Typically, there are two ways to select a general contractor:
(A) Competitive Bid Process (a favorite of capitalists everywhere) – You wait until the design is ostensibly complete. You pit multiple contractors against each other and hope that free market theory will provide the necessary gravity for cost-savings.
(B) Negotiated Contract - You select a qualified builder early in the design process. The builder works with you and your architect to value engineer the design at critical junctures to provide your project with the best value in materials and methods.
Most of the renowned architects we’ve worked with prefer that the contractor is brought in early to consult, rather than in late to bid. Architects understand that the custom home building process is too complex to be treated as a free market commodity. Here are a few reasons why a negotiated contract is superior to a competitive bid:
(1) Early collaboration between you, the design team, and the builder gives your project the best chance to strike the right balance of chemistry and cost. Our pre-construction process consists of meetings with the entire project team including the client, the architect, engineers, consultants, and subcontractors at different phases of design. These meetings allow the team to clearly identify scopes of work, specifications, long lead-time items, and potential cost savings measures commonly known as value engineering. It is nearly impossible to create value at an end-of-the-road, competitive pricing exercise for an unaudited design.
(2) Comparing multiple bids can be complex and an absolute time suck. You and your architect will need to evaluate hundreds of line items to reconcile differences in fees, general conditions, labor rates, allowances, exclusions and overall perceived scope of work. Instead, with guidance from your architect, you should negotiate your way into a partnership with a general contractor early to achieve a fully developed set of plans, budget, and schedule by the end of the design phase.
(3) A common byproduct of competitive bidding is the use of numbers from lesser subcontractors. Some subs simply don’t have the scale or experience to handle a certain scope of work. The general contractor will then need to allocate more of its limited resources to manage them, causing the project to suffer from thinner supervision and overall lack of quality. On the contrary, engaging the general contractor early allows him/her to bring the best subcontractors to the table and negotiate with them on your behalf. Our long-term relationships with expert subcontractors consistently yield suggestions for methods and materials that increase efficiency, improve performance, and ultimately lower costs.
(4) A competitive bid creates an adversarial arena of stakeholders. Participants are encouraged to exploit holes in the architect’s plans to arrive at a more attractive cost. Bidders using this strategy often hope to recapture some profit through change orders and contingency, an undertaking that inevitably creates tension in the project during construction. In contrast, an early collaborative environment works to fill those holes and reduce the number of potential change orders and contentious feelings between the stakeholders.
At the end of the day, a negotiated contract is the only way to ensure the best possible value and process. So before you put a highly designed construction project in the hands of the free market, remember that value engineering trumps price engineering every time.