With a housing slowdown under way in more than a few markets, builders across the country are looking to strain excess costs out of their businesses. Some of the larger national players are muscling across-the-board price reductions out of their trade partners. However, for many smaller, regional companies, a “take-the-price-cut-or-lose-the-business” approach won't work. So, builders, such as Ontario, Calif.–based Frontier Homes, are challenged to find new ways to meet their subcontractors in the middle.

Frontier took a first stab at it late this summer. CEO James L. Previti and COO Frank Glankler brought together a crowd of roughly 60 trade partners for a two-hour discussion on how the builder and subcontractors can work together to reduce the costs of construction. Without a 15 percent decrease in costs, the Frontier executives say, the company will be unable to supply working families in the Victor Valley and high-desert regions with reasonably priced homes.

And without affordable homes being built, the implication is that local jobs will be in jeopardy. Not only will builder and subcontractors have to pare down payrolls, but also the communities themselves will lose valuable society members. Teachers, nurses, and firefighters, for example, will have to move out of the communities they support to afford homeownership, hurting the local economy in the process.

“[Home] prices have escalated and escalated. And interest rates have upticked. The confluence of those two has pushed the affordability index down,” Glankler explains.

But slashing 15 percent off the top is a tall order for any subcontractor, many of whose competitive edges have been sharpened by a history of running lean and mean. Such is the case for Royster Engineering, a local engineering firm that generates the bulk of its business from Frontier.

Royster's vice president of construction Mike Baker says he knew that such price-reduction requests were bound to come. And although it's going to be tough to reach that 15 percent mark, he'll be looking at ways to make it happen. The bottom line is that “if they aren't successful, we're not successful,” he explains.

Baker says he'll have to go “the extra mile and look for every penny,” which means renegotiating with suppliers, slimming down overhead, and opting for lump-sum payments. One area where Baker is doing some particularly close examining is labor rates. Because subcontractors often use a union rate to estimate labor costs, there is a cushion built into that part of the bidding process. If Baker can take a closer look at the firm's true cost of labor, he expects to be able to shave a few percentage points off his price.

“[You are] forced to discount what you do, but it makes you get better at what you do” Baker says.

However, Baker sees Frontier's discount request as an opportunity for give and take. If he's obligated to make price cuts, he expects Frontier to help facilitate some transactions on its end. He has three conditions: Once he puts a reduced bid together, Frontier commits to it within 30 days so he can lock in materials pricing; Frontier helps even out Royster's cash flow by paying twice monthly; and Frontier reduces the retention it withholds until 60 days after a project is completed from 10 percent to 5 percent.

And most of Frontier's trade partners seem to be following suit, finding ways work more efficiently together. “I didn't ask them to do anything we're not doing ourselves,” says Glankler, noting that he's confident that roughly 70 percent of Frontier's subs will make the requested price reductions.

“It's been a good dialogue, and we're very proud that the vast majority of the contractors see it as an alliance,” he says.