The answer is yes, but …It may seem obvious that the current economic climate can create wonderful opportunities for developers to secure aggressive construction costs; nevertheless in reality there is a real risk of the very opposite being the case. Educated industry insiders rarely share the secret that, soliciting bids from a long list of general contractors does not necessarily yield the most economic route to completing a project. Ironically, as in recent years, economic factors in 2012 make this traditional bidding method even less likely to serve a developer well.
Before identifying a viable alternative, we should first consider why this route is destined to fail during tough economic cycles.
Time – Time is money! Soliciting bids from multiple general contractors is a waste of everyone’s time unless the developer and his design team are confident that the plans and specifications accurately represent the project’s scope. For this to be the case, time must be invested in this process to reduce the potential for change orders during construction. The situation is made much worse if the bidding process uncovers problems with the budget which force elements of the project to be redesigned, along with a subsequent bidding round. Too much of this can cause a project to lose credibility with the trades, which is often reflected as a lack of interest on their part as subsequent bidding rounds are dragged out.
This extended time may cause a landlord to lose a tenant. (What retailer wants to open his store on January 1st rather than November 1st?) The developer may incur additional bank fees and interest payments. A delay of several weeks may subject a project to costly winter conditions expense.
Trades – Many subcontractors have made personnel cutbacks during recent years. Accordingly, their estimating departments need to be more selective regarding the jobs they choose to bid. The time and attention to detail which they devote to a proposal for a general contractor who has already been awarded the overall project, exceeds the time they would invest if the job was being bid by several general contractors. Consequently, the later is bid quicker and more conservatively or in some instances not at all. Even though a developer may request a break-out of the bids, each of the trade line items is vulnerable to the same inflationary pressure arising from subcontractors’ reluctance to invest estimating resources where the possibility of a return on those efforts is lowest.
Another risk to developers is the pressure on general contractors and subcontractors to over-extend themselves and attempt to undertake more work than their labor and credit resources can support. Consequences can include, missed completion milestones, inferior quality control issues, workplace accidents or worse!
Relationships – A rigorous bidding process involving multiple general contractors only focuses the selected entity and their subcontractors to recoup margins they gave up in order to win their respective contracts. Like any other endeavor in life, a team comprised of players who do not all share the same goal, is more likely to fail.
The solution – Engage the services of a quality Construction Management firm which has a thorough understanding of your needs, as well as an established presence in the region where you want to build. Ideally, this selection should be made at the same time you engage your architect, so that a cohesive team can be assembled to work on the preconstruction duties and ultimately transition into the construction phase with a clear common mission, along with all the tools necessary to succeed.
The industry has various types of construction contracts and the selection of a particular one is usually driven by the unique circumstances of its case. A reputable CM firm should be able to recommend an appropriate contract format. Having an experienced construction attorney review this agreement is always an important step in the process. The attorney’s response to your CM’s proposed contract terms should be a measure of the character of the CM firm you have selected.
There are many benefits to engaging a CM firm rather than soliciting multiple GC bids. Primarily, it produces a more realistic and reliable budget sooner, than if the developer had to wait until receipt of GC bids. If there are issues with the budget, then the sooner they are detected, the better it is for the project. In 2012, the need to achieve more with less heightens the importance of budget control. Employing a CM firm with a proven history in this area is critical.
The selection process should include inviting Requests for Proposals from a select number of firms, followed by interviews and checking of references.
Karl Walsh is the business development manager of Essex Builders Corp., Westwood, Mass..