Excerpt from book being written by John Kowalski -

OWNER'S ADVOCATE - LATE STAGE

You have engaged the architect and perhaps the general contractor too. You finally have the documents to obtain bids. The natural inclination is to allow the general contractor to solicit the bids and contract the various subs. An easy decision to make, but as always in this case, the easy way may be the more expensive decision.

The preferred approach is to engage the general contractors in a "G max" (guarantee max price) approach. The general conditions (i.e., construction superintendent, estimating services, temporary office facility and related cost, postage and etc.) fee is established and the sub contractor mark-up fee is established and lastly the profit margin. At this stage the preferred general contractor is chosen and the subcontractors are then solicited for bids. Of course, the general contractor selection process does not require finished construction documents. The schematic drawings are usually sufficient to start interviewing general contractors.

If you have not already done so, during the general contractor selection process and the ensuing process of subcontractor selection, it is preferred to engage an Owner's Advocate. This entity must have the knowledge and capability to be aware of what is required to put a project together and the keen sense to know what it will cost. With the owner's Advocate assistance the details to hire the general contractors can be handled and most importantly the next process can be monitored. This process is the "Buy". After the subcontractor's bids are obtained and a spreadsheet is developed by the general contractor, the Owner's Advocate earns his keep. Each contractor will be interviewed. The major issue is the assurance that each subcontractor's scope of work is correct. This is somewhat determined by the general contractor's pricing breakdown or check list. To strengthen the owner's position, during the interview the Owner's Advocate will have a list of questions (an inquiry sheet). These questions would range from "How long have you been in business?" to "Is sales tax included in your pricing?" to "Is the demolition and removal of debris from the site included?" This inquiry sheet is prepared prior to the interviews. The questions are the same for all the subcontractors. The trade specific questions are the same for each subcontractor of the specific trade.

The last question asked of the subcontractor is "Do you agree to the above questions and that your answers will be made part of your contract?" Of course, the subcontractor will immediately say yes. He wants the job. At this point, the inquiry sheet with the written out answers is copied and given to the subcontractor. This confirms the scope of work and is used as a tool to resolve issues that arises during construction. A handy tool to have!

Another tool that is absolutely essential is the subcontractor's number one dreaded task….. the pricing of the unit price schedule. You will get 100 reasons why it can't be done or why it is not complete. The priced out unit price list is the controlling agent when changes occur especially during remodeling projects. There was one instance that I had to fly to Baltimore to resolve a major change due to an unforeseen condition. It was approximately a million dollar change. Upon reviewing the subcontractor's pricing breakdown, it was discovered that his unit prices used did not match his original priced unit price schedule. The change went from near a million down to $150,000.00.

The valuable contribution that the interviews by the Owner's Advocate present is the value engineering discovery. How to do the work for the same result with different materials or approach and save dollars. The right questions asked can potentially cause the best ideas to surface. The subcontractor's are amazingly keen on finding the economical way to "Skin the cat". Remember the general contractor will not extract savings from the subcontractor in an aggressive manner. Since he is getting a percentage of the value of the subcontractors work, why should he reduce that value?

The final effort made by the Owner's Advocate is the final buy cut. The approach is to determine if the subcontractor has any room in his pricing. The simple question, "What is your best price to do the work?", may not pry the final number out. The next approach would be to go with your gut. What price is both fair to the owner and the subcontractor. This target number needs to be picked with the anticipation that it will be negotiated upwards. This final cut in price may result in an additional 5-10% savings for the owner.

Lastly……the general contractor's little nest egg….the work that is not possible to obtain fixed pricing from contractors. Therefore, a budget is developed and the work will be performed by the general contractor's work force. This is not the best position for the owner to be in. If the general contractor is capable and knowledgeable, a reasonable fixed fee can be determined and negotiated. Any open ended line item will be used only to fatten the wallet of the general contractor or salvage his position if some happening under his control goes sour.

 

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