12 Steps To Becoming A Performance-Based Contractor

June 1, 2006
Over the past few years, you've become familiar with the concept of performance-based contracting. You like the idea of delivering measured system performance

Over the past few years, you've become familiar with the concept of performance-based contracting. You like the idea of delivering measured system performance to your customers, and you love the idea of taking your company to a higher plane than 95% of your competition. You're ready to take the big step and take your company into a larger world.

That's great, but you'll need to be aware that becoming a performance-based contractor usually involves a significant culture change in how you manage and operate your business. While performance-based contracting's foundation is rooted in the technical aspects of the HVAC system, it reaches far beyond — into how you sell and market your products and services and how you represent your company to your customers.

In fact, many practitioners have taken the concept of performance-based contracting and applied it to the way they manage field employee productivity, as well as profitability of the company itself. It's all about measurement. Measurement has always been the foundation of any quality improvement process. Without measured results, you're just hoping that your quality is good, or that you're running your company profitably. Remember, if you don't measure, you're just guessing.

Only You Can Deliver True Performance
From a deliverable standpoint, performancebased contracting focuses on the performance of the systems that you sell, install, and service. In the HVAC world, this means providing an optimum balance of comfort, safety and energy efficiency.

While this sounds very simple (and virtually every equipment manufacturer claims their equipment does just that), the reality is the only way you can achieve this balance is through the entire system, not just one or more of its components. This means that only you, the HVAC contractor, can deliver on this promise because you control how the whole system is designed, installed, tested and adjusted, and serviced.

This approach puts you in the driver's seat and makes it difficult for your competitors, regardless of brand affiliation or size, to provide the same end product that you provide. Even if by chance your competitor is performance-based, his or her solutions will rarely be identical to yours.

12 Steps To Implementation
So, how do you evaluate if performance-based contracting is for you? And, if it is, what steps can you take to further evaluate the opportunity and begin implementation? Here are 12 steps — some for you to consider beforehand, some to get you started, and some to build and maintain a foundation for excellence:

Step 1: Explore the commitment. The primary barrier to becoming a performance-based contractor is the level of your commitment. Attending a class or reading a book to learn some of the technical aspects of performance-based contracting is a start, but unless you make a commitment to investing in your employees' training and in the tools and instruments needed to deliver measured performance, chances are you'll never make the leap.

Just giving lip service without verification may allow you to pose your way through some sales, but unless you have the tools and skills to deliver, you'll be quickly found out.

Step 2: Open up your mind. Whether you've been in this business for 20 years or two, it's easy to fall into the trap of believing you've learned it all. You must avoid that line of thinking, and constantly be in a learning mode.

Our industry is littered with rules of thumb and myths about sizing, installation practices, and how to tell if systems are working. An important part of this step is being open to the possibility that only are your installations not perfect, they may be a lot worse than you think. Many performance-based contractors have confessed that, after testing their own systems installed in the past 5, 10, or 15 years, they were blown away by what they found.

Many contractors subscribe to the " if it ain't broke, don't fix it" approach. Therefore, if customers aren't complaining that they're not getting the performance promised, everything's fine. Unfortunately, most customers won't complain: they'll simply stop doing business with you and never say a word.

Step 3: Decide if you need to change. You're the only one who knows whether your company needs to do things differently. Are you satisfied with the status quo? Are you moving forward? Are you making the profits you deserve? Are you keeping good employees? Is your business growing, or is it stagnant?

It's important to understand that performance-based contracting isn't just some niche or add-on business. It literally defines the kind of business you're running. It's the way you do business. Performance-based contracting is as much a culture change in your company as it is a different way of selling, installing, and servicing HVAC systems.

Step 4: Start your education. If the first three steps compel you to start exploring performance-based contracting in earnest, it's time to get educated. In my experience, most contractors will admit that the air side is one of the weakest areas of their technical education, whether formal or through the school of hard knocks.

The air (or in hydronics, the water) is the medium that delivers the Btus through the indoor space. It's where the rubber meets the road. Become a student of air, and many of the other pieces of performance will fall into place.

The other area with the highest degree of misinformation is combustion. Take the time to learn the truth about combustion and carbon monoxide and your eyes will be opened to many opportunities. The secret here is don't take anyone's word for it — test for yourself and you'll know what's real and what's myth.

Step 5: Get the right tools. This is not a place to cut corners. If your going to be a professional, you need professional tools and instruments. Remember, performance-based contracting is based on measurement. If you can't trust your instruments, how do you know if your solutions are working?

And, like most things, you get what you pay for. It's better to invest in a couple of high-quality tools than throwing money away with a bunch of cheap imitations that will end up collecting dust in the back of your shop because you don't trust them.

Step 6: Practice, practice, practice. Professional athletes, actors, comedians all share the same secret to their success — they practice their craft over and over again to achieve and maintain peak performance.

Before you or your techs go charging off to a customer's house with test instruments blazing, start with your own homes, and with family members' homes. Get used to using the instruments, forms, and procedures you'll be using on real service and sales calls. Some contractors offer their employees the materials at cost to renovate their own homes, which is a great idea. Not only will they be more comfortable with the techniques, they'll sing the praises of it to everyone they talk with.

Step 7: Have someone watch your back. There's nothing scarier than going it alone when you try something new. Make sure you connect with other performance-based contractors. They're out there. Keep in touch with the organization that provided your training, as a good source of technical support. It also wouldn't hurt to identify a mentor. Find someone who has been through the process and can support you on the business side as well.

Step 8: Continue your education. As you become more familiar with the technical and business aspects of performance-based contracting, be sure to seek out educational opportunities to help you with implementing it in your everyday business. These go beyond those directly related to the new venture. How's your service department doing? Is it profitable? Is it organized enough to track and reward individual performance? Do you have reinforcement systems in place to ensure that your new approach isn't viewed as a fad, or yesterday's bandwagon?

Step 9: Get everyone on board. The only way to do this is with both initial and ongoing training. The initial training tends to be more intensive education and should be left to professionals in a more formal setting. This usually works best if it's from a third-party source.

Since ongoing training is more about reinforcement of techniques, forms, and procedures you've already learned about, it can be more informal, and can be done by yourself or managers within your company.

Step 10: Update your internal systems. As you implement performance-based contracting, you'll likely find that your service procedures, forms, invoices, and service agreements need to be updated to reflect the changes and capture important information as you measure system performance. You'll also need to make changes to your installation methods, training, and even your hiring practices.

Step 11: Rethink your personnel needs. As your performance-based business grows, you'll identify the need for specialists to perform testing and system renovations.

Remember, as you hire and train diagnostic and duct renovation specialists you don't need to pull from the labor pool of full-fledged technicians. These specialists don't need the same diagnostic and repair skills, as their focus would be mostly on the duct system.

When it comes to carbon monoxide and combustion analysis, however, make sure all your field personnel are trained and equipped to respond to any situation.

Step 12: Just do it! Procrastination is the number one barrier to any major change in a company. We're all bombarded with to-do lists and daily fires that will always be there pulling you away from taking that first step to implementing performance-based contracting. The only solution to this is to decide whether this change is important enough to set aside your valuable time and make it a top priority.

This article is based on the Presidential Track presentation, Integrating Performance-based Contracting into Your Company, which Dominick Guarino gave at HVAC Comfortech 2005, held in Nashville, TN, Sept. 14-17, 2005. For more information about HVAC Comfortech 2006, which will be held September 13-16 in Baltimore, MD, call 216/931-9550 or visit www.hvaccomfortech.com

At the core of performance-based contracting is the process of testing the HVAC system's air distribution system to make sure that it is sized and installed correctly so it can move the right amount of air and deliver the Btus it's creating to each area of a home or building. This testing also verifies the ducts are tight and well-insulated where needed.

Another main component of performance is the refrigerant side of the system. Once you're moving the right amount of air, the refrigerant charge can be tested and adjusted for optimal performance.

The third technical leg of system performance is the combustion side. This also affects safety. By properly testing and adjusting combustion performance and making sure you have proper combustion air and venting you can optimize the Btus available to the air or water distribution system while improving safety.

These of course are the more technical aspects of performance-based contracting. The other benefits involve how it can generate leads through testing on service calls, how using testing during sales calls instantly differentiates you from the rest, and how your company can elevate itself in your marketplace by being viewed as the top professionals.

There are numerous other benefits including increased profitability since you can charge what you're worth because you can prove it.

Employees of performance-based companies tend to be happier and more excited about what they're doing because they know they're a cut above the rest and they see more opportunities for growth and advancement.

Other benefits include reduced callbacks and warranty issues because when you test a system before you leave you can insure it's working properly. Your liability with respect to carbon monoxide safety and potential indoor air quality problems is also greatly reduced when you know the system is functioning the way it's supposed to.

There are only an estimated 2,500 performance-based contractors in the U.S. --that's less than 5% of the legitimate contractor population. This means there's less than a 1 in 20 chance you'll be competing with another contractor who delivers measured performance.

While 100% of our industry will never be performance-based, this segment will continue to grow and could be accelerated due to outside forces, including government and utilities as well as other industries who see opportunities that most of us walk by every day.

Over the next few years the industry is likely to see a big push by government agencies such as the Environmental Protection Agency (EPA), the Department of Energy (DOE), and PUCs (Public Utility Commissions) to measure system performance. Many utilities are also jumping on the bandwagon. Right now the focus is still on equipment energy ratings (SEER and AFUE) and duct system tightness, but the talk in those circles is about taking the next step toward delivered efficiency.

The bottom line is you can choose to be a leader and stay well ahead of the minimum efficiency programs, or be a follower and not take advantage of the differentiation delivered performance affords.