terms of the process used to arrive at the contract price.
[This message has been edited by Jps1006 (edited 09-23-2006).]
"Or one could arrive at a contract price by guessing what the labor and the material would come in at using more of a T&M model,"
That being one of the problems, rather the learn the estimating process, some guess the amount, or use past T&M figures, and they may look to some of the flat rate systems for an easy way of pricing, however to use a flat rate pricing, it still requires some estimating skills, one of the advantages of using price sheets, is you are able to put a price together in the field, after look at the job, and all the conditions
[This message has been edited by LK (edited 09-23-2006).]
I guess I'm not following how this is anything other than a play on wording. With flat rate and contracting the client gets the final price before the work starts. The exception would be something like finding a splice in a wall you open up. The form I use with on-site "flat rate" bidding is nearly identical to my contract in language. The main difference is that it has lines to write in since I don't have a laptop and printer on the truck.
I never bid work that I don't see. With cans, is there a spacious attic, tight attic, or remodel from below? Is it in the living room with a high sloped ceiling. You have to adjust with any method of estimating, but you end up with a set price.
With T&M you have a set rate, but the end result is variable which creates stress during the installation and for the client when they get the surprise at the end. Clients are much more likely to negotiate with T&M invoicing than flat rate or contract.