A modular factory can estimate every stud, sheet of drywall, length of wire, and hour of labor required to build a project. It can add overhead, include a reasonable profit, and produce what everyone believes is an accurate quote.
Then the project begins—and the profit starts disappearing.
That does not necessarily mean the estimator made a mistake. The problem is that a factory quote reflects what everyone knows when it is prepared. The project may not enter production for several months, and plenty can change between those two dates.
Transportation costs increase. Permits take longer than expected. The site is not ready. An inspector wants something different. The builder changes a specification. A supplier cannot deliver the material originally quoted.
Individually, these changes may not appear serious. Together, they can turn a profitable project into one the factory is simply trying to finish without losing too much money.
The Quote Leaves the Factory and Enters the Real World
Factories are usually quite good at calculating the costs they can see. The difficulty begins with the costs they cannot control.
Transportation is one example. When a project is quoted, the factory may know the approximate mileage, number of modules, and expected delivery schedule. That does not guarantee carriers will be available when needed, fuel prices will remain stable, or the original route will still be usable.
A bridge restriction, permit change or shortage of qualified drivers can turn an ordinary delivery into an expensive problem. The modules still have to reach the site, and someone must pay the additional cost.
Approvals create another opportunity for the numbers to change. A state or third-party review may identify something that requires additional engineering or materials. A local inspector may interpret a requirement differently from the factory. Details that appeared settled during estimating can return weeks later as revisions.
Then there is the jobsite.
The factory may have little control over excavation, foundations, utilities or site access, but problems in any of those areas can affect production and delivery. If a foundation is incorrect, modules may require changes. If the site is not ready, completed modules may have to be stored. If utilities are delayed, the entire project sequence can be disrupted.
The factory did not create those problems, but it may still suffer financially because of them.
A Small Change Is Rarely Free
I have always been amused by the phrase “It’s only a small change.”
Moving a window may look simple on a drawing. On the production floor, it can affect framing, sheathing, siding, electrical work, insulation and interior finishes. Changing a plumbing fixture may require a different rough-in. Substituting a material may affect purchasing, engineering, approvals and production.
One small change can touch several departments before anyone adds up what it actually cost.
Factories lose money when they treat these requests as favors instead of contract changes. They lose even more when they perform the work before anyone tells the customer what it will cost.
A change order issued three weeks after the work was completed is not much of a change order. By then, the factory is trying to recover money it has already spent, and the builder is wondering why the added cost was not discussed sooner.
The answer cannot simply be better paperwork. The factory needs a culture in which every department recognizes that changes consume time, materials and capacity. Someone must have the authority to stop the process long enough to document the request, calculate its effect and receive approval.
That may feel inconvenient when everyone is trying to keep a project moving. It is considerably less inconvenient than discovering at the end of the job that dozens of unpriced changes consumed the profit.
Time Has a Price
Factories often calculate the cost of materials and labor more carefully than they calculate the cost of waiting.
A project quoted today may not enter production for months. Financing can be delayed, approvals may take longer than expected, and the site may fall behind schedule. Meanwhile, supplier prices change, wage costs continue, and the production schedule has to be rearranged.
A delay can also leave completed modules sitting in the factory yard while the builder struggles to prepare the site. Those modules occupy storage space, tie up working capital and remain the factory’s responsibility until they are delivered.
None of that was necessarily included in the original quote.
This is why I would question whether a 30-day quote remains practical for every factory and every project. In some markets, even 15 days may be more realistic. A quote validity period should reflect how quickly the factory’s actual costs can change, not how long the sales department thinks the customer needs to decide.
Once the validity period expires, the factory should review the important variables before extending the price. That is not an attempt to squeeze more money from the customer. It is an attempt to confirm that the original assumptions still exist.
A Contingency Is Not a Management System
The traditional solution has been to add a contingency—perhaps five or ten percent—and hope it covers whatever happens.
Sometimes it does. Sometimes the factory keeps money it did not need. On other projects, the contingency disappears before production begins.
A flat percentage treats every unknown as though it carries the same risk. It does not distinguish between a nearby project with completed approvals and a distant project with uncertain transportation, unfinished site work, and financing that has not closed.
Adding a contingency may provide some protection, but it does not manage the project.
I would rather see the factory identify the risks individually. Which costs can be guaranteed? Which are based on current prices? Which depend on the builder, developer, carrier, supplier, or approval agency? What happens if production or delivery is postponed?
Answer those questions before you sign the contract, not during an argument after costs change.
Both Sides Need to Understand the Number
Factory management may easily believe the builder or developer is causing the problem. It is just as easy for the builder to believe the factory should have anticipated every possible increase.
Usually, the situation is more complicated.
Builders and developers have their own pressures. They must answer to lenders, investors, customers, and subcontractors. An unexpected factory increase can disrupt financing or reduce an already narrow margin. They need dependable numbers just as much as the factory does.
That is why transparency matters.
A factory should explain which portions of its quote are fixed, which remain subject to adjustment, and what will trigger an increase. Freight, fuel, unusually volatile materials and customer-requested changes should not be buried in fine print that nobody reads until there is a dispute.
The builder also has responsibilities. Site information must be accurate. Decisions must be made on time. Changes must be approved promptly, and delays outside the factory’s control cannot automatically become the factory’s financial burden.
When those responsibilities are not discussed clearly, the first unexpected cost becomes an argument over who should pay it. Even if the project is eventually completed, the business relationship may not survive.
Pricing Should Continue After the Quote
Factories that manage this well do not treat pricing as something that ends when the salesperson hands the customer a number.
They compare estimated costs with actual costs as the project moves through engineering, purchasing, production, transportation, and service. When a cost starts moving in the wrong direction, they address it while there is still time to act.
They also study completed projects. Which estimates were consistently wrong? Where did unplanned labor appear? Which customer changes were never recovered? How much did delays, storage, transportation, and service actually cost?
If the same surprise appears on several projects, it is no longer a surprise. The factory has failed to manage the process.
That information should return to estimating, sales and management. Otherwise, the next quote will repeat the assumptions that damaged the previous project.
The Relationship Can Disappear With the Profit
The greatest loss may not be the margin on one project. It may be the trust between the factory and the customer.
When the final price no longer resembles the original quote, the builder feels misled. When the factory absorbs costs created by changes and delays, management feels taken advantage of. Both sides finish the project believing the other caused the problem.
That is not a good foundation for the next order.
An honest conversation at the beginning is far less damaging than a financial surprise near the end. The factory does not need to predict every possible problem. It does need to explain how unexpected costs will be identified, communicated and handled.
That is not perfect pricing. Perfect pricing probably does not exist.
It is responsible pricing—and our industry could use more of it.
Gary’s Observation
Factory owners and general managers should stop asking only whether the original quote was accurate. They should also ask what happened to that quote after it left the estimating department.
Did the project wait three months for financing? Did the customer make changes without receiving immediate prices? Did completed modules sit in the yard? Did freight increase? Did production perform extra work that nobody documented?
The projects that quietly damage a factory are not always the spectacular failures. They are often the ones where ten or fifteen small costs appear, nobody takes responsibility, and the factory congratulates itself on completing the job.
A quote may be correct on the day it is prepared and still produce a loss months later. Protecting the profit requires more than a good estimator and a contingency percentage. It requires disciplined change orders, realistic expiration dates, continuous cost tracking, and honest communication with the customer.
The factory that learns to manage everything that happens after the quote will not win every project.
It may, however, make money on the projects it wins.
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