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A New Idea for HVAC Contractors

Why Won't The HVAC Industry Do Things Right?

hvac contractors, oversized air conditioning capacity, new pricing modelDo you know how most HVAC contractors charge for installing HVAC systems, especially in the case of new home construction? By the ton of installed air conditioning capacity. If you’ve read any of my previous articles about Manual J and oversized air conditioners, you probably see where I’m going with this.

Do you know how most HVAC contractors charge for installing HVAC systems, especially in the case of new home construction? By the ton of installed air conditioning capacity. If you’ve read any of my previous articles about Manual J and oversized air conditioners, you probably see where I’m going with this.

The number I’ve been hearing from HVAC contractors around Atlanta lately is $1800 per ton of air conditioning capacity to install a new system. With that pricing model, if the contractor shows up at a new 2400 square foot house, do you think they’d rather install a 4 ton system or a 2 ton system? Herein lies part of the problem with so many houses having oversized cooling systems.

If the HVAC contractor uses a sizing rule of thumb like 600 square feet of conditioned floor area per ton for that 2400 square foot house, they’re going to justify – incorrectly – installing the 4 ton system. If they do a Manual J load calculation and find that the house actually needs only a 2 ton system, their enthusiasm for the job suddenly drops. They’re going to be able to charge only $3600 for the smaller system instead of $7200, but the amount of work is the same.

In new construction, HVAC contractors sometimes pay their employees or subs by the ton of installed AC capacity as well. I heard one story about installers who just walked away from a job when they arrived at a high performance home and found out they were installing only a 1.5 ton system. It wasn’t worth it to them even to start the job.

So, how can HVAC contractors charge for their services to ensure that they can make money on a job and also install properly sized equipment? It’s really simple. Ready for the answer?

HVAC contractors should charge by the square foot instead of by the ton.

There it is. Do a Manual J. Install a properly sized system. Use a Manual D duct design for really good air distribution. And price it all by the square foot of conditioned floor area so you can still make money.

Result: Happy contractor. Happy homeowners.

Of course, the problem with this model in new construction is that the HVAC contractor isn’t working for the homeowner. They work for the builder, and that can present problems if the builder wants to have his cake and eat it, too. If the HVAC industry will get on board with this new pricing model, however, it could change the industry for the better while improving the performance of homes.

Air conditioner photo from Echiner1/Flickr.

This Post Has 10 Comments

  1. Allison, I always enjoy the
    Allison, I always enjoy the photos you come up with for your blog articles; they always give me a laugh. 
    What you are talking about in this blog though, is no joking matter, and definitely could be one of the solutions to getting everyone on board. Until people realize they get what they pay for and stop focusing so heavily on the upfront price, there will be the internal struggles and bad (costly) decisions. It is not the price of something that everyone should be focusing on, but rather the long term costs. Yeah, the price of a ink pen usually is the same as it’s cost (unless it is a cheap pen and explodes on to something. ie. clothes, couch, car, etc…), but our buildings are long term investments and the decisions need to be more carefully weighed and examined.  
    Getting building performance right will lead to lower maintenance costs and better durability, which in the long run should be less cost than the fly-by-night bidders true costs. Also, the healthy environment can help lead to less health problems, more time at work, and a better overall attitude that could be factored in making the right decision even a better one. 
    Thanks again for a good article. 
    Best, 
    Jamie

  2. Thanks for your comments,
    Thanks for your comments, Jamie. You’re right – our focus with buildings should be about more than the first cost.  
     
    Most of the photos I put in here are ones that I’ve taken, but I got this one from Flickr (under a search for pix with a Creative Commons license).

  3. How about a really radical
    How about a really radical approach. Look at the plans, look at the specified equipment and duct design (assuming 3rd party design, someone should be paid to do a proper design), figure material,labor and overhead and provide a quote specific to the job. 
    I know that this rarely happens these days but it should. For one thing it would begin to weed out some contractors with poor business skills. These guys aren’t going to be around long anyhow, eliminate them early. 
    When I’m working as an owners rep one of the tools I use to select contractors is asking questions about specific details of a job. It doesn’t take long to figure out who has thought about the job and who has just thrown a bid on the table. Usually the ones who have done the work upfront are better prepared when the walk onto the job and are less likely to try to get paid more for “extras” that they should have seen earlier. 
    I know, so old fashioned. But, like with anything else, upfront work will pay off in the long run.

  4. I realize that I’m
    I realize that I’m posting on an aged thread, but since it’s still up, someone might find my write-up interesting… 
    I moved to the US eight years ago after selling my long time business in Germany. HVAC, right!!! 
    No air flow heating over there (for homes), however high tech water based heating, tank less water heaters and all kinds of air conditioning. My company used to work with mini split units 20 years back, while those appear to be the “hot” stuff called “ductless heating/cooling” here… Nothing special about those, just the hype and the tons of money installing vendors charge an un-informed market. 
    The right way to charge a customer is not by capacity, nor by sq. footage, but by the actual cost of the desired equipment and the according labor hours. Labor is paid (to the workers) at an hourly rate and so should be the billing to the customer. 
    There should be a detailed description of the job to be performed and a detailed cost chart for parts and labor. 
    During such jobs it is not unheard that some extras are desired, or that something appears to be any different on the site than on the drawing; therefor it is justified that some extra costs might come up; on the other hand it might be the revers and the savings are to be awarded to the customer. 
    I’m not talking here about each and every companies markup (because this is what a free market stays for), but I have the desire to be able to decide for myself what equipment will be installed in my home and at what cost. If such a job is treated globally (ex. I will install a 4 ton AC in your home, Sir), this does not tell me anything about the equipment and even if a brand is settled on, this does not mean much. It comes to all the small stuff which if not specified and tracked by the customer will pour tons of money in the contractor’s pocket, while letting the customer short of the quality he/she believes to have bought. 
    I am very disturbed by the fact that the customer, on this side of the Atlantic Ocean is treated as a complete idiot and no knowledge is accredited to him/her by the vendors/installers out there… 
    A job should be attractive and it’s great that a contractor can choose which job his company accepts and which it will pass, however in my local Craigslist I often find contractors complaining that people should use only well established companies and such… 
    I’m only writing this because I totally hate all predator contractors and I want to let them know that there is another way to do business: The honest way.  
    Thanks for reading 

  5. Enjoy your website and visit
    Enjoy your website and visit it often. I work in the HVAC industry in Va. Concerning the “per ton” thing. Why would anyone price anything other than corn or eggs “per” anything? Builders, Homes and homeowners are so diverse in their building practices, designs, wants, needs and desires any “one method fits all” rule of thumb price structure would be foolish if not maniacal!! Why not simply use proven estimation formulas to ensure a fair price and a fair profit on every job to ensure quality and professionalism? In a “per ton” or “per square foot” scenario someone always loses, either the homeowners or the HVAC contractor, in which case ultimately everyone loses!!

  6. This is an interesting
    This is an interesting discussion and I would like to answer Tim Hart. 
    “Proven estimation formulas” are nothing else than the same way to fool the novice homeowner. 
    I might repeat myself, but the ONLY honest method is to charge for actual hours of labor and for actual used parts. 
    If, as an HVAC contractor you have to deal with a builder or general contractor you don’t get to the point of bringing numbers yourself; the discussion is pretty simple: This is the job, this is the equipment we want and this is how much we pay. It’s a take the job or leave kind of a deal and this is in most cases what keeps small HVAC contractors in business. There is not much of a margin, but it’s not a lost game. 
    The dishonesty starts when the homeowner is addressed, in most cases because of the leak of knowledge. 
    Huge margins are justified by statements like: “We have to stock so much…” or “We know how many hours it takes to complete the job…” 
    In fact there is no need to stock anything unless doing so brings a direct profit to the contractor. 
    In my area (98008), I was shopping at three different companies for a 70k BTU/ 96% efficient down flow natural gas furnace (two stage burner/multi speed blower) + 13 Seer 2 ton AC-no heat pump. The prices I got where almost the same between $9000 and $10 k installed. I was not able to get detailed pricing unless letting them know that it jeopardizes a potential agreement failing to do so and I was very disturbed by the numbers. I forgot to mention that no duct work was part of this job since I was only replacing the old furnace and added AC. 
    Finally I purchased the entire equipment online, installed it myself and had the online vendor send an HVAC contractor to do the bracing and final installation in less than 2 hours. The lines were already in place and so was the electrical/gas/exhaust; he only had to do the welding (bracing) and start the system. My charge to the contractor: $300.  
    Total cost: $2500 for an installed 69000 BTU 96.1% furnace + AC – 42 000 BTU 13 Seer, 2 ton (no heat pump). I have a 10 years manufacturer’s warranty on the entire system. 
    Doing so, I saved $7500 and have the very same scenario as ALL local contractors offered for four times more. The entire job is according to the latest building codes and the system is a joy to look at and have running. 
    Total labor time: ~5 hours. I did the job myself and only had a friend help move the old furnace out and put the new one in place. I also did what no contractor does, namely a structure under the furnace to handle the added weight and cabinet insulation. 
    The contractor’s estimates included between 40 and 50 hours of labor at about $100/hour – disclosed only after I specifically asked for that to be shown. 
    I intentionally will not mention the name of the supplier, nor the brand I received, because this is not intended to be any kind of an advertisement for anyone. All I need to point out is that I only purchased the same quality as my local contractors offered, while if any doubt someone reading these lines might be, the charge for labor tells it all. 

  7. Robert, I see from your
    Robert, I see from your perspective where it might seem advantageous to do what you did. No need to pay $10,000 for a system that should have cost you half that from any respectable HVAC contractor. However, I do take offense to the insinuations that the industry I’ve worked in from Manufacturing, Wholesale and retail levels for 36 years is deceptive and crooked. First of all I’d check that manufacturer’s written statement that online sales have no warranty as even Goodman posts on its own website. Beyond that, realize you had no labor, no permits, no payroll or income taxes, no workman’s comp. And general liability, no health insurance no building to maintain and insure and pay taxes on, no trucks to do the same with, Utilities and communications, no advertising, no overhead…..and no clue what it takes to break even no matter where or who you are in the HVAC business!!! also realize that not everyone is able to do all of this themselves as you are and that’s why the HVAC contractors exist. Good luck when it breaks down too!

  8. Tim, I have no clue about
    Tim, I have no clue about what “no warranty” if purchased online you are talking about, because I hold a 10 year warranty certificate in my hand. Besides that I have the ability to replace interior parts as well, so I really don’t see your point here. The HVAC technician will also come over and replace parts and not perform magic (not so many parts these days…) a board, a blower, the gas valve and the burner, heat exchanger (two of them in this case)…  
    The board could go bad due to various factors including power outages and such, but the gas valve is a Honeywell which is the same in most brands and is very reliable, the burner itself would be a joke to even believe could malfunction… There are a few sensors as well with easy replacement… 
    Basically you are right, this is not a job for everyone and YES I am someone who is educated at a very high level on this field. I personally won’t have any issue even if something would go wrong, but the prices I was given by the most reputable companies in my area are absolutely and straight forward robbery in my eyes, no matter how many costs those company s need to cover. I had my stuff also shipped to my door… and as mentioned, I needed 5 hours to have the job done, which you would probably do in less than three because you do this for living. So excuse me if you feel offended, but you are in an industry where the money can only be made the way I described in my previous post. 
    Good luck to you too. 

  9. The 10 yr warranty in your
    The 10 yr warranty in your hand is kindling if you didn’t buy the equipment at a distributer. Those equipment prices are cheaper than wholesale, how contractors get equipment. And I call bs on the 5 hrs of labor. I have done over 500 retrofits and the system you describe takes an absolute minimum of 20 hrs, if everything goes peachy smooth. Companies here are in the business of making money. No one in business needs any more practice.

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