Why Negotiating with General Contracting Partners is the Winning Strategy Today
11/01/2022
There are pros and cons to the various means of procuring a contractor. Your options are to hard bid work amongst multiple general contractors after design drawings are further along, or to procure a contractor early in the design process with a negotiated fee and general conditions rate. We are proponents of the latter method, for many reasons, but mostly because early involvement in the design process helps us achieve the best results for our clients.
It has never been more important for owners to negotiate for a contractor than today. We are experiencing challenges to the building environment like long lead times for materials, labor shortages, and costs rising at an increasingly rapid pace. The only way to truly combat these challenges is to have a trusted general contracting partner engaged early enough in the design process to prevent them.
Current Market Challenges
It’s common knowledge that prices are rising and materials are hard to come by. Electrical gear and transformers, steel roof joists, and mechanical units are some of the longest materials to procure. The lead times range from 30+ weeks up to a year and these durations aren’t the only consideration for the schedule. Designs must be far enough along that decisions about products can be made and ordered well ahead of when they are needed, increasing the duration of the preconstruction and procurement periods immensely.
Inflation is similarly challenging the market, with suppliers often refusing to guarantee pricing until they ship materials. This challenge can be prevented by leveraging buying power and/or planning for contingencies to cover unexpected increases in costs.
To have a building partner on board long before construction begins is the key to being able to procure materials so that they will arrive when needed.
Hard Bidding vs. Negotiation
It is a common misconception that hard bidding a project will lead to the lowest cost for the work when in fact, hard bids more often lead to a contentious relationship between owners and contractors. This relationship most often leads to many change orders and a higher instance of challenges related to delayed materials, design conflicts and more.
With your contractor at the table early in the design process, even as early as a napkin sketch concept, your project can enjoy the following benefits:
Target Value Design: Achieving budget alignment with design intent
Constructability Reviews: Ensuring the most efficient building plan is developed for quality, schedule and cost
Trade Partner Recruitment: Finding the right team for the work to bring quality, cost and schedule into alignment
A Team Approach: With early alignment, the contractor can have a clear picture of your goals and work together to reach them.
Advocacy: The contractor can fight for what’s right for your project with the local jurisdiction, suppliers, trade partners, onsite inspectors and more.
Cost Effectiveness: The items listed previously help achieve the most cost-effective approach which can be established earlier and without fear of extensive change orders over time.
Materials Procurement: A contractor can plan milestones for design development based on deadlines for long-lead items.
For further details into the advantages and disadvantages of hard bidding vs. negotiating, we would encourage you to read our news articles and listen to The Perlo Podcast episode on this topic.
The owner will lock in the fee charged for general contracting services long before construction commences with negotiation. The remainder of the work scope can be bid to the subcontractor and supplier market. A good general contractor will often suggest bidding certain scopes early to take advantage of locking in pricing or labor.
Keys to Effectively Negotiating Projects
There are several keys to ensuring effective relationships between contractors and owners when a project is completed based on a negotiated contract. While this is not an exhaustive list, ensuring that all these boxes are checked is a great start to successful projects:
- Engage a qualified general contractor with market-specific experience during the conceptual phase of the project. It is optional to have drawings in hand in order to utilize their experience for contributions to the design and budget.
- Find a contractor with a great ability to develop accurate budgets according to the following milestones:
- The general contractor must maintain an open book policy. At each budget and pricing milestone, the owner should be able to review bids and calculations used to compile costs, if desired. The GC is responsible for managing risks and maintaining the budget for the life of the project once the GMP cost is set.
- Constructability reviews need to be completed at each budget milestone. To prevent change as the project progresses, the team must ensure the design matches what can feasibly be built.
- Budgets should include allowances and contingencies that account for unknown risks a project can expose. These funds are transparent to the owner and can be applied as needed and credited back to the owner if the funds do not end up being used.
- Determine the strategy for procuring subcontractors. When the GC is involved early in the process, they help determine which trades should be involved early. The GC can utilize a design-build agreement for mechanical, electrical, plumbing and fire protection trades (MEPF trades). By involving these trades ahead of the others, they can finish designs and submit for permits with the local jurisdiction concurrently with the building permit, often expediting the approval of those permits. In addition, procuring the MEPF contractors early can help aid in the overall design by identifying the following items, among others:
The most significant contributor to a successful project is that the client, design team and contractor approach it collaboratively. When all parties are clear about expectations, communicate frequently, and look for win-win solutions to challenges, the result is a project that is completed as expected, and a team of people that are satisfied by the journey it took to get from beginning to end.
Constructability Reviews
Another benefit to negotiating with a general contractor is to utilize their experience to complete constructability reviews.
A constructability review, or rather, a series of them, is generally completed during the preconstruction process of any given project. Teams review several factors to determine whether the project is designed most appropriately to meet cost, functional goals and schedule. During the design development phase, the general contractor and design teams are responsible for reviewing documents at each stage of design document issuance and contributing their knowledge in assessing many factors. First and foremost, these reviews must consider the design as it relates to the owner’s end goals to ensure they match.
These reviews may include the evaluation of:
- Materials use
- Construction timing and its impact to existing conditions
- Site logistics
- The potential requirement of temporary shoring/bracing.
- Phasing strategies to optimize the schedule
- Subcontractor recruitment strategies
- Equipment clearances required
- Test fitting building enhancements against project cost and schedule
- End-user needs
- Local building code restrictions
- Environmental concerns, such as displacement of local wildlife
- Sustainability goals
Contractors review the design drawings to ensure that what is written in ink translates to a building that meets the owner’s needs in terms of schedule, price, function, and sustainability. Their findings must be transparent and communicated to all team members so they can modify designs.
Final Thoughts
There are many benefits to negotiating your procurement strategy with a general contractor . In today’s turbulent and challenging market, the benefits for materials procurement and cost control are substantial.
If you are considering a new project, contact our teams today to see how we can help you.