Construction has to be one of the vaguest industries when it comes to understanding what the businesses in it actually do. What is a Contractor versus a Construction Manager? Can all commercial construction companies build everything? What does mean if you’re “Multi-disciplinary” versus “Specialized”? It’s not as straightforward as we’d all like, and can be confusing when you’re trying to decide who to talk for a construction project. Here are 5 things to think about in the context of selecting on contractor to figure out if they can truly handle your project:
1. General Contractor or Construction Manager
These terms seem to get used interchangeably, to the point where just asking the question alone might not get you what you want to know. Typically, a General Contractor actually carries the licenses to work on the project, and takes on the risk of hiring out all of the work directly and managing the entire project. Construction Managers on the other hand may work in more of a consultant role, offering oversight, expertise, and staffing to help supervise a construction project while taking a fee for services – But not necessarily taking on the risk of hiring the trades. A General Contractor can serve as Construction Manager, but not usually the other way around. Being a General Contractor requires a great deal of working capital, overhead, insurance, and bonding. This differentiation means that as an owner, you’ll pay more, but you’ll also have significantly lower risk.
2. Building Construction Type
It’s all bricks and sticks, right? Nope. The type of construction matters, and some translate better than others. Sure, it’s easy to know that a homebuilder can’t build a specialized manufacturing plant, but things get more grey between these points. Can an industrial contractor work on a residential project? Maybe. However, if they’re used to working with concrete and steel buildings and with a single trade at a time, they may take significantly longer than someone who builds primarily residential. Can a homebuilder do well at senior living? Maybe, if it’s wood-framed, but they will probably struggle with regulations and an increased number of inspections compared to what they’re used to.
Generally speaking, a company that builds dwelling areas – places where people sleep, like The Douglas Company – can handle anything within that description. Senior living is the most complicated type of dwelling to build, and it translates well to hospitality and traditional multifamily and residential products, as well as specialized residential products like student housing and affordable housing.
3. Multi-Disciplinary or Specialized
Contractors generally have to make a choice between being a “Multi-Disciplinary” generalist, or choose an industry to specialize in. A generalist may work well in competitive bids, or projects where there are more flexible timelines or budgets, or projects that require a degree of experience in many different product types. Specialists, on the other hand, will bring a depth of experience in one or two products. They typically negotiate for work or bid selectively, and can charge higher fees. Specialists help when projects are complex and need assistance through preconstruction, relying on their experience from a depth of similar projects. A generalist may work well when coming in to a fully-designed project. They can bring the construction process at a lower fee when there isn’t a need for conceptualizing or changes to the project, like a prototype that has been built before. However, they will be challenged if the budget can’t stay in line to be able to bring costs down. Don’t overpay for a specialist if you don’t need it, but don’t hire a generalist for a project that requires some expertise.
4. Ability to Travel
You might think all the rules are the same regardless of where you’re building, but every jurisdiction is different and the right contractor makes an impact. Contractors generally have to choose if they’re going to be a local powerhouse or a traveling expert. The locally-focused contractors will be the ones with board seats on all the local non-profits and will be sitting in at all the areas zoning hearings. They know everything going on in town, and have great relationships with local authorities and subcontractors. This can help a lot if your project is going to face challenges from these groups, perhaps because it’s outside the zoning ordinances or requires local grants and/or local subcontractor participation. Locally-focused contractors though, are not setup to head into uncharted territory. Their processes and success hinges on using the same contractors and building in the same conditions they’ve always been used to. This can also make them less price-competitive, because they only work with a limited pool of local subcontractors. Traveling contractors won’t bring the benefit of strong local relationships, but they will know how to roll up their sleeves in an unfamiliar area, building rapport with the authorities, finding the best local trades, and vetting them out. They will also be able to then roll it up, moving on to the next city with you for your next project.
5. Project Delivery Methods
Do you have a development department capable of working alongside the contractor? Is your architect strong in the field you’re building in and putting together complete drawings? Your answers to those questions impact who you hire as well.
Most contractors prefer to work on cost-plus contracts with a Guaranteed Maximum Price (“GMP”). These have advantages to both the developer and contractor, because they are contracted with a contingency to cover gaps in the drawings. With this type of contract, the developer and contractor work together to share savings and vet out subcontractors for performance. The developer and contractor also share in the risk for the project.
Lump-sum agreements, on the other hand, can cost less because they don’t have contingencies carried while also having less risk than cost-plus GMP projects because the number is locked in and can’t go up or down for the developer. Despite these benefits to developers, not all contractors are willing to do lump-sum agreements. They require a degree of expertise and thoroughness that not all contractors can do. Meanwhile, a contractor that prefers lump-sum work will also understand how to do a cost-plus GMP contract.
If you’re unsure of what method you’re going to use, it’s better to select a lump-sum general contractor who can pivot instead of being stuck – It’s not uncommon for projects to switch from a GMP to a lump-sum once the drawings are complete and construction has started.
Conclusion
When it’s all said and done, there are contractors that can be on both sides of the 5 items above, but generally gravitate towards one or the other. Make sure you’re considering the level or risk control, local experience, and project expertise you need as you make a selection on a contractor. Additionally, you should know what limitations come with the selection you make and their ability to truly work across the product type you are building.
In Need of a General Contractor for Your Next Project?
The Douglas Company has been building peace of mind for cost-oriented developers since 1976. We’re experts in both market-rate and affordable multi-family housing and the full spectrum of senior living, including active adult, independent living, skilled nursing, and more. Based in our values and developed from nearly 50 years of experience, our proprietary Integri-D experience puts us a cut above the rest. We’ve got a team of proactive, detail-oriented associates ready to be at your side so you can spend more time running your communities while we bring your vision to life. At The Douglas Company, we’ve got your back from concept to completion. Reach out today using our contact form.
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Bruce Douglas |
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