There are a lot of great questions to ask when building out a commercial space, and one of the most important is: What can I do to save money on this buildout? Value engineering and landlord negotiations should always be part of the conversation, but what about project management? Is that an area where owners and construction managers can save money on a project?
Here are some questions our clients have brought to us regarding project management:
- -If we manage certain portions of the project ourselves, how much can we save?
- -Can we send in our own labor to install the equipment?
- -We’d like to order the materials because we get a discount through our national account – what do we need to be aware of?
Sometimes it makes sense for clients to own project management, and other times it’s better to have the general contractor run the show. Let’s look at what owners and construction managers should consider when making these decisions.
When a general contractor manages a project in its entirety, he or she is taking on the risk associated with that job. As an example, if the materials specified on the plan were ordered incorrectly, the GC is financially responsible for making that right. If you as the client order your own materials, you accept the risk associated with that order. Did the material arrive incomplete? Was it the wrong color? What if it is damaged or delayed? For some clients, the cost savings might outweigh the hassle of handling these issues. Other clients will want to have a general contractor take on the responsibility.
Does your company have a dedicated procurement resource? Both small and large companies might have a procurement person or department dedicated to securing value for the company, and some of those responsibilities might include approving vendors and identifying cost savings. Benefits could mean a discount on materials and/or labor, favorable payment terms and guarantees to keep product in stock. If your procurement team is able to guarantee a critical material is in stock in a way that a general contractor could not, it is could be well worth handling that task in house for both the savings and the peace of mind. Talk to your GC about the risks and benefits.
Another consideration with providing your own materials and/or labor is whether you’re willing and able to take on warranty issues that might come up down the road. For example, if you order a light fixture package on your own, any issues with those fixtures months later would be covered by the manufacturer’s warranty but won’t be covered under the GC’s warranty. Keep in mind that manufacturers warranties typically cover parts only for the length of the warranty; labor is often excluded.
When deciding whether to take on portions of a project, think about the interconnectedness between materials, labor and warranties. What if, for example, you order materials but ask your general contractor to install those materials. In the light fixture example, if one of the light fixtures isn’t working, you and your general contractor will need to go on a fact-finding mission to determine if it was a faulty light fixture or a faulty installation. This is an example where you’ll want to consider the potential risks and benefits associated with the dollars saved.
If your project is small – maybe only one or two subcontractors are involved – and you have the time and know-how, doing it yourself could be a smart move. If you need to paint a wall, replace a window or do another small project, the cost of hiring a general contractor might not be worth it. But if you’re taking on the management of a small project, do your homework – check references to make sure the subcontractor will show up and finish the job properly. You should also be confident in your ability to check the quality and ensure the work is done correctly.
With very few exceptions, our clients want to open their space as quickly as possible. Highly experienced project managers will get your doors open, and that timing will undoubtedly make a difference in your first year’s revenue. Be honest with yourself about how much time and knowledge you have to devote to project management – following up with subcontractors, ensuring tasks are done in the right order, verifying quality, watching the budget etc.
Evaluating the Options
Is the cost savings worth it? What about the financial risk of the project, and the possibility of not making your open date? Only you can make those determinations about your space. On a million-dollar job, you might find that saving a few thousand dollars isn’t worth the potential disruption to scheduling. Or on the other side, that cost savings might be well worth the effort.
It’s easy to drown in a sea of details, but we encourage our clients to keep their eye on the big picture as the day-to-day decisions are made. The construction process is made up of thousands of decisions, and at the end of the day we are all working toward the goal of getting your doors open so you can start making money.