By Lance McCarthy
There are many ways to work with a contractor that are swirling around out there in Constructionland.
I thought it might be helpful to give a brief overview of those different methods. As with chess pieces or Marvel Superheroes, there are strengths and weaknesses to each type.
In case you were wondering, don’t expect unbiased journalism here. I think some of these methods are pretty dangerous, and I will only attempt to hide my prejudice with biting sarcasm whenever possible.
Method 1 Design-Bid-Build
The homeowner (who we will call Bob for this illustration) decides what he wants to have done, or has a plan drawn (that’s the “Design” part), then several contractors bid the plan (that’s the “Bid” part), then Bob picks one of them (yep, that’s the “Build” part).
- This one is really popular, so if you choose to use this method, your friends will all nod in agreement when you tell them how you decided. No one will say “Wow, Bob, that was stupid, whatever gave you the idea you should do it that way?”
- This one also feels the safest. It will give Bob the satisfaction of feeling he has really done his due diligence and has compared “apples to apples” as they say.
- The first weakness (very minor) is that it doesn’t work very well. Meaning that for the average homeowner (non-construction pro) it is giving them a lot of information that is unhelpful, and very little that is actually helpful. I go into more detail in my earlier column “To Bid or Not To Bid”
- The second weakness is that it prevents the designer and the contractor from working collaboratively until most of the important decisions have already been made.
Method 2 Cost Plus (or “Time and Materials”)
This method is actually very simple. Bob hires a contractor to complete the project. The contractor keeps track of his labor and materials costs, then adds a percentage markup and charges that to Bob.
- This can work well for highly custom projects that will require a lot of changes during the construction. They can get mired down in change orders, but this method just allows the time and materials to be tracked, and then Bob pays for what he used.
- Remember the book “Animal Farm”? When you feed a horse the same no matter how hard he works, the horse won’t work hard. (If you are offended by me comparing a contractor to a horse, then you really won’t enjoy “Animal Farm”). This method is what we call a “disincentive” to productivity. The workers are actually financially rewarded for taking longer and costing more. This can risk big cost overruns (I could tell you stories).
Method 3 Construction Management
In this method Bob hires the contractor to manage the project (usually for a fixed fee), then also hires all the subcontractors that will do the work.
- If Bob has real control needs, this can work well. By writing the checks to the subcontractors directly, this will provide a feeling of control.
- It can also give the appearance of saving money, since the contractor’s markup on the subs is eliminated.
- Similar to Method 2, this one is a disincentive to success in many ways. The construction manager will usually not assume liability for the quality of the subcontractor’s work, or for the final cost. This can lead to a liability musical chairs in a way. When something goes wrong (which does happen), everyone involved is pointing the finger in another direction, but no one is ultimately responsible for footing the bill.
Method 4 Design Build
Bob aggressively interviews and selects a contractor/designer team that he feels will be the best fit, then they work together to set goals and plan solutions. Sounds great, right? It is. (See, I told you I was biased)
- This works for the same reason the Constitution has survived for 2 centuries. It is based on checks and balances. Each party (The designer, the contractor, and Bob) have a vested interest in making it work, but have to work with each other to be successful.
- The goals are achieved through a collaborative process that helps the best options to rise to the surface.
- A lot of the decision-making work and financial pain are front-loaded (instead of spread throughout the process). This can feel overwhelming at times.
There is a bigger secret to why the first three methods are so risky. Next week I will tell you what I mean. In the meantime, enjoy my extremely low budget (evidently not even enough money for a razor) youtube video.