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5 Reasons to Get Your General Contractor On-Board Early

MetroDato is a rapidly growing technology business that currently occupies 30,000 sf of downtown Denver commercial office space. Their lease is expiring in 18 months and they know that they will need to double the size of their space in order to keep up with their growth. They contact their broker to begin looking at new spaces. Their broker introduces them to a design firm and a construction management firm, both of whom seem to do great work. So MetroDato hires them.

Early in the process, MetroDato’s CEO, Bill, asks the broker, architect, and project manager if it is a good idea to hire the general contractor now in order to get the complete project team in place before moving forward. The broker, architect, and project manager all answer “yes”, saying that they find it leads to the most successful projects. The CEO also talks with one of his neighbors, who is a commercial general contractor, and he also recommends getting the general contractor on board early. MetroDato’s CFO, Dave, on the other hand, has reservations. He has always been taught “3 bids and a buy” and he digs in to defend his position, confident that he can save the company money.

That night, Bill has a nightmare about the project:

In his nightmare, several months have gone by. MetroDato has been looking at space and has started to narrow their options down to three. They now have nine months before their lease expires and time is beginning to get tight. They settle on a space and the architect begins creating construction documents. Their landlord has agreed to give them $50/sf in tenant finish allowance and their budget is $80/sf, so they plan to cover the remaining $30/sf, or $1.8MM, from their operating reserves, which have been set aside for this purpose.

Their construction manager gets 25% construction documents out for budget pricing to three general contractors. The numbers come back, and they are almost at budget, though a bit high. The team decides to press on with construction documents. Again, at 50% drawings, they get the documents out for budget. The numbers have gone up and they are now 10% over budget. The CFO is confident that competitive pressure will win the day, so they press on again. The construction documents are now finally complete, and the project is taken out to bid. This time, the numbers come back, and they are a whopping 20% over budget. Not only that, but the repeated price checks and the time it has taken to answer construction-related questions have caused delays. There are only 5 months until they need to move into their new space, and they are now faced with a difficult decision: Should they press on with a project that is 20%, or almost $1MM, over budget before it even begins? Or should they select their general contractor and take three weeks it will take to redesign, plus an additional three weeks to reprice? The latter will mean that MetroDato is looking at six weeks of holdover rent in their current space at two times base rent – a premium of $150,000.

What went wrong? How could this have been avoided? Here are five reasons hiring your general contractor early will help to avoid this nightmare:

  1. The impact of early decisions on project cost: We all know this intuitively, but it bears reminding that the decisions you make early in any process have a greater impact than those made at the end. Location, size, quality of finishes, and MEP systems are all decided on early and have the most significant impact on project cost. Once these decisions are made, the things that you can cut back without starting completely over are just the small items that don’t have a big enough impact on cost to overcome a 20% budget overrun.
  2. All the experts can’t be wrong: Ask your architect, broker, construction manager, and yes – even a general contractor if getting a general contractor on board early is beneficial. They will all tell you that it is. And yet most novice tenants and owners – and even many experienced ones who have a company guideline, overrule this experience and guidance to push forward with a traditional three-bid process.
  3. Schedule: A good project team can manage design and cost simultaneously, while at the same time preventing all the delays in the design process for price checking. Having a general contractor on board who is accountable for the budget and advises the team also prevents the extensive delays (and design costs) caused by redesign after the construction documents are complete. In fact, research by the Construction Industry Institute and Penn State University found that the time savings can be up to 33% [1].
  4. Expertise for a complex industry: If you were accused of a crime, you wouldn’t hire one law firm to design your legal strategy and then take that strategy out to bid to figure out who is going to defend you. On the contrary, you might hire the firm with the highest hourly rate, knowing that they could keep you out of jail. Like law, construction is a complex industry. The best general contractors do charge a few percent more (literally just a few percent), but the expertise they provide can help steer the project to the 20% savings needed to hit your budget and keep you out of jail with your boss or shareholders.
  5. Your Time, your stress: Having a complete design and construction team from the beginning significantly limits your time spent reviewing options and deciding on which team members to select throughout the process. And with your team fully assembled, all you have to do is ask a question to them, and you get a solid answer you can trust right on the spot, which significantly lowers the stress caused by the fear of making the wrong decision.

In the end, MetroDato did decide to take the advice of their architect, broker, and construction manager. They hired their general contractor before setting foot in a single space. The project came in 3% ($72,000) under budget at construction documents, which allowed them to absorb a few change orders, add a handful of wish-list items, and still hit their $80/sf goal at completion of the project. They moved into their space on time, avoiding holdover rent and deferred company profits. Finally, the office manager, Jill, who was charged with overseeing the project, said that, in spite of the horror stories she had heard about construction projects, it took less of her time than she thought it would, and with a complete team in place throughout the project, she always felt confident about the decisions she made at every step along the way.

So how do you hire your general contractor early to get a competitive price and expert advice from the start? Subscribe to our blog for the next in this series and, in the meantime, reach out to Ben Geiger or I with any questions – we’re here to help!

[1] Source: Construction Industry Institute (CII)/Penn State Research comprising 351 projects ranging from 5,000 to 2.5 million square feet.

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