One of the most important decisions you’ll make for your commercial construction project is the general contractor (GC) you choose, but varying bid sheets can make proposals hard to compare, and they don’t always tell the whole story.
Whether you’re building a ghost kitchen, a preschool, a manufacturing facility, or something else entirely, here are some tips that will help you solicit and evaluate bids from commercial GCs, ultimately saving you money and hassle down the road.
Do Some Homework
When determining which general contractors to invite, pre-qualify your bids by identifying a list of 4-6 potential GCs.
You can find qualified contractors by talking with your industry peers, commercial real estate agents/ architects, subcontractors, and others to learn about their experiences. You’ll discover a lot about the GC’s reputation, workmanship, whether they deliver projects on time and within budget, how they treat their subcontractors, any history of excessive change orders, their level of client service and much more from some initial conversations.
Focus these efforts on people who know your industry – if you’re building a laboratory, talk to others who have gone through the process of building a lab and be sure to speak with local professionals who know the geographic area as well. They’ve been down the road you’re about to go down and can help point you in the right direction.
Qualify the Contractors
Next, reach out to the potential general contractors directly to learn more – here are a few questions to ask:
What are their areas of expertise? Can they provide references? How long have they been in business? How is their company structured? What kind of insurance do they have, and what are the limits? (Be sure your insurance agent is involved in this conversation.) Can they provide examples of sophisticated projects they’ve completed and/or projects they’re most proud of? Walk them through what you’re looking to accomplish, listen to their response, and you’ll quickly get a sense of their qualifications.
It’s worthwhile to invest the time in these early stages so when the numbers come back, you know you’re starting with good options.
Start with a Full Set of Plans (Or Request a Budget Instead)
Once you have your short list of general contractors, confirm your plans are as complete as possible before sending them out to bid. The scope – including exact materials and products – should be clear so the numbers coming back are accurate for your needs. A comprehensive plan will give the general contractors the detail they need to bid your job properly.
If your plans aren’t complete, ask for a proposed budget instead. Experienced commercial general contractors are incredibly good at estimating, and often their number will be close to where the actual number ends up. But keep in mind a budget is a ballpark figure given the variables at hand… the type of finishes you choose, the scope and more will all affect your final cost.
Create Your Own Bid Template
Before you hit ‘send’ on the invitation to bid, do some pre-work and create your own bid template. This will provide your bidders with a uniform sheet to fill out the required information and it will make the process a lot easier for you. Without it, you’ll get bids back in different formats which will make it nearly impossible for you to compare the numbers apples to apples. The goal here is for you to have consistency so you aren’t trying to analyze numbers that are scattered around different proposals.
The template should include the line items you need – electrical, mechanical, roofing, etc. – along with a line item for the GC’s overhead and profit. Try to keep the template at around 15-20 lines to simplify the process. Instruct your bidders to fill it out completely and send it back to you in the exact same format.
This system will help you see the big picture as well as the smaller but important details, and it protects both you and your contractor. We highly encourage it for each and every bid you do.
There are obvious benefits for using a bid template in the short-term as it will make comparing proposals much easier. But there are measurable benefits for your long-term strategy too.
For example, as your business expands, you can compare the same bid template in different territories, locations, and designs. We worked with one client to determine that when going from one store design to another, they could expect to save $100K in building costs on the project.
Having this template makes the historical data clean, useful and informative for future projects – it’s a no brainer.
Compare and Analyze the Bids
Now that you have a clean template, you can line up your bids side-by-side and compare the costs of each item. Some owners find it helpful to create a new spreadsheet with a column for each general contractor, and then compare each line item (mechanical, electrical, etc.) directly.
The key here is to look for specificity and transparency. Look for outliers and dig in to figure out why a number is too high or too low.
If there’s a big difference in a single line item, find out why. Does a line item from one general contractor account for “flooring” where another accounts for “3,728 square feet of nylon carpet with a density of 5,327 oz. per cubic yard”? That can easily explain the difference and the specificity helps clarify what exactly will be delivered.
The Devil’s in the Details
If you’re bidding a project that you know should come in at around a million dollars, why is one GC coming back at $600K? Or if your space has 8 bathrooms and the plumbing number is coming in at just $10K, you’ll know something is amiss.
If something doesn’t look right, follow-up with the GC. You never want to enter into an agreement with a general contractor whose bid is really far off – if they stand to lose that much money they could walk away from the project and no one wins. You want to make sure your potential GC partner isn’t leaving something out that is vitally important.
But assuming that general contractor is a qualified bidder, then it’s possible that they simply forgot something. Call the GC and let them know their number is low and ask them to look at it again. Or point out specific observations – for example, let them know their electrical number came in at $25K when the other bids came in at about 5x more.
Look at the Big Picture
Take a close look at the total dollar amounts provided.
If that overall number is super low from one contractor, it’s possible that GC isn’t qualified to do the project and doesn’t understand the full scope. If it’s high, then comparing specific descriptions in line items will help. Sometimes the number makes sense if it includes items you’ll need to pay for regardless. But during the comparison, pay close attention to the anomalies – it will help you focus your follow-up questions.
If the overall bids are pretty close, minor differences can often be attributed to the relationships each general contractor has with their subcontractors. The GCs that pay their bills, are easy to work with, and run their projects smoothly are often rewarded with more competitive pricing from subcontractors.
Think about it – if you’re a plumber and you’re providing a bid to two GCs but one gives you what you need to succeed and pays their bills and another is a pain to work with and late on their payments, the numbers you offer won’t be identical.
Pay Attention to the Fine Print
Simply put, the notes at the bottom of the proposal are EVERYTHING.
Read those notes. Then read them again. Ask questions so you genuinely understand Every. Single. One.
Pay close attention to the scope and any exclusions. The scope should include exactly what the plan says. Often items such as furniture, fixtures and equipment (FF&E) are found in exclusions, which might work for your purposes or it might leave you with an unwelcome bill at the end of the project.
Either way, if your plan is short on detail – for example your plan specifies that you need 15 toilets, but it doesn’t outline where those toilets need to go – that leaves room for wildly different interpretations and the numbers will vary greatly.
Get a Second Set of Eyes
Whether you’re new to the building process or you’re a seasoned construction manager, ask your architect to review the bids as a second set of eyes. Your architect can help check the bids against your plans to ensure the scope is fully addressed and nothing is missing.
Your bank will likely need to review the bids as well. This provides a lot of protections not the least of which is a fresh point-of-view on your business model. They will be checking to ensure you will make enough money in that location to pay back your construction loan, which is a big part of your business plan.
If you have a friend who is a GC, maybe someone who focuses on a different specialty than your planned project, ask him or her to review the bids. General contractors are pros and reviewing bids – they look at bids from subcontractors all day long so they can easily spot differences between bids and help you understand what you’re signing up for.
Face to Face Interview
Now that you’ve narrowed down the bids, it’s time to meet the potential general contractors face to face. Prepare some questions and spend time getting to know the owner(s) and/or project manager(s).
Here are some questions to ask: Who will lead the project? Will there be a single point of contact? How involved will the company’s leadership and/or owners be in your project? Will the person bidding the project run it as well? Who will the superintendent be?
Ask detailed questions about your specific project – maybe provide a scenario of a construction issue you’ve encountered in the past and ask how they might handle it. Dig into the project scope – alongside your architect if needed – to ensure the bidders have a full understanding of the job.
Finally, get a sense of the personalities involved because as with anything else in life it will be much easier to partner up with a team of people you get along with.
Select the Winning Bid and Move to Project Delivery
Once you sign on with a partner, it’s time to get started! Check out our blog post here on the different types of contracts you can use with your general contractor, and another blog post here on keeping the momentum going on your project.
Overall, keep the lines of communication with your GC open, make decisions as quickly as you can and get ready to open for business.