Quoting for commercial work: what changes from residential

Commercial work can mean bigger jobs and steady clients. But the way you quote, get paid and run the job is quite different from working for homeowners. This guide covers what changes, so your first commercial quote doesn’t cost you money.

Who you are really working for

On a house job, the owner is usually your client. On commercial work, you are often a subcontractor to a main contractor, who works for a developer or building owner.

That changes a few things:

• The main contractor sets the programme, site rules and paperwork
• You are paid by the main contractor, not the owner
• Your price is compared against other subbies, often on a spreadsheet
• Decisions take longer, because they pass through more people

Find out early who makes decisions and who signs off your work.

Read the tender documents properly

Commercial jobs usually come with a pack of documents. These might include drawings, a specification, a schedule of quantities, the contract conditions and site rules. Read all of it before you price.

Look for:

• The specification. It may name exact products and finishes. Price those, not your usual choice.
• The scope for your trade. Check what is included and what is someone else’s job.
• The programme. When you start, how long you have, and whether the work is in stages.
• Special conditions. Things like after-hours work, working around tenants, or extra testing.

If something is unclear, ask in writing before the tender closes. Write down any assumptions in your quote.

Price the extra costs

Commercial jobs carry costs that house jobs often don’t. Leave them out and your margin disappears.

• Site inductions and safety paperwork for every worker
• Meetings, reporting and extra admin time
• Waiting time when other trades are behind
• Return visits, because the work is often done in stages
• Parking, access, lifts and hoists, and carrying materials further
• Extra testing, inspections and as-built records
• Insurance cover at the levels the contract asks for

For your base rates, see how to work out your hourly charge-out rate.

Retentions

Many commercial contracts hold back a part of each payment, called a retention. It is kept as security until the job is finished and any defects period is over. Then it is paid back to you, often in two halves.

Here is a simple example. Your contract is worth 50,000 dollars with a 5 per cent retention. Each month, 5 per cent of what you claim is held back. By the end of the job, 2,500 dollars is being held. You might get half at practical completion and the other half at the end of the defects period, which could be a year later.

So:

• Allow for retentions in your cash flow
• Note the release dates in your diary, and claim them on time
• Ask what happens to retentions if the main contractor goes broke

In New Zealand, retention money held under a commercial construction contract must be held on trust for the subcontractor. Australian states have their own rules. Check what applies where you work.

Payment claims and payment schedules

On commercial work you usually don’t send a simple invoice. You send a payment claim, often monthly, for the work done so far.

In New Zealand, the Construction Contracts Act sets out how payment claims work. The claim needs to include certain details. The payer must reply with a payment schedule if they plan to pay less than you claimed, within the time in the contract, or within 20 working days if the contract doesn’t say. If they don’t reply in time, they can become liable to pay the full amount. Australia has similar security of payment laws in each state.

Learn the rules before your first claim. Getting the format or timing wrong can cost you the protection the law gives you.

Read the contract before you sign

Commercial contracts are often long and favour the main contractor. Watch for:

• Payment terms that are much longer than you are used to
• Clauses that pass on penalties if the job runs late
• Rules about how variations must be asked for, often in writing within a set number of days
• Responsibility for damage caused by other trades
• High insurance requirements

If a clause worries you, ask for it to be changed or get advice. See variations: how to price and agree extra work.

Start small

Your first commercial job doesn’t need to be a big one. A small fit-out or a maintenance contract lets you learn the paperwork and payment cycle with less at risk. Build a relationship with one or two main contractors who pay on time. Good subbies who turn up and finish are always in demand.

Quick checklist

• Read every tender document, not just the drawings
• Price the specified products, not your usual ones
• Allow for inductions, meetings, waiting time and return visits
• Work retentions into your cash flow and diary
• Learn the payment claim rules before your first claim
• Read the contract and query anything unfair before signing
• Start with smaller jobs and build trust