In Aesop’s fable The Goose that Laid the Golden Eggs, a story of greed plays out. Today, in the cleaning and restoration industry, we need to be careful lest we face a fate similar to the farmer who destroyed his steady income in the hopes of being rich.
The restoration industry in general, and more specifically water damage restoration, began with an opportunity to fill a need. That need was to save property owners and insurance companies time and money.
There was, of course, profit to be made, which is much deserved for the time and investment involved. Without profit, why would any sane individual get up in the middle of the night to face the challenges of a sewer backup?
Over the years, the industry has matured and innovated cost-effective solutions to remedy damage to structures from a broad range of catastrophes. Examples abound in equipment technology and work-process improvements.
One of the finest examples of how this industry provides cost-effective solutions is in-place drying. Not only is the customer’s property returned to functional pre-loss (or better) condition, it is done at a cost savings over conventional drying systems (disruptive drying, pulling pad/baseboards etc.).
In this business model, all parties involved benefit. The homeowner benefits by having their home returned to normal more quickly and at a lower overall cost. The insurance company benefits from cost savings on the loss through lower total expenses, which include lower claims paid and lower claim expenses by closing the file quicker. The contractor benefits with a higher net profit. Overall, it is a great business model for everyone involved.
Not all projects are candidates for in-place drying; however, all drying projects benefit from an aggressive drying approach. Unfortunately, not many contractors embrace aggressive drying. They give lip service to it but often do not deliver the value necessary to justify the costs.
What follows are some of my concerns with the state of the industry as it relates to aggressive drying.
Conflict of interest
There are several potential conflicts that exist between the drying and reconstruction phases in restoration. Contractors that provide both mitigation (emergency services and drying) and construction on the same project may have a conflict of interest as to the scope of the project. While the model of a one-stop provider can seem appealing to some insurance companies, it has its drawbacks. A conflict can arise if contractors decide to benefit themselves financially, rather than the overall cost of the process.
Dedicated restoration contractors generally carry a cleaning background and tend to focus on the drying and restoration options. That focus normally provides an excellent value to both the insurance company and property owners. The weakness is that these contractors sometimes fail to recognize when it is more economical to remove and replace.
Reconstruction contractors tend to focus on construction while failing to understand when water damaged items can be dried and restored. They lack the aggressive attitude towards drying. Any unnecessary demolition is where the potential conflict of interest comes in. I hear the argument from the contractor that the demo is done in the customer’s best interest.
Insurance companies are seeing many projects for which they receive very large mitigation and drying bill plus a large repair bill (of notable concern is on Category 1 losses). To counter this, some insurance companies have developed a policy of allowing the contractor to do either mitigation or construction on the project, but not both.
Innovation and invention have always been at the forefront of the restoration industry. Innovators, by their nature, are always seeking a better way. In the past, innovation came from trial and error. Science was an afterthought used to explain how it worked after the innovations were accepted. Today, in a maturing industry, science is used proactively to solve the problems. Science, followed by testing and conformation of theory, has led to a number of exciting changes in equipment and our understanding of how to apply dehumidification, airflow and heat — changes that have become established policy in the industry.
Because many innovators still feel a need to challenge the establishment, they continue to propose changes, whether science-based or not. Contractors that follow them often refuse to accept well-founded, science-based solutions.
Just because a service is listed on Xactimate® does not give the contractor license to include it on the invoice. If the service or equipment is necessary, then it should be included, but never just because it can be covered. Every service provided must save the property owner and insurance company time and/or money. That is not to say the lowest cost must always rule, but the best value should always be the end result.
Taking the high road helps customers and insurers recognize the value a contractor brings to the project — that a legitimate contractor actually does not “cost” them anything, as the services provided are much less expensive than replacement.
Inadequate job costing
Many contractors do not understand job costing, expenses and actual job profit. In general, restoration contractors rely on database pricing systems like Xactimate. These databases do provide a necessary service, but without accurate job costing, how can the contractor know if the pricing suggested is realistic?
Too often contractors do what I call checkbook accounting. If at the end of the year they have money in their checkbook, they were profitable. They have no idea what services or jobs made them money or which ones cost them. I would challenge all restoration contractors to job cost each and every job, being sure to include an accurate charge for overhead. Most will be surprised to find out that some services are not as profitable as they thought.
As an example, my restoration company has been job costing for over 30 years. We realized early on that if we travel over 20 minutes from the office, our profit margin falls below the minimums necessary to operate our business (there is no fluff in our estimates or billing). As a result, we charge mileage and travel time, or we don’t do the work. Some contractors cover these expenses in the famous 10 and 10 or other creative means.
Of course, I know that Xactimate includes travel time, but that travel time is based on an eight-hour work day, not a portion of the day. The time allowed amounts to 7.5 minutes each way for a total of 15 minutes a day. Where can anyone get in 7.5 minutes these days?
Misuse of technology or training
Many times business owners and managers attend my classes but don’t send their field technicians for formal training. More concerning is that many of these companies don’t recognize the benefits of providing formal education to their employees. And of course when the technician does receive training, it’s management’s responsibility to ensure that all technicians apply the knowledge in the field.
Improper understanding or improper application of the ANSI/IICRC S500 Standard unnecessarily inflates the cost of the project. One common example is calling all water losses Category 3 to justify a higher billing rate. The rationale is that there is no such thing as a clean water loss; therefore, all water damages are Category 3. When we all adhere to the same standards, all of us in the industry benefit.
Insurance industry trends
Early on in the restoration industry, restorers recognized the need to replace Category 3 carpet and pads. Third parties took the counter position that carpet could be cleaned and salvaged.
From a restoration perspective, cleaning the carpet would be the logical, financially driven choice, but the responsible choice is to opt for the correct solution even at the expense of profit. The solution to this conflict of opinions was the S500. The consequence is that many policies set a limit or put a cap on sewage losses, typically much less that the overall policy limits.
Mold has become an even more significant conflict. Motivated by greed and sold by fear, some early mold remediation companies took advantage of the insurance industry. Mold damage in most states is not covered or is severely limited in the insurance policy, largely due to that behavior.
And some insurance companies are pulling out of the property insurance market in hurricane areas and enforcing stricter limits of coverage on roof damage in other areas.
In an attempt to control costs, many insurance companies are using third-party management companies on water losses or trying to micromanage the job via phone. This practice is frustrating and inefficient, and it adds to the total cost of the loss.
Some insurance companies already have limits on water damage. We stand the best chance of preserving much needed coverage for water damages by following industry standards and ensuring that we always provide the correct solution and best value for all stakeholders involved.
Contractors typically believe they are doing the best quality work and charging reasonable prices, at least from their perspectives.
Most contractors indeed provide excellent value and quality work, even those that provide both mitigation and build-back on the same job. I know of no contractor that would consciously take advantage of the customer or insurance company by doing unnecessary work.
The problem is in the perspective. Contractors need to step back and examine their company, systems and processes. Are they providing the best value to their clients? Are they selling a five-star meal (priced accordingly), but really providing fast food?
Contractors can start by improving their documentation. To keep accurate records of labor and materials on the job to justify charges, they should consider a web-based app such as the Dri-Plan app for moisture content records, equipment tracking and service items. These new documentation innovations offer a huge step forward. Just as important, contractors’ businesses benefit from job costing and periodically comparing costs against their price list to ensure appropriate profit goals are met.
Any business should be examined to evaluate current technology and skill levels. There are solutions to just about every drying challenge. If a restorer doesn’t know how to dry behind or under cabinets, behind baseboards, under hardwood floors or in wall cavities, they need to learn! Attend a class. Set up an area to practice drying in the shop. Why practice on a customer’s property?
The insurance industry needs to participate in the solution as well. When contractors maintain a high level of professionalism and are careful not to overcharge, ideally adjusters will micromanage less and trust restoration contractors to provide the best value. The insurance industry can benefit from gaining a better knowledge of the S500 and by understanding it in context (e.g., minimum versus maximum). And the entire industry needs to get the message — there is no such thing as three-day drying. Some things dry quickly, some do not. The longer it is wet, the longer it will take to dry, period.
The restoration industry needs to heed the lesson of Aesop. Instead of killing the goose that lays the golden eggs, we need to nurture and feed it. Feed it by being as professional as we can.
David Oakes has worked in the field of cleaning and restoration since 1973. He currently owns and operates a full-service cleaning and restoration firm, which provides fire and water damage restoration services. Oakes has worked on both commercial and residential restorative drying jobs in all capacities. He is an IICRC Certified Senior Carpet Inspector, Master Cleaning Technician, Master Restoration Technician and is a Certified Restorer (CR) and Certified Mechanical Hygienist (CMH) by the RIA. As an IICRC-approved instructor, he teaches Water Damage Restoration (WRT), Applied Structural Drying 201 (ASD), Advanced Restorative Drying 301, Carpet Cleaning Technician (CCT), Odor Control Technician (OCT), and Fire and Smoke Restoration Technician (SRT).