Hawley Road Mobil

Is The Lowest Bid Really The Best Price?

Historically most owners have been of the opinion that to get the best deal on their project they had to beat every subcontractor and vendor down to their last penny.  At times, I have seen Owners be pretty darn proud of themselves and even brag about how they squeezed every last penny out of this contractor or that, “They didn’t make a dime on my project”. Well I can tell you from 25 years of experience in this business that that Owner may have gotten the LOWEST price but in no way did he get the BEST DEAL.

You say that doesn’t make any sense, how could that be? Isn’t the lowest price always the best deal. NO, NO, NO!

Here is the reason why I know that they are not getting the best deal or the best value for your money.

Trade contractors are business people just like you and me. Most of them are small business owners not only with all the same day to day pressures that you and I have but actually they have a lot more. They have costs to own and maintain equipment, shop & office expenses, labor costs, overhead to make sure they perform the work when they get it, material costs, lines of credit, cost to bid projects to get the work and the list goes on and on.

If sub-contractor takes a job that has no profit in it or in some cases maybe they miss calculate their costs or material prices go up before they do the work and their bid is actually below their costs how excited is that sub going to be to go to your job and perform their highest quality work? Not a lot of incentive for them!

Of course you can contractually obligate them to perform under their bid price but it is highly likely that sub is going to be a PROBLEM! With a Capital P!

The things the usually suffer is the workmanship because they are not going to put their best tradesmen on the job, they are not going to put enough people on the job so you schedule is going to suffer badly, they will have trouble paying their vendors for the materials, or they just don’t show up at all. These are just a few of the bad things that can happen.

I can tell you with certainty that this scenario is a nightmare just waiting to happen. I don’t want you to get me wrong here. I am not saying that negotiating a good and fair price is wrong, that is good business. A fair price is the key. If the Sub-Contractor negotiates a price they feel is fair the number of problems they bring to the project will be minimized and you will get the BEST VALUE for your money!

7 Project development Steps You Have To Do…

You have made the decision to move ahead with a new project. A brand new site on a piece of raw ground, redevelop an existing building site which will likely involve some demolition or an addition onto you existing facility. Here are the 7 steps you need to follow to have a successful outcome.

STEP 1 – PRELIMINARY EVALUATION

The first step to take to have a successful project is to determine how much capital investment does the site/market justify?

The Market/Feasibility study is going to study the

• site dynamics ( including site access, demographic make up of the area)
• other types of commercial developments
• Competition in the area competing for market share
• What revenue streams are available to you at this site
• Profit/Cash Flow Projections
• Determination of Budget limitations for the site

Preliminary Site analysis

• Is the site adequately sized
• Does the zoning and fire code allow the use
• Are there any unique building codes associated with the location
• Cost and availability for utilities to serve the site

Step 2 – Design

What should it look like to meet/exceed the market standard?

• Site layout & design
• Type of construction
• Interior layout
• Exterior look and aesthetics
• Landscaping requirements

Step 3 – Approvals

Who needs to approve the business development?

• Municipality (Planning Commission, City Council, Design Commission, Landmarks Commission, Engineering)
• Fire Department
• County
• State
• Department of Transportation
• Department of Agriculture
• Health Department

Step 4 – Finance

How do I borrow the money? Who will need to be involved?

• Banker
• Account
• Construction Manager/Designer
• Appraiser (Bank Ordered)

Step 5 – Final Design/Permits

• Detailed site development and plot plan
• Floor plans and schedules
• Final elevations and Architectural details
• Structural plans
• MEP’s (Mechanical, Electrical & Plumbing)
• Landscaping plan
• Building plan permit submittal
• Obtain building permit approval

Step 6 – Build it

• Construction Manager
• Sub-Contractors & Vendors
• Testing ( soil, concrete)
• Inspections
• Final occupancy inspection
• Start up and opening

Step 7 –Post Construction

• Project closeout
• Owners manual and warranties
• Post construction consultation by Construction Manager
• Evaluation and Recommendations

I need to expand – What do I do first?

Okay, so you are all excited that you have decided to develop a new project. The time is right, you have thought about it long enough and it is time to get busy and get a new building project going.

This is not some thing that you do every day and all of a sudden you start to get overwhelmed with all the things that need to get done and worst yet there seems to be about 40 things that seem like they need to be done FIRST! Which one of the first things is really first?

Developing a new project should be looked at as a process that has a natural flow and sequence of events that need to take place in the correct order to achieve the desired end result.

So now before you race off and start spending a whole bunch of time and money needlessly just take a deep breath and do this first before anything else.

Ask and answer the six W-H questions. Why, Who, What, Where, When and How.

• Why? Why should I expand and this goes for expanding your current location by putting on an addition or expanding with another new location. This is one that you need to spend some time on. Will I actually make more money if I expand? Is the added overhead and debt going to be worth it in the long run and how long is the long run?

You can do an internal feasibility analysis if you are honest with yourself or normally a better course of action is to hire an outside consultant that specializes in market feasibility studies for you type of business.

RULE # 1: Start your expansion with a market feasibility study

• Who. Who is the best person to answer my questions? This could include site analysis, preliminary project development cost budget, zoning, environmental etc. The list is very long.

This really depends on how much experience that you have with project development and construction. Is this your first one, second one, do you have the time, is your current business going to suffer because you are spending too much time working on you new proposed project?

RULE #2: The less you know and the less time you have to devote to your new project the more you need good advise from a professional with REAL WORLD experience developing you type of project.

• What. What do I need and what can I afford? More really good questions.

• Where. Where is the best place to build, where do I find the best site, where can I get financing? In today’s economic times this is one that everyone is asking.

• When. When should I start? When is the best time to open?

• How. How is the best way to build, and how can I make sure I get the best value for my investment?

This is about the point in the project that you really need to take another deep breath and be honest with yourself about whether you are emotionally invested in the idea of expanding or if it is truly going to be a business and economic decision base on the facts.

If it is going to be a business based decision then it is time to put together a development/planning team for the project. This team should consist of you, the Owner, plus your Realtor, an experienced Design/Build project Contractor.

This could be the most critical part of the whole process. CHEAP is not the best criteria to base your selection on here for sure. The qualities that your development partners need to have are; they need to Trust worthy, they need to be Responsive and THEY NEED TO BE EXPERIENCED with your type of project. You do not want to provide a learning experience for them at your expense.

If you decide to move forward with your project there may be other questions that fit in to the W-H formula but if you write these down and answer these BEFORE you commit a lot of time or money to your project you will be a lot better prepared to move forward with purpose and have a better understanding of what your purpose is.

What is Design-Build?

In every construction development project you have to decide which construction delivery method you are going to pick to build and complete your project. The old traditional way was to go out a hire an architectural firm, tell them what you thought you wanted, and they try to interpret all that and produce a preliminary set of plans for you to review.

The dilemma with this system is that the project costs to build the project are usually not considered early on in the process.

You can spend weeks of months having plans drawn and revised, and spend a boat load of money before you have any indication of the costs and whether or not the design is even in your target budget range. In one of my previous posts What do I do first I discussed doing a market feasibility study as one of the first things that you need to do when you decide you want to expand. One of the benefits of the early Marketing Feasibility study is a market analysis to help determine the maximum development costs you can put into a location and still be profitable. Once you have this budget you can give it to you Architectural firm and they can use that as a guide while doing their design for the project.

Almost 70% of projects using this traditional method of plans first contracts end up over budget. The reason for this is that typically, in order for a contractor to bid on a project, very specific details relating to the methods and materials must be given to avoid any ambiguity and to make an "apples to apples" comparison of bids. This method tends to be a result of the budget disconnect to which many architects and other design professionals are prone to.

A popular and effective way to save money on the front end of your project and avoid this cost disconnect is to team up with a Design-Build Contractor to produce a preliminary design and early cost budgeting so that you can determine sooner, and with less upfront out of pocket costs, if the project will fit within your project budget.

The relationship with a Design-Build Contractor is one in which the Design-Build Contractor is your “go-to” source for every thing that you need from project evaluation, (market feasibility) to budgeting, obtaining approvals, construction and everything in between. They are your single contact resources each step of the way.

There are two types of Contractual Relationships with a Design-Build contractor.

1) Construction Manager (Design-Build Contractor)

(with no General Contractor)

In this relationship the Owner contracts directly with the subcontractors and Construction Manager. In this case you are acting as your Own General Contractor. The Construction Manager handles all of the day to day construction activities including scheduling, paper work related to the subcontractors and vendors, insurance requirements, pay requests and lien waivers but your contractual relationship is directly with the sub-contractors, no in between third party.

The Construction Manager oversees the project and acts as your “Owner’s Representative”. The Construction Manger is responsible to represent your “Best Interest” in the project. Basically, the Construction Manager is you Eyes and Ears.

2) Construction Manager (Design-Build Contractor)

(with a General Contractor)

In this relationship the Owner contracts with a General Contractor, the General Contractor hires and contracts with all the sub-contractors and vendors. The General Contractor provides a Lump Sum Guaranteed price for the scope of work they are contracted to do.

The Construction Manager oversees the General Contractor and acts as your “Owner’s Representative” but does not have any control or influence over the sub-contractors or vendors. The Construction Manger is responsible to represent your “Best Interest” in the project. Basically, the Construction Manager is you Eyes and Ears however, his contact and dealings are only with the General Contractor.

Each of these scenarios has its own set of advantages and disadvantages and based on your circumstances one may be a better fit for you the other. To investigate what the differences go to How Design Build can benefit me and find out which one would work better for you.

How Design-Build can benefit me?

In a previous article What is Design-Build I explained the concept of Design-Build and the two contractual relationships you can form using this method to develop your project. There are advantages and disadvantages to each method which I will discuss here.

Construction Manager (Design-Build Contractor)

(with no General Contractor)

In this case you are acting as your own General Contractor , you sign all the contracts with all the Sub-Contractors and your Construction Manager works on your behalf as Owner’s Representative. Some of the advantages of this method of contracting are:

• You can get early cost estimating in put from your Contraction Manager based on conceptual design ideas as they are developed.
• You have a single source to provide all the special services that you will need like a Market Feasibility study, value engineering, preliminary budget (just a few)
• The General Contractors Mark-up on sub-contractors is eliminated
• Construction Costs are kept to a minimum by the Construction Manager using the latest systems and methods that CM knows are cost effective.
• Chances of misunderstandings are minimized when the construction manager, design staff and Owner work together as a planning team.
• Project changes are implemented quickly and seamlessly due to Construction Managers direct line of communication with design staff.
• You get the best ideas from your Team members due to a cooperative team spirit.
• You get the highest value project for your money

NOTE:

When You select a Construction Manager – With No General Contractor you can save money, but you do take on more risk. The key to your success is the knowledge and ability of The Construction Manager you hire so be selective. Base your decision on his experience, and knowledge, develop confidence, trust, and a good relationship and rapport with him before you select him. Once you hire him let him run the project and control of all the sub-contractors and design staff, don’t get sucked in to being a referee between the parties.

Construction Manager (Design-Build Contractor)

(with a General Contractor)

In this relationship the Owner contracts with a General Contractor, the General Contractor hires and contracts with all the sub-contractors and vendors. The General Contractor provides a Lump Sum Guaranteed price for the scope of work they are contracted to do. Some of the advantages of this method of contracting are:

• You can get early cost estimating in put from your Contraction Manager based on conceptual design ideas as they are developed.
• You have a single source to provide all the special services that you will need like a Market Feasibility study, value engineering, preliminary budget (just a few)
• Construction Costs are kept to a minimum by the Construction Manager using the latest systems and methods that CM knows are cost effective.
• Chances of misunderstandings are minimized when the construction manager, design staff and Owner work together as a planning team.
• Project changes are implemented quickly and seamlessly due to Construction Managers direct line of communication with design staff.
• You get the best ideas from your Team members due to a cooperative team spirit.
• You will get a high quality project.

NOTE:

When You select a Construction Manager – With A General Contractor you will spend more money than a project with out a General Contractor due to their mark up on the Sub-Contractors. This method may be preferable for very large and complex projects.

The key to your success is the knowledge and ability of The Construction Manager and his ability to coordinate and communicate with you and the General Contractor. The Construction Managers skill will need to be slightly different than if you don’t hire a General Contractor, so again be selective. Base your decision on his experience, and knowledge and your rapport with him. Once you hire him let him run the project and control of all the General Contractor and design staff, don’t get sucked in to being a referee between the parties