Is Construction Buyout Just a Nicer Word for Shorting Your Subs? Adam, Jeff, & Greg React to Your Comments
Construction buyout doesn’t have to mean shorting your subs, but when a general contractor wins a job without enough money in it and expects the buy to make up the difference, the subcontractor usually ends up carrying the loss. On this episode of Construction Hot Takes, Adam Cooper, Jeff Robertson, and Greg Gorman react to your comments on a clip from Adam’s longtime friend Josh, who argued that sometimes you have to win a job before you can make money on it.
Adam defends the idea that buyout means competitively buying the work, and admits the uglier version is real: as a young PM on hard-bid state work, he was handed a job with a 2.5% bid-day fee, told to make 4%, and told to “get it out of the subs.” Jeff shares the story of a young project manager who proudly bought a $100,000 electrical scope for $90,000: without knowing $25,000 of contingency was baked into that line.
Greg takes the subcontractor’s side as a former sub CFO. With 25 points of gross margin and 20 points of overhead, a GC squeezing out four more leaves 1% profit that disappears on day two. His bigger point: taking a job for revenue isn’t the same as taking it for profit, and a thin bid is a market problem, not a subs problem.
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In This Episode
Buyout means competitively buying the work, not automatically shorting a sub — sometimes the money is simply carried in a different place in the budget.
Know where contingency is baked in before you buy: a young PM bought a $100,000 electrical line for $90,000 and lost money, because the real target was $75,000.
Jeff’s buyout approach as a PM: aim for 5–10% across the whole buy, and scope every package tightly — more scope counted the same as a lower number.
Greg’s sub-side math: 25 points of gross margin minus 20 points of overhead leaves five, so squeezing out four leaves 1% profit that evaporates on day two.
Taking a job for revenue isn’t the same as taking it for profit — sometimes the worst job you ever have is the one you won and shouldn’t have.
“As a sub, I might have 25 points of gross margin on that job, and my overhead is 20 ’cause I’m a small business, and you’re trying to get four out of me. So now I’m down to 1% profit, and that 1% evaporates on day two.”
Construction buyout is the process where a general contractor competitively buys the subcontract and supplier scopes after winning a job. Adam Cooper explains that buyout means competitively buying the work, and it doesn’t have to mean shorting a sub — sometimes the money is simply carried in a different place in the budget.
Is construction buyout just shorting your subs?
Not necessarily, but it can turn into that. Buyout becomes shorting subs when a GC wins a job without enough money in it and expects the buy to make up the gap. Greg Gorman notes that a sub with 25 points of gross margin and 20 points of overhead can’t give up four points and stay profitable.
How do you buy out a subcontractor without losing money?
Know exactly where contingency is built into the budget before you buy. Jeff Robertson recalls a young project manager who bought a $100,000 electrical scope for $90,000 and celebrated, not knowing $25,000 of contingency sat in that line. The real target was $75,000, so the “savings” actually cost the company money.
Should a contractor take a job for revenue or for profit?
Greg Gorman argues those are two different decisions, and contractors should know which one they’re making. Winning revenue at a price that can’t cover the work only pushes the pain onto subcontractors and the job itself. As Greg puts it, sometimes the worst job you ever have is the one you won and shouldn’t have.
Why do general contractors try to make up margin in buyout?
Competitive bidding pushes GCs to carry market-rate general conditions, because owners level bids and question any GC whose number is higher. That leaves buyout as the place to recover margin. Adam Cooper recalls being handed a job with a 2.5% bid-day fee, expected to make 4%, and told to get the difference from the subs.
Is Your Buyout Strategy Protecting Your Margin or Burning Your Trade Partners?
If your jobs only pencil out when the buy comes in low, the problem started at bid day. Ascent Consulting helps GCs and subcontractors build budgets, contingency, and buyout processes that protect margin without wrecking trade partner relationships.
About the Hosts
Adam Cooper — President & CEO, Ascent Consulting
Jeff Robertson — Vice President, Ascent Consulting
Gregory Gorman — Principal Senior Consultant, Ascent Consulting
Adam Cooper is President & CEO of Ascent Consulting and the author of Build It Better. He spent over 30 years in commercial and industrial construction — including years as a project manager buying out hard-bid jobs — before founding Ascent in 2014.
Jeff Robertson is Vice President at Ascent Consulting. With 30+ years across diverse construction sectors, Jeff brings a contrarian, math-and-experience-grounded take on GC economics, buyout, and operational execution.
Gregory Gorman is Principal Senior Consultant at Ascent Consulting. A former subcontractor CFO, Greg brings a measured, finance-first lens to job selection, margin, and how construction businesses actually make money.
Winning Jobs You Can’t Make Money On?
If your bids keep coming in thin and your PMs are expected to find the profit in buyout, that’s exactly the kind of gap Ascent Consulting helps construction owners and leaders close — from bid strategy and job selection to budgets your team can actually execute.
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Episode Transcript
[0:04] Greg: As a sub, I might have 25 points of gross margin on that job, and my overhead is 20 ’cause I’m a small business, and you’re trying to get four out of me. So now I’m down to 1% profit, and that 1% evaporates on day two. So now you’re squeezing me, I’m losing money, you’re losing your ability to hire future subs. It’s just not a sustainable way to continue running jobs.
[0:27] Adam: On this episode of the Construction Hot Takes Podcast, we’re going to be reading and responding to your comments from LinkedIn, YouTube, and TikTok as well. We’ve got some really spicy comments we’re looking forward to getting into.
[0:39] Josh (clip): We were having a conversation over lunch with a project manager, and my precon director was there, and the PM asked, “Guys, it feels like we never have enough money in the general conditions for these projects.” We get it, and then they do a labor projection for the job like we’ve taught them: “I’m on the job, the super’s on the job this many weeks.” They’re doing an actual projection. And he’s like, “There never seems to be enough.” And I was like, “Well, yeah, that’s probably true. Just got to remember, we’re competing in a competitive market right now against other general contractors, and we’re bidding what market general conditions are, ’cause when the owner sits down and levels his four GC bids — well, why are your GCs 10% higher than everybody else’s?” But we also believe there’s room to get some buyout in the job to help supplement that. And there’s a little give and take. To your point, if Mr. Project Manager is estimating the job, you’re going to make sure all of his GCs are covered, as he should, right? He’s trying to mitigate risk. That’s his job. So sometimes you’ve got to win a job before you can make money on it.
[1:34] Adam: I’ll start with saying you have to win a job before you can make money on it.
[1:38] Greg: That’s correct. That is logic.
[1:42] Adam: Sales fixes everything, doesn’t it?
[1:44] Jeff: So, so we’ve got—
[1:44] Adam: Nothing happens until you sell something.
[1:46] Jeff: We’ve got some great comments on this one.
[1:48] Adam: All right. I’ll see what I have to do to defend my friend Josh.
[1:52] Jeff: Yeah. So, I’m gonna open by saying that I’m just reading these. I know Josh, and he’s a really good guy.
[1:59] Adam: He’s the best man at my wedding.
[2:00] Jeff: Yes, that’s true. So, the first comment is: “Would hate to work for this guy.”
[2:06] Greg: Me, too.
[2:09] Jeff: “Never work for your best friend.” These are generally negative, so I’m going to just kind of roll here a little bit.
[2:12] Adam: Okay, good. Okay, go ahead.
[2:14] Jeff: “Buyout: short for shorting the subs.”
[2:19] Greg: Well, you’re the general contractor.
[2:23] Adam: So, I will address that just a little bit. Josh is absolutely right. I agree with everything he said. You’re in a competitive environment. You have to find ways to win the work. You can’t make any money off a job you didn’t win, right? Sometimes that strategy is buyout, and buyout does not always mean shorting a sub. It means competitively buying the work. That does not have to mean shorting a sub.
[2:50] Jeff: I hear the phrase “sharpen your pencil” in the back of my head.
[2:54] Adam: Well, it could also mean that you have it — the money’s just in a different place in the job. So maybe there’s a—
[3:02] Jeff: That’s what he was alluding to.
[3:04] Adam: Yeah. There’s a honey pot over here. You carry a little more in the civil, and if you can buy it out as cheap as you think you can, then you can safeguard some of that.
[3:12] Jeff: Just to touch that really quickly, I’ll give you a good example. I got burned on this as I was training a young project manager once. We had some baked-in contingency in some of the line items of the budget. They were there strategically to give us some contingency that we didn’t expose to the owner. I thought I had explained all that to him. He went and looked at the budget and said, “Okay, I’ve got $100,000 to go buy the electrical.” And he came to me and said, “Boss, you’re going to be so happy with me. I bought it for 90. We had a hundred.” And I was like, “You just lost money, because we had $25,000 of contingency in that number. You should have bought it for 75. I would have been very happy at 75. You lost money.” So, that happens.
[4:04] Greg: But I just want to add something to this, because I’m going to take the other point of view as a former CFO of a subcontractor. I’m not going to touch that part, but I’m going to touch what Josh said. You guys are making the assumption that there is enough money in other places, but that’s not always true. So there is something that should be said here about whether you take a job for revenue or whether you take a job for profit. Those can be different things. Sometimes the worst job you ever have is the one you won and shouldn’t have.
[4:38] Adam: Well, I’ll tell you something. That’s kind of what he’s alluding to. I’m not going to sugarcoat this. There is a reality. I built these jobs as a young PM. I was handed a folder and told, “Here’s the job. Good luck. Call us if you need anything — but don’t call us.”
[4:55] Jeff: Yeah. Well, you said on another episode, “Write the job down on day one.”
[4:58] Adam: Yes. And they would say, “Okay, we went into this, our bid-day fee was 2.5%. We expect you to make 4% on this deal.” Where am I supposed to get that? “Get it out of the subs.” That’s what I was told. Go get it out of the subs. Now, this was a hard-bid environment — black ink, white paper, competitive state work. This was also 25, 30 years ago. But let’s be realistic about this. That happens.
[5:31] Jeff: That’s the comment. So, not wrong. “Precon effing operations. Classic.”
[5:39] Adam: I like that one.
[5:40] Jeff: Yeah, that’s a good one. “Subs get screwed every time with this buyout crap.” That’s very like the other one.
[5:48] Adam: Feels that way a lot of the time, doesn’t it?
[5:49] Jeff: This is a good long one. I like this one. “Such [expletive]. We get screwed on the job site because of those sh*tty labor projections, and work our a**es off while you’re setting us up for the next ride.”
[6:01] Greg: This one struck a chord big time.
[6:05] Adam: These are great. I love it. Keep it coming.
[6:08] Jeff: Oh, this. So, again, I’m going to preface this by saying Josh is actually a really good man. “It’s phony smart guys like this that are the root cause of the problem. All he has is empty words.” Wise Elder is the username for that one. I just think I like that username. Wise Elder.
[6:26] Adam: It’s like Gandalf.
[6:27] Greg: A little bit. Yeah, but I’m just going to go back to what I said before. There’s an assumption here that it’s okay to take a job for less money than you need if you’re a GC, because you can push down on someone else to make their pain worse than it should have been. So why is Josh saying that it’s okay to take that job if there’s not enough money in it?
[6:50] Adam: If you don’t take any jobs, then you don’t have any business.
[6:53] Greg: Well, but that’s a market problem. That’s not a subs problem. That’s a market problem, is my point.
[6:58] Jeff: I would say that, you know, there’s that old saying: the guy who won the job is the guy who missed the most — who left the most out. It’s pretty true, generally. I don’t think there’s a perfect bid. I’m sure there are GCs out there that still have the philosophy of “I’m just going to go take it out of the subs.” But eventually, I don’t think it’s a good idea. It’s not a good long-term strategy.
[7:29] Jeff: I can say this. My approach when I was buying jobs out as a project manager — Adam has firsthand experience of this—
[7:37] Adam: I do.
[7:38] Jeff: My approach was, I had a number that I needed to get. I went into jobs going, “I’m going to try to go get 5 or 10% out of the buy,” in general. I didn’t target any one thing. I would just try to see if I could get a little bit more buy out of it. And my approach was, “I’m going to scope the absolute [expletive] out of this thing.” And it didn’t always mean getting money. I didn’t have to ask for more money. If I could get more scope, that was the same thing to me. I’m not sure exactly how they scoped it during precon. And he gets a choice. He can tell me no. He can look at the scope and say, “Jeff, that’s a bridge too far, man. You’re asking for too much.” Normally the way it would go would be like, “I’ll tell you what, I’ll give you a little bit here. You asking me for any more—”
[8:28] Greg: ’Cause I want this job, etc., etc., etc. “I’m comfortable with this number, and if you squeeze me any harder, you and I are just going to be change-order buddies the rest of the job.” Well, and this is the reality of what my old life was. As a sub, I might have 25 points of gross margin on that job, and my overhead is 20 because I’m a small business, and you’re trying to get four out of me. So now I’m down to 1% profit, and that 1% evaporates on day two. So now you’re squeezing me, I’m losing money, you’re losing your market, you’re losing your ability to hire future subs — and all that because someone above you said, “This is what this job is going to cost,” and some GC said, “Well, I’m just going to take it anyway.” It’s just not a sustainable way to continue running jobs.
[9:21] Adam: And, you know, that’s what Josh is saying. I can agree with you, but it’s known going into it that it’s going to be that way. It’d be nice if it wasn’t that way at the start. You know, one thing to say is the economy is good and the sector is good for us. And so people are competing now — the owners are more interested in time than price. And so there’s an opportunity.
[9:45] Greg: We’ve kind of done that to ourselves, too — well, the GCs have, because they’re the ones negotiating with the owner, saying, “Yeah, sure. We can do that faster. Don’t know how, but we’ll figure it out.”
[9:54] Jeff: You’ve got to charge more to go faster.
[9:55] Greg: And that’s a better market for everyone. The problem is when that changes and it goes back the other way, then the market doesn’t change. The owner doesn’t say—
[10:04] Adam: It does eventually, but then people go out of business.
[10:07] Jeff: Should someone tell Josh? We should podcast and be like, “Josh, don’t watch. You’re going to feel bad about what people said.”
[10:15] Adam: I’ll tell him.
[10:16] Jeff: So, that does it for this episode. Thanks very much for watching. Please like and subscribe. You can find us wherever you find your podcasts. See you next time.
[10:23] Producer Josh: Hey, Producer Josh here — not the Josh from the clip that got roasted in the comments. That Josh is a longtime friend of Adam’s. His point was that you have to win the work before you can make money on it. But winning it by quietly making your trade partners carry the loss isn’t a recommended strategy. You can’t profit on a job you didn’t win, but you also can’t afford to win the wrong one. Buy scope carefully, protect your contingency, and don’t confuse revenue with profit. If you’re a GC or a sub, drop your take in the comments. Like, follow, subscribe, and build a better business one takeaway at a time. Thanks for listening.
