Protect yourself from material increases! The Truth About Escalation Clauses w/ Brian & Isaac

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All right welcome everybody it's Wednesday time for my fence life my favorite part of the week uh special guest today though Isaac I bet you half the people watching this already know who you are but uh just in case let's uh let's let them know okay well I'm uh the in charge of you're bid helper so I just help people with commercial and Industrial bids and uh do the takeoffs and review the plans and stuff so uh that's what we do here yeah so your your bid helper um is that at the service where you actually uh you basically go in and read some of the plans and put together material lists and things for people yes yeah so most of the time most of the customers don't have us actually doing the pricing typically we're downloading the plans and doing the takeoff and the material list and those kind of things so yeah yeah yeah get that I was talking to somebody God I was on the phone talking to somebody and I wish I could recall a couple weeks ago and they knew who you were uh that was a contractor down in California but you're not from California right no no I am from California yeah oh you are okay I thought for some reason I thinking you were back East when we were talking one time so right now I'm in Nashville oh okay that's okay I was in California most of my life so oh so that makes sense it was a contractor down in California and they knew who you were so I was like man he's already he's already made his way over to the West Coast no I have a few customers over there as well so oh that's cool that's cool so um today we're gonna be talking about um and you probably come across this sometimes uh in some of the contracts or you maybe maybe come in the verbiage but um are escalation Clauses and I think right now with the tariffs that are I mean one day they're on one day they're off uh suppliers you know some suppliers are um are already increasing on the tariffs that are coming in um pretty soon and and some of the you know americanmade products are holding tight but um what does that do on the bids man I mean you're talking people about bids all day long are people nervous uh I haven't I haven't had a lot of customers that Express being nervous to me but I've heard some other people in the fence industry that are pretty nervous and uh you know wanting to buy a job materials for jobs that they haven't even sold yet it's like whoa that that's pretty aggressive yeah if you want to go out and buy materials for a million dollar job that you haven't even sold yet yeah yeah yeah and people are going to start stockpiling and um and an escalation Clause basically is something that helps protect your bid or you know once you basically once you um because you bid I mean a lot of stuff that we're bidding we we may not get a go-ahead on it for six months and then even after we start um with everything increasing or um you know fluctuating sometimes to uncertainty you might get in and not all of us buy all of our materials it may be a big enough project where you're not buying all your materials before you start you may be buying you know uh 25% of the materials and you're buying them as you go on a larger project you know as the as the materials are being delivered to you and sometimes the manufacturers and and things like that will or the suppliers will adjust their pricing based off of what the current market value is so um to protect us from stuff like that we got things like escalation Clauses in there and um it's easy for us just to say hey you should add an escalation Clause right what the hell's that mean you know what's the verbiage you're just going to write in there that I'm gonna um you know a lot of people think well I'm just going to write in there that if there's a price increase um I'm going to charge you more and I that doesn't necessarily hold up you know you got there's a lot of lot of steps that go in place to make an escalation Clause actually um work you know and not end up a big debate or a dispute with the customer um have you came across any of the escalation Clauses uh I mean I've used them I mean in the contracts and stuff so we we've been through here this before you know with uh material price increases and that type of thing so yeah last year you know I mean the last ones that we were really um when everybody was kind of really thinking about the increases was probably what was it 2021 after the after the covid stuff when the increases came up and do you remember there being just a lot of people saying I can't get materials I mean and I was fortunate

Enough I had some really good suppliers that I was really um loyal to that kind of really took care of me through that so I didn't I didn't struggle as much but I had a lot of people saying hey you know the gates were just shut at some of the suppliers you couldn't go in you couldn't get materials they weren't setting up new accounts um I have some ideas I not some ideas I kind of I what I think is different about this time opposed to last time um is I think that you know last time it we it wasn't necessarily a shortage on materials they were just it was just all sitting out on ships and stuff out in the you know they couldn't get them into dock they couldn't get them unloaded right so it wasn't that there was a shortage in materials there was a shortage of materials with the suppliers but that was only because they couldn't get access to them because it was all sitting out on the ships and there was no one to unload them right yeah but yeah you know so as soon as that kind of opened up the materials open back up right so um I'm I'm I'm wondering in the next six months if we're not being a whole different type of of material shortage because there's actually going to be a full-blown material shortage um if you know if this stuff plays out like it is and except this time we won't have container load after container load sitting out on the ships you know already floating around so um this might be you know a bigger issue than we had last time so because of that um the pricing is going to you know be adjusted so I wanted to kind of go through some of the steps to make an escalation cost to hopefully protect uh some of the people out there the smaller companies that aren't aware of it so um let's do uh step one let's kind of go through the step one on these things I mean uh what it takes to get in there so base price obviously every everything we do is going to have a uh a base price added to the escalation Clause so this where we're going to start with that's going to be just your normal price that you got into it and we're going to go through a couple of these things but we're still going to do the uh uh what happened to Sean the questions with Sean and Brian so I'm not I don't want anybody that that comes on this and says what would Brian and Sean say where is that it's coming but we're going to W through a couple of these things so that everybody doesn't get bogged down on on this um so we're talking the base price uh it's the initial price which would be your quote what you're what you're going to be going you start with that um what do you think are some of the trigger events on it I mean uh what would you think would be a normal trigger event in in an escalation Clause materials yeah I mean it's I don't really see for see labor being the issue but the materials definitely is one of them yeah so materials what we're going to basically be focused on because that's kind of what everybody's worrying about right now and it's hard it's hard for us to come back and say um hey our labor costs went up we were paying our guys more money um you know things like that but if you were working for um say say it's project where it you know the the labor costs are based off of prevailing wage or union wages or something like that and something gets negotiated and all a sudden prevailing wage goes up you could probably implement something like this but then you have to have um specified factors in it which is you know if it increases by over a certain amount or a percentage or a solid amount then that would trigger you know so if you had material costs um if you had material costs in you know in your job figured out a certain amount and materials in you know based off of your supplier went up x amount of money that would be a trigger event you know because we're not this about that so that's that's kind of what we're talking about so step one you got to have um part of your escalation Clause a base price step two you got to have a trigger event what's going to trigger this escalation Clause to actually um be activated to where you know the terms and everything's going to kick in so um then you have to have step three is going to be an escalation um formula uh you know the price will be adjusted but what's how's it going to be adjusted it's going to be adjusted Again by specified amount or you know things like that um conditions and things like that so we go in there and I think we'll get into more detail you know on that probably you know on another podcast we'll get into

That but um what what do you think man what are your thoughts on escalation cause you think they should do it or I mean I think you have to have some verbage in your contract you know uh you know specifying especially if it's a like a special item you know a specialty material or something like that um yeah it could definitely be increased in price I mean I think not even just because of the time we're in now but just in general you should have something in your contract regarding this you regarding like hey if if our supplier changes uh the only thing you you might bid a job with 25 or 30% markup and they're not they may not be willing to pay you that 30% markup on this additional uh fees you're going to probably have like a 10% fixed or something on top of the uh and and maybe they won't want to pay you any extra markup maybe they just want to cover the cost so yeah you know that's all stuff that uh is going to be part of the convers ation right for your contract moving forward stff you're not really trying to get a bunch of extra profit anyways you're trying to just make sure that your bases are covered you know you're being reasonable and being honest right yep yeah and I think that you know I mean I'm I'm a firm believer that if a material increases 5% or whatever if you're if the difference between you making money or losing money on a job is 5% you probably bid it too low in the first place but we're not talking about 5% we're talking about some of these uh you know with some of these increases might be 25 50 60 I've Seen It Go as crazy as 70 80% increases so um it's definitely now is the time to start thinking about protecting yourself so that you can still make money because this is how we all feed our families and uh you know I think a lot of times the smaller fence companies we we neglect this part of it and we go and we just blindly sign contracts right with General Contractors and we think well if we don't sign them if we don't sign them uh you can't get the work and I think I made some posts about that saying um people I'm like hey do you just uh red line and or do you red line you know do you not red line or just sign the contracts a lot of people are like well you have to sign it if you don't sign it you just won't get the work and you can't Redline everything um have you what are your thoughts on redlining oh yeah we Red Line we've Redline stuff a lot of stuff yeah you kidding me oh yeah they want a lot of times they want personal guarantees and all kinds of stuff no that was part of my job for for a long time at A1 Fence was like reading contracts and sending stuff to the GC hey saying these pages and this is the stuff that we can't agree to and because I mean they're going to pretty much make you agree to everything that they want you to agree to and it's all negotiation until you sign the contract so yeah I mean yeah and you have to be if if it's important enough you walk away right I mean if if trying to ask you for something that you're not willing to do but for the most part I mean you're gonna just cross out what's unreasonable and what what you see is unreasonable yeah and anything you don't understand I'm you know again we're not we're not attorneys or you know given legal advice here and they had an attorney write that contract for them and most of the time the person that sent it to you doesn't understand what it all means either right so if they don't understand it then how are you supposed to understand it so if you haven't had an attorney review it and uh you haven't had a attorney review it and send it back then you basically are just blindly signing something you know but uh hey let's not forget Bri Sean's not here on this one but we're gonna answer these things together so I'll right so we'll start uh nick uh this again these these are all going to come from U fence industry only group on Facebook um probably one of the most active groups um for the fence industry on there um it says Nick on here is an All-Star contributor so Nick thank you for that we appreciate that uh where do you all are you sure sud Susan didn't write this what is this you all stuff right you know I'm afraid to keep reading it now I feel like it's gonna be a joke where do y'all like to get your company shirts um with logos made um I can't afford bulk orders at the moment so looking forward to looking for a good price and where do you order them basically um doesn't want to spend too much any recommendations regarding

Brands color Etc have you ordered shirts no no I don't have shirts no that I the only thing I can say because I've had hats made in the past and uh your local if you find a local shop that's like right down the street from your I've had good luck with local people who made hat some shirts for me in the past so that's recommend but I'm sure you can find a hundred people to do it yeah we've been getting shirts made for a long time I think um we got a local local place we get him from and I just I was reaching out to um Alex over at brandbuilders too so I think that might be a good place to start I know a lot of people that got their um their shirts and stuff and designed stuff from them so brand builders Alex Harris and I think Canon Johnson and stuff as well so um yeah I would uh I would definitely check that out um yeah so what you when was the last time you got some shirts man I know it's changed a little bit lately I mean it's uh everything went up a little bit but uh not too bad right yeah no I I didn't I can't remember the last time I had a shirt made the last time I had hats hats with the things that I had made so yeah yeah hats yeah I think uh for hats true line Express probably on the hats is uh you know we kind of run with on something like that so there I guess there's people in our op go on the you know what I think this is great we'll have to go back and and get some of the answers on this uh post on fence industry only um let's see what else we got Susan whip it up that was an easy one David Cooper uh uh I'm looking for recommendations for digital system um to keep track of pending jobs track progress save contracts sketches Etc I'm running four crews and I'm becoming challenged to keep up with this so you probably know quite a bit about different softwares and different stuff to track stuff with uh I'm you know I I I can't say that I do honestly I know there's a lot of them out there but I don't have experience with them I mean a lot of the companies that I worked with use like Excel spreadsheets which is really outdated but yeah no a lot of people there ain't nothing wrong with that Excel um excel's great tool for new companies I I mean I still do a lot of my quotes on Excel and stuff as well so um I I'm glad that you said Excel because you know automatically we start thinking uh you know paid software programs and things like that and we are paying for Excel now it's a monthly fee but um for us so we use Excel for a lot of stuff so a there's no shame if anybody's tracking their um their stuff on Excel um contracts and things like that and you can it's it's a great tool for saving stuff and it syncs well with you know with other stuff but um we use jobber a lot jobber on ours we yeah we track a lot a lot of jobs um with jobber we tried some different platforms but I know I know there's a ton of a ton of them go to the fence show you'll probably see a bunch of uh you know the oh yeah definitely all the ones that are um you know really working to support the industry or at the fence Show in Las Vegas there's no doubt um so I would check that out and maybe go go on to Fen show.com and take a look at the list of exhibitors that are exhibiting at our show because we've had a lot of contacts with most most of them and I'm telling you those are definitely the people that are supporting um the industry and it will probably be a good spot to to my first place I would check it out but for us we use jobber and some other ones we've been trying out yeah let's see what else we got Justin Craig Woods I know this has been asked before Oh gosh let's see what this is going to be huh what is everyone using for invo this is kind of similar right using for invoice estimate on that accepts payments okay that's different um QuickBooks madees small fortune in fees off me last year you know well I I wouldn't think that it's going to be any cheaper to go anywhere else I mean the credit card processing fees are probably so similar um do you use any software that does any kind of payment collecting I no I don't I have PE so people pay me through QuickBooks but they pay me through their QuickBooks so it's not like I send my invoices don't come through QuickBooks well gosh we um we probably send is an estimate in like three or four different ways I mean we use QuickBooks we use jobber we send them through Square um we've actually sometimes we'll do it through one of our platforms on GoDaddy I mean we probably send on an

Average week um we probably send it through at least four or five different platforms and the fees are the fees man I mean you're going to pay the anywhere from Two and a Half to 4% depending on what kind of credit card it is and and you know things like that whether it's an MX or whether it's a rewards card whether you're punching the card in manually I do I can tell you this if you can try to get someone to come in if it's a large amount we'll probably have them come into the office if it's a big material sale and swipe the credit card in person one for security reasons but two because the fees are a lot less if um probably at least a percent less if you have them swipe the card in person opposed to punching the um numbers in manually so that's all I say but um yeah they made actually I have a lot of customers that pay me through a direct into my checking account but I take venmo Apple pay PayPal like you name it I take it you know because people my service is like really reasonable so it's usually like a few hundred dollars it's not like lots of money so people pay me whatever is convenient for them venmo cash app you know like I take it all yeah checks I wa I wait three and four and five weeks for checks in the mail yeah yeah and stripe yeah Sasha just mentioned stripe I use uh I use Stripes one we use as well but um yeah so um good questions though Susan uh again thanks for bringing those up so we went through step one two and three step one base price right step two we need a trigger event step three um what's the formula that's going to be used if a if an event does get triggered step four we talk a maximum cap nobody's GNA want I mean you have to make this Fair nobody's going to want to see um this unlimited increases based off of of whatever you can come up with right so you have to have a maximum cap um to to put on this thing and that's typically what you'd put in it and the more information you can put in your escalation Clause that outlines and makes things clear and makes it more of a fair exchange the more likely this is going to hold up right um opposed to just saying again I I you know I think a lot of us as um when we get started we just start throwing in there hey price is going to increase if my price increases well that wasn't enough information for you to actually be able to fight you know and odds are the the customer is not going to go ahead and sign it you know with that with that ver kind of verbage is too vague so maximum cap now we've got time period um the price adjust under you know under the Clause to be made um and these increases may you know they're not people may just not want this thing increased uh you know daily or weekly every single time um you're doing it you know so you a little tiny increase so they may say this can only increase uh you know once a year or if it's a big project or maybe maybe um once a month or things like this when you're doing your invoicing so you have to have a time period um you know basically upon the occurrence of the trigger of the event so that's something that's important to get in there um so we've got supporting documents like I was just saying earlier so this is where um you got to have something in there um that says what kind of supporting documents are you GNA have when you're doing this one of the things that uh one of the ways they can get around avoiding avoid the price increase is like if the customer is willing to pay for the materials up front right because then it's like you can just buy materials and if you have the space right to store it then you you know so in the past I've um you know we build customers and we purchased well we had to take pictures of the the materials in our yard or whatnot and then they paid us right and then uh you can avoid the escalation all together if you have that but if it's a job with several years you know that you're you're performing for several years then yeah it's going to be a lot more complicated than storing material because if it sits in your yard for a few more years they might not want the material they might not like it you know how the dust sticks up and finish can fade on that stuff so even months though because sometimes um you may like I said you may have put your bid in you may get to go- ahead on the contract and like in Nevada we're three to six months to pull a premat so it may have nothing to do with you working on the project you may have got the go-ahead you um even got a deposit but the Project's not starting for six months or eight months but

Because you're waiting on permits or whatever whatever the factor would be so um right now in six months the price might be 50% higher who knows right so um you'd have this in there to cover yourself before even the job started um so it is kind of it is kind of nice and if you but and also what you said you may have it on the ground but if you're counting on your inventory that you have in stock to be that that that material you're going to be including you know that says is protected well you you have to replace that material so you know at a higher cost maybe so you got to factor all that in there so we're at step six so step one base price step two we need a trigger event and we're going to get all this uh we're going to get all this uh probably in the comments here step three escalation formula maximum cap time period we're at supporting documents now you got to have something in there that uh notifies um basically is a notice okay um provided you got to provide something to the buyer the sellers everybody's got to be you know some sort of notice a period of time less than an X period of days um prior to the effective date of the price adjustment so you got to have some sort of Base um pricing and stuff in there and you got to you got to you know put some some documentation in there to note the the notices to be provided to the buyer so um that again that's just you know they don't want to be hit you know every week with something new and they don't want to be kept up you know how the tariffs are on one day off the other day on the one day we can't you know you they're not going to want to get a text message every morning saying the price went up and say oh never mind oh the price went up oh never mind you're never going to do work for that guy again right so um yeah but what happens if you don't agree right what if there's a price increase uh they don't agree with your supporting documents um they think it's BS they think that you well you also own the material company so therefore there's a you know conflict since you're just creating the invoices yourself to justify the you know and that would happen right sometimes you're creating the invoices yourself to to justify the increase in pricing things like that you got to have um what's going to happen if there is a dispute that's step eight that has to be on there you know um are you going to go to arbitration you know mediation whatever it's going to be and per you know you typically want you know this is again where you want to bring your attorney and we're not attorneys but you'd want that you know hopefully to be if it's going to be arbitration in in the state that you you live in because you know you got to be careful on that I'm like even in the contract you've seen you um you might be signing something and if you look at the um the dispute res resolution which is in a lot of the contracts the arbitration is in New York right so um you know it's in New York and then uh you got to fly to New York to do this right well if and your project happens to be in in Nevada or California so now the cost go up for you to try to do the travel so I typically change that and say it has to be in my state wherever the job's being done so Sasha yeah Sasha says uh what do you do if your distributor hold quotes for three to seven days yeah oh okay what you yeah you have to protect yourself yeah so he's right you know I yeah I've had people say the quotes were good for two days before so but I mean yeah you're still gonna B you either gonna bid the job or you're not I mean there's really not I mean a lot you can do i' I've bid jobs and then uh was awarded them a year later actually so it's like but in an opportunity like that you know they understand that you know it's been 12 months right so you know a lot can change in a few months so yeah oh quick man quick you got um you got any cool stuff going on right now what are you uh I mean how many companies you're probably how many bids are you working on every week right now uh like 8 to 10 bids yeah something like that man you must have one hell of an attention span I uh I struggle with it so are you uh you're doing it all off the computer then uh no actual hard plans right yeah yeah it's all off the computer yeah yeah that's rough man I'm still old school man I sit there for a while after about an hour or two I get so frustrated I send it over to the blueprint place here and I print it out and yeah and I want to sit there I want to get my pen out I want to draw the lines

And I I highlight everything and measure everything so it's all dialed in but I also have somebody helping me with it so if things get busy you know I can send something her way so yeah yeah yeah so um when are we GNA get you back up to Vegas I know we talked not too long ago oh I don't I don't have any plans right now to go back over there October sure October October you be up for the fence show right we'll try to get we'll try to get you out there sooner because um as so everybody knows Las Vegas fence is planning on working um with Isaac too so we're uh we're excited about this yeah it's it's gonna be it's gonna be a good year so don't let all the the the talk about tariffs and material pricing increase all that stuff scare you um you know get out there and bid the stuff but uh you know they definitely throw some stuff in to protect yourself that's all you know in that in that way nothing can change I mean it's it's going to be uh still a great year and I think the economy is going to boom so um I definitely don't want to I the most important thing I don't I don't mean to interrupt you the most important thing is like just be honest and transparent you know you got to just be upfront about everything if you're respectful and you're honest like there's no reason to to to lie or to you know be Shady about anything like if you're honest and transparent and you bring things up and the the customers going to respect you I mean the the way that you handle the situation is is going to do a lot for your company moving forward so just be honest you you know be transparent say hey look this is what's going on I mean even I don't watch the news but even if you don't watch the news like you people know what's going on so yeah it's just important that you are transparent with with your contract and your customers and you walk them through it you it's just like the sales process you walk through and through it you you show them like hey they might say hey I want this fence and you say oh that that fence wouldn't work here you know you need this fence right so you guide them you show them right because you're the professional it's the same thing with the Tariff and the increase and however your contract is written you know you're going to explain it to them like you know this is what could happen potentially so hopefully you can do the the job for the price that you quoted it but if not you know at least they're going to know well this is the alternate right if that doesn't work out if we can't hold the price yep yeah yeah yeah so um we're it looks like we got some stuff going on though I'm just taking a look here uh we have some different events happening I think the very next one Speaking of Vegas is uh fence University's got the telephone entry quick start class so uh fence university.com to register for that and that's coming up March 24th um if anybody wanted to learn about uh telephone entry systems we've got all kinds of stuff um on hand I mean so manufacturers have been sending us all kinds of really cool stuff D King security Brands cellgate I know I'm probably going to forget some so I feel you know you're always nervous every time you start listing stuff because you're like there's always somebody you forgot yeah and then you're like man I wish I wouldn't have said anything at all right it's always and you know who you know who's always watching and listening the person you forgot everybody you mentioned wasn't even watching your show except for the one person that's uh that's sitting at home going are you kidding me why he didn't mention me I just talked to him at lunch so um lots of really cool stuff we've got an entire um Access Control Room basically that's set up um where we're going to be hooking those up to gate uh gate operators and things like that so you're going to be able to learn Hands-On um I know that's kind of the key uh that's a word thrown around a lot now because we've really kind of kicked that off um because we believe hands is what you need so fence university.com telephone entry uh quick start class um actually I think man when is the Mr Fence Retreats I think starting tomorrow right Mr uh fence Academy's Retreat so um he's got that going on so definitely go to um um Mr Fence academy.com and you know take a look at some of the stuff he's got going on for the events for that um and then we're GNA be at the cm's open house which is really cool um fence University Mr Fence Academy fence uh fence work Association um we're going to be out there Sean's putting um

Putting on a really cool show I think uh we got a uh we're gonna be going to a baseball game and all kinds of stuff and I think I think there's only room for like the first 100 people to Reg he's gonna be mad if I say it but uh I don't even know I'm probably inviting people that I'm not allowed to invite so um there is a there there's a ball game going on tell Sean that I invited you I don't care he'll get over it so um Sean with CMM tell him that Brian invited me to this ball game so make some room get one on the bus or something you know but uh that's G to be that's going to be a lot of fun um let's see I think uh after that we're GNA you know you go to fence University go Mr Fence Academy go um pretty much anywhere Fen social.com we start list all these things on the events page at fence social.com as well um if you want to get up to date with some links uh Isaac man thank you for coming on man I appreciate it everybody that's watching hey thanks I appreciate it if you're watch this live thanks for taking the time um out of your evening I know everybody's tired it's getting late for some of you if you're watching this in the future hey thanks for tuning in um I know all this is being streamed to some other places like apple podcast and I don't know how any of that stuff works but Susan streams it over there so whatever the one of those those things where you listen while you're driving or um hanging out or something again have a great evening everybody Isaac thanks thanks for having me