Mitigating Risk With Upfront Payments To Timber Frame Companies?

[Temp]

Google found this co that get quotes for you from timber frame companies.  They get paid 3% by the frame co so that is  probably added/hidden in the quotes they get you. 

 

They recommend using an escrow account so perhaps they know frame companies that will use escrow? I couldnt Google any.

 

I don't know how much using escrow would add but there is probably a fee for that as well as the 3% for going through this outfit.

 

https://timberframeexpert.co.uk/how-it-works/

 

 

 

 

 

[Nickfromwales]

3 hours ago, Furnace said:

Thanks @IanR for that clarification. I appreciate the build time for an MBC-style is faster, but I'm drawn to Adam's offering due to the lack of credit exposure, reduced transportation costs/emissions, plus his undoubted experience in executing.

MBC are robust afaik. Joe has a very good set of ethics.

[Nickfromwales]

3 hours ago, Iceverge said:

Would this not be much more labour intensive in a stick build situation? Also how do you easily over-insulate window + door frames. 

The frame would be I-beam at that point, so a doddle to put up with minimal cutting etc as everything can be supplied close to the design specifications. The only undulations will be caused by the slab, affecting the soleplate, but anyone who knows this will make sure the slab perimeter is 100% bang-on. The extra time and effort spent there will pay huge dividends downstream, when erecting a near modular 'kit' eg I-beams cut to size off plan to nearest 30-50mm and simply trimmed to fit. Once at the wall plate height, and any slab level / issue has been rectified, the next uprights should all be identical.

With doors and windows set outboard of the openings, I do not see the need to over-insulate here? Marmox sheets would offer up a decent thermal break if you wanted to go nuts, just bond them to the AT OSB, then bond the PB to that. Quite unnecessary tbh, (afaic), and never seen this on an MBC PH TF build. The only lamination I have provided on these builds has been to use Marmox to line the openings of the roof lights / lanterns / etc and then plaster directly to that.

 

3 hours ago, Iceverge said:

If you run the service cavity battens horizontally surely it's child's play to run all services? Batt insulation afterwards will fit over pipes and conduit easily I would have thought.

You cannot run insulation continuously over electrical wiring, and if you run horizontally everywhere you'll need an electrical outlet to define safe zones on every single wall. Just beef up the frame, keep the insulation where it should be, and have open service cavities. KISS?

 

3 hours ago, Iceverge said:

MEGA U-Value there. <0.9 I would have thought. When you get to those extremes thermal bridging becomes a really significant factor in overall heat loss. What's the tactic re this? 

 

Could you not just pop a few holes for services in the web of a wider I-joist and skip the batten? 

Yup. The PH certified architects have made that choice / specification on the clients behalf, so yes, it'll be an incredibly low-energy dwelling for sure! Should be a nice and quiet home too, as Warmcell is excellent at keeping external noises out.

You cannot run electrical or plumbing services through the insulated web spaces, but you can run MVHR ducts as long as they are mechanically restrained and kept tight against the inside face of the internal chord. Drilling permissions for I-beams would need to be observed, but a few stray MVHR ducts should be fine.  

[Furnace]

1 hour ago, Nickfromwales said:

MBC are robust afaik. Joe has a very good set of ethics.

I have heard very good things about him and his company.

[Furnace]

1 hour ago, Temp said:

Google found this co that get quotes for you from timber frame companies.  They get paid 3% by the frame co so that is  probably added/hidden in the quotes they get you. 

 

They recommend using an escrow account so perhaps they know frame companies that will use escrow? I couldnt Google any.

 

I don't know how much using escrow would add but there is probably a fee for that as well as the 3% for going through this outfit.

 

https://timberframeexpert.co.uk/how-it-works/

 

 

 

 

 

I'd not heard of them. Escrow can only be used if both parties agree, which is where I have a problem with MBC.

[saveasteading]

9 minutes ago, Furnace said:

Escrow can only be used if both parties agree,

I looked into it once, and it involved rather a lot of admin with a surveyor identifying the building at the works before signing off. Was going to be expensive and delaying.

 

I'm sitting doing nothing, so looked up mbc.  Assuming I've got the right one, they are worth £1M over 3 companies owned by rhe md.. I'd like to think that a contract was direct with the main company.

A much younger company and smaller setup than I had assumed.

[Alan Ambrose]

>>>

MBC have rejected my requests for an escrow facility, and also for any arrangement that assigns ownership of materials to me when stored on their premises. The only protection they will consider is the insurance company route. I haven't see the terms but it seems that it would provide the protection that customers want. There are plenty of trade credit insurers, but for private punters is appears for less well developed and therefore more expensive.
I'd only need protection for 6 months, so a cost of 6% is an annual risk premium of 12% - that sounds expensive for a cash rich company.

<<<

 

Well it needs a few potential customers to walk away and then they might decide to spend more time on the subject. It's not unreasonable for clients to be protected against 'surprise bankruptcy'.

 

The 'risk premium' of 12% isn't just an interest rate - it contains the likelihood of default, so maybe it's not so bad.

 

I still think my solution of the client lodging the money with a lawyer/escrow agent up front with later staged payment to the supplier is the best / cheapest / fairest. Yes, it requires a little work to administer and an inspector-type to sign-off each stage and maybe mark the materials / work-in-progress. But there you are. And it'll probably cost less than 6%.

 

I'm seeing 0.9% from escrow.com just for the escrow service (I mention them as I happen to have used them to sell a domain name back in 2005). To that you would have to add, say, QS costs to validate the stage has been reached. Say £1K for less than a day's worth of travel / inspection? So, for a £150K transaction divided into 4 stages that might be 0.9% plus £4K i.e. around £5K or 3.5%.

[Furnace]

6 minutes ago, Alan Ambrose said:

The 'risk premium' of 12% isn't just an interest rate - it contains the likelihood of default, so maybe it's not so bad.

The risk premium is not an interest rate - it's only for the 'risk' not general cost of borrowing.

 

9 minutes ago, Alan Ambrose said:

I'm seeing 0.9% from escrow.com just for the escrow service (I mention them as I happen to have used them to sell a domain name back in 2005). To that you would have to add, say, QS costs to validate the stage has been reached. Say £1K for less than a day's worth of travel / inspection? So, for a £150K transaction divided into 4 stages that might be 0.9% plus £4K i.e. around £5K or 3.5%.

I'd be more likely to pay £5k, than the c.£12k suggested by MBC. However, in the scheme of the whole project's budget, I'm not sure I should consider £12k as a deal breaker if I get surety of build with a respected company.

[Nickfromwales]

5 hours ago, Furnace said:

However, in the scheme of the whole project's budget, I'm not sure I should consider £12k as a deal breaker if I get surety of build with a respected company.

Indeed. People’s spend with MBC are quite significant as they do foundation and frame packages, so the £12k insurance (or an uplift of £6k vs the other routes) seems to me to be ‘not insane’. 
 

MBC are spitting out houses at a fantastic rate, so I doubt they’d need to steer their business off its current model. May be a different story if they were struggling to make ends meet, but I guess they’re not. 

[SteamyTea]

5 hours ago, Furnace said:

if I get surety of build with a respected company.

I don't think it works like that.

You may get your money back, but then you are on the same bandwagon, so you are starting all over again, minus that the insurance has cost you.

 

What is happening with Isotex, any movement there?

[IanR]

17 hours ago, Nickfromwales said:

You cannot run electrical or plumbing services through the insulated web spaces, but you can run MVHR ducts as long as they are mechanically restrained and kept tight against the inside face of the internal chord. Drilling permissions for I-beams would need to be observed, but a few stray MVHR ducts should be fine.  

 

My limited experience is that there's no issue with electrics within the insulated wall/roof, as long as cables are appropriately sized. I didn't need to run MVHR ducting with the wall/roof so didn't need to consider the compromise, but I would avoid if at all possible - maybe less of a compromise in a 450 thick wall, but that is an unusually thick "Warmcell" wall. With Touchwood/Wilkinson providing the MVHR design & Install, all the I-Joists are delivered pre-drilled for the duct runs. Plumbing can't go in the external wall/roof, but I didn't find this too much of a restriction - false walls for concealed cisterns, boxed in baths and vanity units provided sufficient cover for most of my plumbing. I ended up with only one room's wall and ceiling requiring a service void to run some plumbing through.

[Iceverge]

20 hours ago, Nickfromwales said:

I-beam at that point, so a doddle to put up with minimal cutting etc

 

I get that for sure but I-Beams come at a significant premium over rough cut lumber and not normally available "off the shelf" unlike rough cut lumber. Likewise assuming it is the same system as @IanR you speak of the woodfiber board externally is a special order items at most builders merchants. 

 

20 hours ago, Nickfromwales said:

With doors and windows set outboard of the openings, I do not see the need to over-insulate here?

 

Any pics to help to visualise this please? 

 

Insulating the internal reveals is good for outward opening windows but not really practical with Tilt and Turns like ours. 

 

20 hours ago, Nickfromwales said:

You cannot run insulation continuously over electrical wiring,

 

Is this not avoidable by inserting it in a conduit or using a thicker guage of wire? (Schoolboy mode here!)

 

More questions to follow....

[Furnace]

13 hours ago, SteamyTea said:

You may get your money back, but then you are on the same bandwagon, so you are starting all over again, minus that the insurance has cost you

Indeed. As with all insurance, you'd prefer not to need to claim. But in the situation where it all goes horribly wrong, the premium paid and inconvenience of starting again seems small beer.

[Alan Ambrose]

>>> MBC are spitting out houses at a fantastic rate, so I doubt they’d need to steer their business off its current model. May be a different story if they were struggling to make ends meet, but I guess they’re not. 

 

Yeah, I get that this requires persistence, but if all of us asked suppliers for protection against default where large amounts of money are being lodged on trust - then they will slowly get the hang of it. Some - the more grown-up ones - might figure that it's an additional benefit that they can sell.

 

OTOH if we all just take it on the chin without making a fuss when a supplier goes bust, then nothing will change. Your choice.

[Kelvin]

On 10/09/2022 at 22:31, Iceverge said:

 

Stick build could be framed and roofed in a week with a good team of chippies. 

 

As to build quality, some of the TF manafactuered to a millimeter hype is just that. It's an operator placing a stick and banging home some nails to make a panel in both cases. I've heard tales of a roof being 100mm out of plumb with a  "precision kit".

 

Both can be done wrong and done well.  

 

 

 

Exactly this. After our experience I couldn’t recommend a timber kit, well certainly not Heb Homes. It’s not really benefited us much and it was still fabricated incorrectly causing us a whole number of problems. 

Edited June 30, 2023 by Kelvin

[Dave Jones]

If they dont like escrow then a solicitors undertaking could also work. It puts their solictor on the hook for the cash if it goes pete tong.

 

If they refuse both run for the hills they are using your money for cash flow.

 

 

[Kelvin]

But they mostly all operate like this as far as I can tell. 
 

Lesson learnt. I’ll never build another house but if I ever did it wouldn’t be a timber kit. 

[SteamyTea]

41 minutes ago, Kelvin said:

I’ll never build another house but if I ever did it wouldn’t be a timber kit. 

Odd isn't it how terms of payment can put one off a building system, it really should not be like this.

The responsible manufactures of building systems really do need to sort themselves out over this.

[saveasteading]

55 minutes ago, SteamyTea said:

The responsible manufactures of building systems really do need to sort themselves out over this.

It seems to me that they start as very small businesses. They haven't the resources to pay for the material at risk  so they demand a big deposit. If that is accepted them off they go, all in  the same precarious position.

I've been to a factory.....except its just an old shed with lots of wood and people with nail guns. Piles of timber and osb to one side, paid for by the next customer.. piles of trusses and cassettes on the other, to be paid for before dispatch.

 

The frame design suite was clever, linking draeings to schedules and then tobthe workshop, so that timbers and sheets  were imprinted at cutting and joining points (with part number). It was really easy to make the component and then the product.

 

My point....it wouldn't cost much to start such a business. So they are often small businesses with no assets.

 

A big, secure company could do the same, but the margins are probably low.

 

I may be able to find the current payment terms for sips on a large scale.

[Bramco]

On 29/06/2023 at 14:59, Furnace said:

I have heard very good things about him and his company.

 

Yes but they're only as good as their parts. So the factory may be running smoothly but when ours was erected 18 months ago they had a team of cowboys doing the erections. They sacked them off soon after ours was completed, so not sure how they are managing the erections now.

 

On 29/06/2023 at 15:16, saveasteading said:

A much younger company and smaller setup than I had assumed.

 

They may be young here but afaik, Joe started during the Irish housing boom, then moved here.  The good guys doing the erections are all part of his Irish squad - they were amazing when it came to the airtightness and squaring up the mess the erectors had made. 

 

Like almost anything, it's like a curate's egg - good in parts.

 

If I were to use them again, I'd employ a PM on site to QC the slab layout and the frame erection - it would be worth paying someone to ensure that the build matches the design.  But we would use them again, except, our build was a forever home we built in retirement.

 

Simon

 

[SteamyTea]

11 hours ago, saveasteading said:

I've been to a factory

So have I.

https://www.framehomes.co.uk/

 

I was impressed and since I went over a decade ago, I think they have tripled in size.

[Furnace]

2 hours ago, Dave Jones said:

If they refuse both run for the hills they are using your money for cash flow.

I spoke at reasonable length with a finance chap at MBC. They claim to have a lot of free cash (more than end-2021) so don't need the stage payments for working capital. I've no reason not to believe this. However, the owner is very conservative and doesn't wish to restrict himself if times become difficult and therefore is not willing to consider escrow or a bank-backed letter of credit that might affect his access to cash or funding. The offer of an insurer-backed facility is available since it doesn't affect his potential funding routes, but I think it's pricey (although not an 'insane level' @Nickfromwales)

I can't think of another area of my life where I have, or would, consider exposing myself to another's creditworthiness for >£100k+. In personal transactions at these levels, I've bought and sold houses and cars over the years, and have only used "cash on delivery" or a conveyancer to remove credit risk. Unexpected things do happen. Which is why I use a credit card to pay for (almost) everything. I've only ever needed to claim on Section 75 once for a few hundred quid, but it's a nice comfort to have, and free. A 6% surcharge to remove credit risk with MBC seems expensive when making all payments into escrow would likely be cheaper and fairly straightforward.

Here's a strawman.

 

• Stage 1 payment to cover plans for fabrication (10%) - released when drawings and structural calcs are completed and delivered.

then

• Stage 2 payment made to cover cost of frame and delivery to site (40%) - released when frame is delivered to site.

then

• Stage 3 payment made to cover erection (40%) - released when completed.

then

• Stage 4 payment made to cover return to site after windows/doors fitted for blower test (10%) - released when test passed.

Not too onerous on admin. and not unreasonable?

 

[Dave Jones]

1 hour ago, saveasteading said:

It seems to me that they start as very small businesses. They haven't the resources to pay for the material at risk  so they demand a big deposit. If that is accepted them off they go, all in  the same precarious position.

I've been to a factory.....except its just an old shed with lots of wood and people with nail guns. Piles of timber and osb to one side, paid for by the next customer.. piles of trusses and cassettes on the other, to be paid for before dispatch.

 

The frame design suite was clever, linking draeings to schedules and then tobthe workshop, so that timbers and sheets  were imprinted at cutting and joining points (with part number). It was really easy to make the component and then the product.

 

My point....it wouldn't cost much to start such a business. So they are often small businesses with no assets.

 

A big, secure company could do the same, but the margins are probably low.

 

I may be able to find the current payment terms for sips on a large scale.

 

problem is they do not have a fixed input cost. Timber prices over doubled last 2 years. So if you paid your deposit when and then it went up by 30% prior to delivery they are fecked. They can rob peter to pay Paul but eventually the wheels come off. They wont have the capital to forward buy a years worth of timber and if they did who would offer such terms.

 

It's not a viable build option by any stretch of the imagination and its a shame self builders are fooled into thinking paying double because it goes up quick while the rest of the build sits for 18 months anyway is a good idea.

[Big Jimbo]

@Furnace. I get the above, and agree with you. When i was building a couple of large houses for a developer several years ago, all the contracts to plumbers, brickies, electricians, roofers, plasterers etc, had a 10% contract value retention for 6 months from house completion. The developer thought he was being smart. However, all the contractors simply loaded all of the quotes by 10% and treated it as a "If i ever get it, it will be a bonus"

If a manufacturing company is say involved in producing 10 timber frame houses a month. Materials, power, rent, wages, etc during that time could be considerable. To cover this may involve borrowing money which will cost.  I can see it from both sides, but agree that regardless of what companies house checks you try to do, you are going to be at huge risk of paying up front for a timber frame from any company. That's why i wouldn't buy One.

From the other side. I used to run a small company producing bespoke hand built furniture, Kitchens, Bedrooms, Vanity Units, Media centres etc. I used to have 25% on signature of contract, 25% 12 weeks before delivery due, 25% before delivery. I had lorries parked, and refused to unload them untill funds in my account. Final 25% within 14days of completion. This ment that i didn't have many clients, but provided me with a decent income for 20 years. I was never exposed to a client not paying me (even if i got a knock for the last payment i was more than covered) The value of my contracts were between £35 to £200k Over the years, i was offered a lot of work that i turned down, because they were not happy with my contract terms, and i was not happy with the contracts they were offering. I knew many companies doing similar stuff to me that went under due to being exposed / not being paid. Perhaps i could have made a lot more money if i had taken more chances. I will never know.

I would have been happy to have worked with some sort of escrow, but i would have involved lots of extra work in admin, and i might have needed to borrow money in order to fulfil my parts before getting my money. The end result is that my already hideously expensive kitchens would have cost even more.

Say my timber frame company is cash rich. My company is able to use that money to make more. In it's simplist term sat on deposit with a bank. That is earning my Company interest. Take that away, because i am now using that money to make your timber frame......It ain't hard to guess that the cost of your timber frame has just gone up.

It kinda sucks both ways, But i still wouldn't be buying anything off me, if i still produced any of my stuff. Not on my contract terms.

[Iceverge]

The way the house building industry is funded is rubbish. I think this is due to the time for invested money to be returned in a useable product. 

 

Hence what we all do is buy one brick, one plank and one nail at a time, pay people at short intervals and watch our houses slowly go up. Everyone's exposure is small, you buy a brick and some mortar, pay a mason and your investment is secured quickly. 

 

The disadvantage is you negate the advantages society leant two hundred years ago in the industrial revolution with the efficiencies and quality improvements of mass production. Anything build in a factory like trusses, kitchens and windows are all bespoke to fit in with aforementioned bricks. Hence they have only one customer for the product made.

 

The manufacturer is really exposed. If one person doesn't pay they're left with £££££ of product they can't sell. They respond to this by gambling on the creditworthiness of the client every time they make a sale, often going bust in the process or else demanding large amount of cash upfront like MBC and shifting the risk to the client. 

 

As they are the top end of the market and have clientele who can afford to self insure, who can blame them. 

 

If MBC were building a standard house type X that could really be erected in any one of 100 clients sites in a blink of an eye their risk would be much smaller. However if they prebuild a bespoke slab and kit for  @Furnace  and they don't get paid they are goosed. 

 

Until we all agree to live in extremely standardised houses we will have to live with the risks of building brick by brick or else exposing ourselves to the creditworthiness of manafactuers and they will need to do the same for us.