The Best Way To Hire Contractor
Introduction
Historically, there have been 3 ways to hire a contractor. There is a Negotiated Agreement, Competitive Bidding, and Design-Build. There is a fourth approach: Pre-Construction, which we prefer and it has several advantages. Pre-Con has also become more common in the past ten years. In this post we cover the pros and cons of each. Each four all approaches, we (the architect) act as your agent, representative, and advisor by proposing contractors, facilitating bids, and conducting interviews.
1. Negotiated Agreement
A Negotiated Agreement approach implies that you will not solicit bids from multiple contractors. Instead, you come to an agreement (or negotiate) with a single contractor. Often this contractor is recommended by a friend or us, or perhaps you have prior experience with them. The benefits of this method are that it is simple and less cumbersome than involving different contractors. If we have not worked with the contractor before, we will interview them.
The Importance of Detailed Proposals: The proposal(s) you receive from the contractor(s) must should list every item, material, and the labor needed to construct the entire house along with their individual costs. This includes everything from how much is being spent on the wood, the foundations, the concrete, the fixtures, the appliances, the electrical work, etc. The proposal should be detailed and thorough. Contractor's fees are often a percentage of these ‘raw’ costs to build the house. Transparency to the construction costs and the contractor's proposal is essential. We have never worked with a good contractor, or even a decent one, who did not provide full transparency in this way. Similar to buying a car, you want to know exactly what you are getting for the money you are paying.
If a contractor does not supply a proposal in this manner, especially if they give one lump sum after the initial meeting without any breakdown, avoid them. Proposals of these kinds can be appealing because they are easier to digest, but they will make addressing any issues that occur during construction that have cost implications very difficult—it will be nearly impossible to get detailed costs. If the number is low, then it’s also very likely the contractor is not accounting for everything they should. If the contractor lacks thoroughness in their proposal then there’s a good chance that their construction workflow and work will be subpar.
“If the contractor’s proposal is not detailed, then their workflow and work will likely be subpar. ”
2. Competitive Bidding Process
We help you bid the project out to multiple contractors. We act as your representative throughout the process. It is always a good idea to rely heavily on your architect/us for vetting contractors. We will have questions for the contractor that you may not have and we need to make sure we can work well together. Here's how the bidding process works:
“We will suggest contractors and interview new ones”
1. Preliminary Selection: We help you select and contact 3+ qualified general contractors to bid on your project.
2. Pricing and RFIs: We send the bid documents (detailed drawings and specifications, sometimes known as a Pricing Set) to the candidates. Using the bid documents, they determine the construction cost which involves getting estimates from their subcontractors. We answer any questions the bidders have about the drawings and visit the site with the them. Any clarifications about the bid documents or the project are shared with all bidders for fairness. The contractors compile their numbers and submit their bids. This process may take a few weeks or more. If a contractor misses the deadline, you have the right to reject their bid without viewing it.
3. Interview: We review the proposals and interview each bidder. During the interviews, we ask questions, make sure the contractor understands the project, and review the design elements that will require the most attention during construction. We discuss their scope, pricing, referrals, and contract policies in detail.
4. Final Selection: We review the bids with you and help you make a selection.
5. If the bids are high you have three options:
1. Increase in the construction budget.
2. Rebid or renegotiate the project.
3. Revise the project to reduce construction costs.
Competitive Bidding Pros and Cons
The benefit of Competitive bidding is that you get options. However, this also means that the contractor does not have eyes on the project until very late in the process—usually after permit drawings are done and often even later, when Construction Documents are completed. There are several issues with this.
The Bids Will Be High: When estimates are not acquired throughout the design phases, there’s a 99.99% chance that all of the bids will come back much higher than you want.
Missing Meta Information: In every project, as time passes there is a growing understanding of the client—who you are, what your preferences are, what your goals are—and of the project’s underlying intent. By the time we finish Construction Documents, we may have been working together for the better part of a year. Having the contractor join at this point means they have to try to catch up on a year's worth of knowledge and understanding. This is nearly impossible to do and one reason why contractors do not like competitive bids. This also slows down the start of construction.
“Bids will likely be inaccurate and not fairly comparable”
Inaccurate Bid Comparisons: The bids you receive will almost certainly not be fairly comparable because their accuracy will vary. Consider that the average Construction Documents Set today can be hundreds of pages long and in order for a fair bid comparison to be made, each contractor will need to have spent the same amount of time and effort reviewing them. This almost never happens. In the majority of cases, the lowest bid will not actually be cheaper by the end of the project. Instead, their lower bid number just means they did not thoroughly review the drawings. Similarly, the highest bidder is also not necessarily the most expensive but is likely the contractor who was the most thorough and accurate with their pricing. We have seen clients who hired the lowest bidder, only to later fire that contractor and hire the one who had the highest number.
More Bids Don’t Always Help: If the bidding contractors are all reputable and their numbers are all too high, then the reality is that bidding the project out to others will probably not be helpful. In this case, your only option is to revise/redesign the project.
3. Design-Build
Design-Build means that you are hiring a single company that will provide both architectural/design and construction services. Ideally, there is an efficiency and quality gain with this approach. Unfortunately, Design-Build most often comes with significant downsides instead. There are great design-build companies, but they are extremely rare.
In reality, the vast majority of design-build companies are just contractors who have some very low-level designers in the office who are not licensed architects, and their design capabilities are poor. We’ve taken over projects when clients were not satisfied with the design process and quality of these companies. It’s also common for the design portion of their fee to be much lower than that of a typical architect, which should indicate that corners are being cut.
The convenience factor of design-build also means that most often there’s a lack of transparency with cost and pricing. Because everything's lumped into one bucket, clients just get one number with no breakdown or explanation which inevitably leads to problems or mistrust later in the project as described earlier.
4. Pre-Construction
Pre-Construction is a specific service that contractors provide and it is separate from their typical services (which is to build the home. Pre-Construction services take place before construction begins and ideally begin at the very beginning of the project. This approach is our preferred method for hiring and working with contractors.
Timing: Our ideal project process is to have a qualified and vetted contractor hired for Pre-Construction services from the first day of the project. This approach also applies to all other professionals the project will require.
Advantages: The two main advantages of Pre-Con are construction cost estimates and constructability feedback and advice.
“You get construction cost estimates and constructability feedback throughout the design. ”
Generating Estimates: Budget and construction costs are always difficult to determine in the beginning. In our office, we use comps and costs per square foot as an initial way to determine if the project is viable. Usually during our first phone with a new client we will discuss construction costs and calculate a few numbers to see if the project is viable financially given your expectations. This would be considered a ‘Rough Order of Magnitude’ or ‘ROM’.
Once design starts, we will have the contractor provide estimates once during each design phase. The phases are Concept Design, Schematic Design, and Design Development. The final construction cost is given once Construction Documents are complete. This allows us to stay on track with the budget and avoid hefty redesigns in later phases.
Estimates are inherently challenging for many contractors, because it involves some about of guesswork as not everything is about the design is determined yet. In our case, we will ‘allowances’ to temporaily fill the gaps that are unknown. For example, while we may not have the final material for a bathroom determined, we know know that it will feature a stone of some kind in a slab form. We may not know precisely the plumbing fixtures of the home, but we have an idea of which brands may be considered. Allowances are critical tool to get useful estimates.
With many projects, the contractor will also need some information about the structure of the home to generate the estimate. The foundation of a hillside home can cost $250,000 alone. For this reason, we also prefer to have the structural engineer involved in the project from the beginning.
“In our first call, we will provide a Rough Order of Magnitude to see if your project is feasible”
Constructability Feedback: Having the contractor available for technical feedback and input can be critical. They may suggest more cost-effective suppliers, more efficient ways of fabricating items, or easier ways to install complex pieces. Some items may take a few months to solve. The contractor addressing or brainstorming issues during design means that construction will start quicker and go smoother.
Collaboration: Pre-Con is a more collaborative approach to the process. However, it does not mean that the contractor (or the engineer or other professionals) is as heavily and consistently involved in the project as us. Instead, they are utilized more like consultants and on an as-needed basis. It captures the benefits of design-build, but none of the negatives.
Cost: Pre-Con cost is relatively small compared to the total cost of the project. It can be billed as a fixed fee, on an hourly basis, by a monthly retainer, or as a percentage of the construction cost. In some cases, contractors will eat the pre-construction fee if they are awarded the job.
“With Pre-Con, construction can start quicker and go smoother”
Summary
Hiring a contractor for Pre-Construction mitigates any construction cost surprises because it allows the design to modify to meet your budget through the design process. Using the Pre-Con contractor to build the home also means that construction will start faster and go more smoothly. The key with this process is that you must make sure the contractor you hire is reputable, does legitimate Pre-Con services (not just a few free estimates here and there), and they work will with you and us. At a fundamental level, Pre-Con is part of the larger philosophy of spending a little bit of money and time earlier to secure the future. In the end, it means saving time and money, ensuring quality, and reducing stress greatly.