Saturday, November 25, 2017

“FOB” - The Mysterious Part of Modular Construction

The initials “FOB” stand for either "free on board" or "freight on board." Either way, it has the same definition. When using the term in the modular home industry, buyers and sellers attach FOB to the beginning of a location to show the point at which the modules change hands from seller to buyer.


Sounds rather straightforward but those 3 little letters can spell big problems in some cases. Taking a deeper look into where the problems can happen and who is responsible for the grey area between the factory door and the acceptance by the builder reveals a murky mess for builders and their customers.

Starting at the factory, a module is loaded onto a carrier, pulled into the factory’s storage yard where it awaits delivery to the builder’s jobsite. This is a very small part of the journey but can set the stage for major problems.

When you drive past a modular home factory there are usually 10-50 modules in their yard waiting for delivery, perhaps more in the summer months. They don’t set there long as most are prepaid by the builder prior to leaving the yard. Occasionally you will find a builder that can’t take their home because of mud or snow at the jobsite. How long can a module set in the yard shrink wrapped? You would think time shouldn’t matter since it’s wrapped.

However, a module setting in the factory’s yard is subject to all sorts of extreme weather. Everything in the module has been produced in a climate safe environment, wrapped and sent to the yard where rain and driving wind could create tears in the wrap letting water seep into it causing either damage that goes unnoticed for months before showing up as black mold or in some cases, drywall damage that must be repaired as soon as it is detected.

This is problem area number One. Who is responsible for inspecting and repairing this type of damage while the unit sets in the factory yard. The factory completed the module and placed it in the yard awaiting the truck to deliver it to the builder. Is it still the factory’s responsibility to make those repairs or the builder who has already paid the factory?

Some factories put that responsibility on the builder (FOB, the factory door) but most factories make the repairs before shipping it or preauthorize the repairs upon the house being set (FOB, the factory gate).

Shipping is the next step in the chain of custody for the module. Many factories have their own trucks and carriers delivering the modules while others hire outside transport companies. This simple act of choosing who delivers the module changes the FOB location.

If the factory delivers the module themselves and something happens to the module in transit such as major drywall cracks caused by extremely rough road conditions, scrapping the exterior walls on a tree, wall, etc and the worse possible situation where the module is destroyed in an accident, you would hope FOB location would move with the factory trucks. A few factories that own their own trucks and deliver the modules actually have their trucking company under another corporation for liability purposes. Now FOB is back to either the factory door or the factory gate just the same as if the module was transported by a third party.

As a builder, you need to learn exactly who is responsible in case unforeseen problems occur while on the road to your jobsite.

And let’s not forget barges which are used to get the modules to island jobsites.

Assuming the module arrives as pristine as it left the factory, the next cog in the delivery wheel only has to move the module about 40 feet. The crane company can make or break a good set.

Pick points are usually determined by both the crane operator and the set crew. A two point pick on a long heavy module containing the kitchen and a master bath could easily cause inordinate amounts of stress on joists, walls, windows, doors and ceilings. Being at a jobsite and hearing a cracking noise while the module is being put into place makes everyone jumpy. Most of the time when the module is put into place everything looks fine upon inspection but be aware, that loud popping noise broke something. As the builder, make sure every module is being picked up by the correct number of lines and at the proper locations.

Crane companies carry insurance for visible damage to the module and usually take care of notifying their insurance carrier quickly but many crane operator don’t report a loud cracking noise to their company when there is no noticeable damage. Once you sign off on the crane set, you, the builder, are now ‘on the hook’ for any damage they caused.

Set crews are the professionals that guide the crane operator while setting the home or multistory building. After the set is complete, they quicker “weather in” the building so the elements like snow or rain can’t get inside the house envelope.

Over the years I have found three types of set crews. Independant, factory and ‘pick up’.

Professional set crews will give you a complete scope of work to be done at your jobsite based on how much work you, the builder, want them to complete. They are fully insured and in some cases bonded. The people they hire are skilled in their tasks and want to do a really good job for the builder so they get to set the builder’s next house and the next house and so on.

The next next set crew is from the factory. Some factories will give the builder a quote to set and even finish the home. This might be a good option as the factory people would seem to want to make sure everything is perfect when they hand over the house after the set and even more so if they were contracted to finish it and hand over the key at the end. With this method, does FOB move with the factory set crew to either the completed set or the completed home finish?

Finally there is the Pick Up crew. These set crews are usually people that have worked for a large professional crew where they learned the skills necessary to set and/or finish the house. The work can be on par with the full time set crews but there can be real problem(s).

First, the pick up crew will always lowball the job making it an attractive alternative to the price from the established set crews. When they lowball they are probably leaving out one or more things the builder will come to regret.

Some of the things left out of the contract proposal are insufficient liability insurance, following proper OSHA regulations and limited scope of work.

The lack of proper or sufficient insurance is a big one. Before a builder hires a set crew, get their latest insurance policy info. It takes less than a day for them to obtain that from their insurance carrier. They may want to show you a binder from 6 months ago when they were still paying their premiums. Don’t accept it.

And let’s not forget OSHA, the big gorilla hiding in the jungle. One fall from a roof with a trip to the hospital will send that gorilla coming to your jobsite where not only the set crew will be fined but if they are found in violation of OSHA safety regs, but you, the builder, can find yourself paying out thousands of dollars.

Does your set crew have the safety equipment for installing the roof system and shingling? If they don’t bring the proper safety equipment, will you force them to return and get it incurring huge crane costs and an upset home owner who took the day off work to watch the magic happen or will you allow them to continue? What a loaded question!

The last problem area are the independent subcontractors you bring onto the job to do the finish work. Contracting with them without a thorough vetting process can lead to lost time, patience and money. Read  The Pitfalls of Hiring Uninsured Subcontractors for more about this subject.

Figuring out just when FOB ends and the builder’s responsibility takes over is a fluid event. If you and your factory haven’t discussed this before, I really hope you do it soon as modular home building does not look like it will slow down over the winter months.

2 comments:

Builder Bob said...

Your article about FOB is something I completely agree with. When something happens to one or more of the boxes between the time it leaves the factory and my customers first walk through why does everyone involved point fingers at each other?
As the builder I'm left trying to make the repairs, calm the customer and fight to get someone to reimburse me for what was clearly something out of my control. I used to hire the least expensive set crews and always had problems. Now I found one that really works with me to help get things done right.
After all the years we have been building modular homes, we are still fighting to get paid for repairs.

Steve L said...

Nice commentary

The factory builder is in a quandry.

A factory has a commitment to build a house from its client. Unfortunately "FOB" implies the factory has finished it and needs to be paid before delivery. The factory has no interest in the On Site delivery. No interest to await for partial or the full payment for On Site work completion. If so, then it is given the factory's money is tied up until the contractor finishes the house, gets the C/O inspection and then awaits to be paid at the Close of Escrow. The contractor is not the client nor financially capable of paying the factory. The client wants a finished home product before committing funds.

The real true value of modular factory construction is the combination of the land and the home like a developer. Unfortunately, the Factory is NOT in the Spec land/home business. It is in the commodity business. Just like ordering a widget on line. The escrow process creates a severe cash flow problem. Which will result in every sales order written creates a backlog in account receivable.

The residential commodity home modular product business is hampered and growth stymied because of the "FOB".