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Choosing a General Contractor: The Six Things Your Business Needs to Know Before Hiring a Commercial Contractor

One of the most important decisions that your company will make when going through an expansion is which general contractor to work with. If your business is like most, you don’t use contractors on a regular basis, and don’t have a shortlist to pick from. So, how do you narrow down the list of bidders to one?  Price is always the most compelling factor, and rightfully so, but this post aims to shed light on a few other aspects to help you find the BEST contractor for the job, not just the cheapest.

 

***Point of clarification:  There are a number of other factors that can play into this decision based on type of contract and project organization (design-build, hard bid, contract manager, etc.).  This discussion assumes an architect and engineer have already been hired, and the plans and specs have been developed.***

1. Price

The first and most obvious factor in selecting your contractor, is price.  It is the biggest deciding factor for most organizations and all governments, and this is with good reason.  Odds are your company has developed a budget for your new expansion – your contract price needs to match.  Anything that can be brought back under budget decreases your beginning basis for ROI/ROA (assuming it’s measurable) and can lower interest payments for years to come.  So, the reasons for choosing on price alone are compelling.  However, making the choice on price alone ignores factors that can lead to problems throughout the construction process, potentially pushing the final price above some of the other competitors via change orders, delays, etc.  Not to mention by the end of the project you may find that project quality and schedule didn’t fall in line with your expectations.

2. References

If you interview general contractors prior to making your decision (and you should), chances are every contractor will say they have the best quality, the best safety practices, the best price, and always meet the schedule.  It’s possible that one of them does, but most likely not all of them do, so take their word (and the testimonials on their website) with a grain of salt.  Just as in hiring an employee, do not make the final decision without first talking to other business owners or architect/engineers that have worked with the contractor. To get an accurate representation, ask for contact information from their five most recently completed projects of similar contract value, or you are likely to get their clients that they feel would give them the best recommendation.  When you call the references, specifically ask about safety incidents, number and value of change orders, quality, and schedule.  And in fairness to the contractor, if they are given an unfavorable review, you should ask them about it – there are sure to be two sides to the story.  In short, all contractors are not made equal, and the right references should offer insight as to how they conduct business.

3. Staff

Ask the contractor for a project organizational structure and the specific individuals that will be filling the positions.  In most projects the key players will be a project manager and a project superintendent.  The success of the project will hinge on how well these individuals do their job, so get a copy of their resumes or a list of projects in which they’ve held the same position and look for experience in projects of similar size and scope.  If they were recently promoted into their role, make sure that the company has strong support and accountability systems for the individual to ensure that they do their jobs correctly.

4. Safety

The importance of safe work practices has increased dramatically in recent years and shows no signs of slowing down.  If the project is on the same site as your existing facility, the contractor’s employees will be working among your employees, making safe work practices even more critical.  The last thing your company needs is lost time from a valuable employee, or negative publicity from a safety incident.  Ask your contractor about their safe work practices and what they do on a day-to-day basis to ensure that the employees are safe.  It can also be beneficial to get the contractor and major subcontractor’s Experience Modification Rate (EMR) and Total Recordable Injury and Illness Rate (TRIR), as these are the best measures of a safe work history.  Numbers should be at or below 1.

5. Schedule

Assuming that the completion date is important for your project, ask the contractor for a detailed schedule.  They should be able to provide a detailed breakdown of tasks and lay them out using the Critical Path Method (CPM).  This will show that they’ve thought through the construction process and if the schedule meets your required milestones.  To hold the contractor to the schedule, it’s best to pre-negotiate and include liquidated damages into the contract based on their scheduled milestones.  This will keep your project from slipping to the contractors back-burner if they get busy, and eliminate the need for arbitration/litigation to recover lost revenue or other costs due to delays.

6. Experience

Construction is one of the most competitive industries out there, and to find a competitive advantage, contractors are becoming more and more specialized.  If your project is for a new office building, any commercial general contractor should be able to handle the job; but if the building is for an industrial process, health care, hospitality, etc., you may want to look to contractors with specific experience.  This will tend to lead to better quality, price, and schedule because of inefficiencies and processes the contractor has developed specifically for that type of building.  The contractor can also be an asset if they are brought along early in the development stage to assist in value engineering, as many times architects and engineers don’t design with ease of construction in mind. which drives up prices.  Ask for a list of projects similar to yours that they’ve done in the past.

It is tough to put a dollar value on factors 2-6, and likely the importance placed on them will differ from business to business.  But you can be confident that including these factors in your decision making process will improve the likelihood that your project will run smoothly, and you will end up with a quality, lasting facility for your company.

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