Why Hire an Owner’s Representative?
Introduction
This week, we are joined by CEO & Founder of Peak Projects, Grant Bowen, to discuss the role of an owner’s representative throughout design and construction, mitigating construction cost increases and schedule delays, fees, tips for structuring a successful project, and more.
1. The role of the Owner’s Representative
PEAK: The position of the Owner’s Representative has evolved a lot in the last ten years. The reason it exists more so now is that there's a growing recognition of the importance of professional project management in construction projects. The projects overall are also increasing in complexity. The OR was more common in commercial projects, but as the size, scale, and complexity of these residential projects increased, so did the need for holistic professional management. There's also been a shift towards integrated project delivery models, which promotes collaboration, risk sharing, and the early involvement of all key stakeholders like pre-con general contractors.
In the integrated project delivery model, you align project goals and optimize project outcomes. Whereas, traditionally you might hire an architect, complete the entire design, and then hire a GC. The integrated project delivery model needs more upfront management in that process. Good owners now really focus on risk mitigation. There are various risks and challenges in construction projects such as economic uncertainty, supply chain disruptions, regulatory changes, weather, etc.
A good OR identifies, assesses, and mitigates those risks on behalf of the client and the project team. Affluent owners want specialized help. Successful people are always looking for ways to improve how they do things and if they can hire an expert, they typically do, which has led to a rise in ORs.
Traditionally, architects played the role [of the owner’s representative] and I think there can be conflicts sometimes, between the architect and the GC. I think it makes sense to have someone in the owner’s seat to mitigate any conflicts that the contractor might have of managing their own work or with the architect. Sometimes those can be at odds with the client and it's beneficial and nice to have a non-biased third party managing those folks on behalf of the client.
“A good OR identifies, assesses, and mitigates those risks on behalf of the client and the project team.”
2. Advocating for the Project
FAME: The owner's representative is the advisor and agent of the client throughout the entire project, representing the client’s interest, but the OR is also advocating what's best for the project, which is not always the same thing as what the client wants. It can happen, and not necessarily to the client's fault, that those two things are not in line because the client doesn't know this process, and it is up to the OR and the rest of the team to inform the client of the best course of action.
PEAK: If you go about laying out options in a data-based objective manner with the pros and cons of each and the recommendation on why good logical owners will understand and come to terms with that and usually make the right decision.
3. Blindspots clients have
PEAK: The biggest blind spots for clients, are not really defining your goals properly at the beginning and not investing time to do that upfront. A lot of clients will acquire a property, ask a friend who they used, and call that architect, and then get going. But it's really important to take your time to ponder what your goals are for the project. Is this the home for the next five years or is this a forever home? Do you want to have multiple family members and grandkids use it? Really understand what this is going to be. And then do your due diligence and obviously you can help with that.
FAME: If we don’t establish clear objectives and a deeper purpose for the project, we end up building a design on a false foundation and at some point it causes problems. That's often why dramatic design changes are made later in the design process, construction documentation, or even construction when they shouldn't be. Those kinds of changes are often because the right conversations and objectives didn't happen at the beginning of the project.
“The biggest blind spots for clients, are not really defining your goals properly at the beginning and not investing time to do that upfront.”
4. Owner’s Representative fees
PEAK: An OR fee can be 2 to 6% of the hard costs. That depends on at what time in the project they’re hired, the needs of the owner, the quality of the team, and the number of iterations. Holistically, we're seeing soft costs on a project between 25 and 35% of hard costs. Peak Projects bill hourly. We feel like it's a disillusionment of incentives to charge a percentage of the project cost. If we are really representing our owner in their best interest, we need to bill hourly.
5. Selecting a contractor
FAME: Peak also helps clients compare apples to apples when they're choosing between contractors or architects. One of the things that is challenging about the single-family, residential construction space, is that many architects practice very differently from the architects. The scope of services an architect provides is sometimes radically different from another. The same issues exist with hiring a contractor. Iif you bid it out to three contractors, and there’s a high, middle, and low bid and the low one is significantly lower, it is for a reason and it’s because they're quantifiablt leaving out work.
PEAK: We're big on making information clearly digestible so you can make actionable decisions based on it quickly because our clients have limited. Going to the contractor question, I think oftentimes people pick contractors just based on cost which is just one tiny element in the responsible decision-making process. The way we help clients select contractors is through a detailed RFQ (request for qualifications) process. We want to understand everything about them. We want to check their credentials, their experience on similar projects, their organizational and management structure, their financial stability, and many other things.
“Oftentimes people pick contractors just based on cost which is just one tiny element in the responsible decision-making process. ”
6. Controlling costs and schedule
FAME: Everyone says that construction costs always go up during a project. It always ends up being more than what everyone anticipates it to be. Why is that the case?
PEAK: Construction costs go up because people are fast-tracking projects by starting projects without complete information. So there are allowances or placeholders in the budget and those get reconciled as the scope gets defined in the project gets bought out. It's been a while since I've done a project where you've had 100% CDs, priced it, and then started construction. Instead, you're getting that permit approval, then taking that permit set, and then going into construction. But when that happens, you only have 25% Construction Document pricing and there are still a lot of unknowns. So budgets get blown because the design continues to iterate throughout the construction process. If you design through the construction process, you always enhancing it. Clients typically choose higher-end products than what the baseline budget was accommodating. All of those things lead to budget overages, especially in the high-end residential world.
FAME: Many people don't know that a permit drawing set is not a construction Document set. They are not even close to being the same. Read additional advice here.
PEAK: The way to control construction costs and the schedule is to:
Establish the goals and objectives of the project
Talk about budget and schedule early and define your appetite for those.
Fully design the project [before starting construction] and then not change your mind during construction. When you change the scope during construction, that leads, to budget and schedule changes.
If you fully design the project and that project is well-priced, and well pre-planned for, you will have a limited budget and schedule issues during construction.
“Fully design the project [before starting construction] and then not change your mind during construction.”
6. Who should hire an Owner’s Representative?
PEAK: Any type of project could require an OR whether that be commercial health care, cultural, hospitality, historical, or residential. [An OR would also be useful for] any client who's embarking on a complex project who wants professional third-party management and appreciates saving time and wants the project to be delivered and in a textbook world-class way.