You’ve probably heard the horror stories from friends at a party as they tell you about their construction project headaches: Budgets blown. Schedules shot. Quality questionable. And lawsuits. Oh, the joy of building. Sometimes it sounds like the only thing worse would be trying to do it yourself (which it would). But there are plenty of success stories too – they just don’t make for as good a story. Here’s what you need to know to improve your chances for a happy outcome.
· Spend plenty of time getting to know your potential builder (aka “general contractor”) before signing anything. Meet a few times, tour their projects, call their references, go to lunch. This is a decision with major financial and legal consequences. You need to know them and like them.
· Be clear about who will actually be your Project Manager. Sometimes the person you’re interviewing is not the person who will be running your project (the owner of the firm often will be overseeing all the projects that they are working on, but there may be someone else below the, who will be your primary point of contact). The Site Supervisor is the person in charge of the actual construction. You will typically not meet them during the interview unless you request it (they are the “get it done guys”, not the salesmen). Ask how many projects they will be supervising (if it’s more than 2, their attention may be overly divided and that can lead to errors).
· Most projects start with the Architect. They then will often recommend 1-3 builders for you to interview and can help guide you through the process of selecting and working with the builder. You can start with the builder (and they can recommend an Architect), but sequentially, you work with the Architect first. It is however helpful to have a builder on-board during the design process; if it’s a collaborative relationship, they can help successfully guide you and the Architect to stay within budget as you design (sometimes the builder will do this for free in order to have a foot in the door, and sometimes they will charge a “pre-construction services” fee).
o Design/build companies are ideally set up to offer you the best of both worlds as you have both professionals working for you from the get-go.
· There are different types of residential builders, but in the Boulder area most are small companies that specialize in custom homes, and provide project management and site supervision, but hire out all the sub-contracted trades (plumbing, framing, electrical, etc.).
· Most construction companies have a niche where they excel. Choose a builder that has a track record of projects similar in scope, scale and quality to your project (ex. budget kitchen remodels vs. whole new high-end homes). Note that most builders are adept in multiple architectural styles, so that is a less important criteria.
· Specifications: on a custom home/addition/remodel, if you are paying the Architect for full-services, they will generally guide you through the time-consuming process of selecting the hundreds of products and systems for your house (tile, flooring, plumbing and lighting fixtures, mechanical systems, siding, roofing, windows, etc.). Some Architects prefer to send you to an independent interior designer for interior finishes. If you have hired the Architect to do only minimal services in order to keep their fee low, note that someone will still have to do the Specifications and you will have to pay for it. Unless you’ve built several houses yourself, do not try this at home. It usually costs ‘first timers’ tens of thousands of dollars in mistakes, months of time and a lot of stress. Some builders offer this service; sometimes they charge for it up-front as Pre-construction services, and sometimes they simply provide it as a service within their construction contract.
· Contracts: You can either select a builder based on their qualifications (up front) or select based on cost (on the back end after the design is done). If you chose them up front, it’s called a “Negotiated Bid” as you will figure out the total cost of the project together later; however, they will tell you what their % Markup or Management Fee is before you sign any contract. If you are doing it based more on price it’s called a “Competitive Bid” as they will be simultaneously bidding against a couple of other builders (this is hard to do right now because builders are so busy and the best ones are so booked up that don’t need to Bid for work). Surprisingly, there isn’t an industry standard process or format for how to work with the builder from a business point of view, but here are the most common types of contracts:
o Fixed fee (aka “Stipulated Sum”) – the design and specifications (of everything except the “Allowances”) must be complete and well detailed by the Architect so that the full scope of the project is clear. In that case, the builder can give you a Fixed Fee contract. This offers you the most protection against cost creep as the only times it can change are if you sign an official “Change Order” prior to that portion of the work being undertaken, or if you exceed your “Allowance” budgets. Allowances are a pot of money for each category of item (like plumbing fixtures), that the builder has earmarked within your total Fixed Fee. If you choose fixtures over or under that budget, it will raise or lower your total contract price dollar for dollar.
o Cost Plus (a % Profit & Overhead mark-up) (aka “Time and materials”) – The advantage here is that you can often start work before all design decisions have been made as you will simply pay for what the project ultimately costs. On the down-side, there is no top end to the contract cost. Most builders will provide a non-binding Estimate before work starts. Note that what’s included in the “Plus” varies from builder to builder so if you are getting competitive Bids, make sure they are apples to apples (ex. is the Site Supervision included?)
o Guaranteed Maximum price – like Cost Plus with a backstop set at some % above the Estimate.
o Pass thru with a Management Fee – The builder tells you what their management fee will be up-front, but the cost of the work will just be the actual cost passed through to you without markup.
o One additional note: the process of Estimating & Bidding takes a lot of work by the builder. During busy times like these, the builder will often charge for that service as a “Pre-construction” contract. In leaner times, some builders may offer some or all of that fee back when you sign a contract, or may even do it for free in hopes of winning the job. The Bid typically takes 3-4 weeks (once the builder has all the drawings & specifications).
· There are four main areas where conflicts typically arise:
o Quality and completeness: thorough architectural drawings, specifications and a detailed construction contract will explicitly set expectations for these items (don’t skimp on the architectural scope/fees or it will bite you in the butt when you start working with the builder). In the interview process, talk about how you will negotiate when there is a conflict, for example about the subjective quality of a granite countertop.
o Process & Communication: The builder should tell you how often you will have meetings and scheduled site visits.
o Schedules: They should provide you with a regularly updated schedule that you can refer back to as your benchmark so that you know if you are on track.
o Cost/budget: The contract should be clear about not just the estimated or Bid cost, but how you will deal with the inevitable changes during construction.
· What to do if things are “going wrong”:
o Don’t assume you know what’s going on. Ask: “Is the floor supposed to look like that?” I can’t count the number of times a client called me and told me that there was a problem when in fact the work was simply still in progress.
o Voice concerns to the builder as early as possible so that discussions are respectful rather than dramatic, and so that there’s still time for course correction. Ask them instead of telling them how they will fix the issue.
o Reply on your Architect to be your advocate with the builder. They’ve been through this before. Many solutions require a collaboration between the design and construction teams.
o When things go wrong (which they will), make sure to give the builder permission to tell you. Most builders hope that they can “catch up” on the schedule or find additional savings later to offset unexpected costs. They might, but empower them to tell you the truth about what’s happening now.
o Ask for information. You deserve to understand how the builder is doing on schedule, quality and budget. Typically, a good builder will have a clear process for periodic check-ins that allow you to stay appropriately informed.
o There should be a clause in the contract about “retainage” or some mechanism where you withhold a chunk of the final payment (or progress payments) until the “punch-list” is complete (and you are satisfied that the project is done).
o There should also be a clause in your contract about lien-waivers that says that if you’ve paid the builder and they fail to pay their subs, that they will protect you against liens by the subs.
· My final piece of advice is: trust your team. Micro-managing a builder is a sure-fire way to muck-up the process. Don’t show up on the jobsite un-announced. They want to get the project done right for you and they have developed their process over years of trial and error. Let them guide you.
About the author:
Scott Rodwin, AIA, LEED AP is the owner of the Rodwin Architecture/ Skycastle Construction, a 12 person award-winning design/build firm specializing in high-end custom green homes in the Front Range. scott@rodwinarch.com www.rodwinarch.com