THE COMPLAINT that builders cut back on mechanical systems in favor of more visible features of a home — a statuesque fountain or an ornate chandelier — was around long before I started covering this industry 17 years ago.
What is happening with a builder in California, Nevada and 15 other states is something else again. And it is sending the wrong message about an industry that is struggling to attract young people to its ranks.
As far as we know, the builder isn't telling its subcontractors to reduce the quality of the products they're installing in favor of lower-priced models. What we do know is that Lennar Corp. has sent letters to its subs in Southern California, Nevada and elsewhere to tell them to reduce their prices by up to 20% and resubmit invoices for work not yet paid for.
In some cases, the subs are awaiting payment on completed work. In others, the job has started and the sub is being asked to rebid. A portion of the letters go further and threaten the subs with being shut out of bidding on the builder's projects for the next six months if they don't capitulate.
Let's be clear about a couple points. First, the builder is sending these letters to all its subs, not just plumbing-and-heating contractors, based on the sluggish new home market and falling prices. Lennar reported in January that for its fourth quarter and fiscal year ended Nov. 30, 2006, it had a net loss of $195.6 million, compared to net earnings of $581.2 million in 2005.
Second, we understand that ongoing price negotiations between a builder and its subs based on changing market conditions are nothing new in the construction industry. Lennar contends that its letters seeking price reductions in the 17 states where it builds represent a voluntary negotiation allowed under the terms of its contracts.
All that being said, we agree with the California Professional Association of Specialty Contractors that Lennar's actions are not business as usual and must be challenged. We support the group's call for action that could result in an investigation of the builder's tactics. The fact that Lennar also has asked for price reductions from the attorneys with which it deals — and 95% have reportedly agreed to them — should not deter the subs.
The publicity generated by Lennar's letters should concern us all. The message being sent to goal-oriented young people and their career guidance counselors about subcontractors' role in the construction industry is not one of status or stability.
Even in good times, contractors tell me that their local school's guidance counselors view construction as cyclical, unreliable and a poor career choice. When counselors hear comments in the Lennar situation such as, "Losing revenue for work already completed could force some businesses too far into the red," it only confirms their view in their own mind.
That's why the subcontractors in this case should take a stand to receive the full respect — and payment — for the work that they have done. Particularly in plumbing and heating, the trades we know best, this work deserves such respect, and its status will only increase in the eyes of builders, consumers and prospective employees.
Water conservation, energy efficiency and other issues under the "green" umbrella will become more important, and no one in the construction industry is in a better position to take a leadership role than you are. All these issues tie in very well with your traditional role of protecting the health and welfare of the nation.
The emergence of these issues won't eliminate price from the equation, of course, or hard negotiations. The emphasis of the discussion, however, should shift from saving dollars to saving water and energy.
The message being sent to young people about our industry will be much more positive. These are people who want to join a company that has a solid future and where they will have a place to grow professionally. Whether we're talking about salary or the environment, green is much better than red for your color scheme.