Contract Delivery Types - Spiegelglass Construction

A small to medium-sized commercial project comes with a lot of decision making. It’s important to learn more about the different contracts you should consider for your project. Should you do a design-build? A fixed bid? Time and materials? What are the pros and cons of each?

Here are some things to consider when making your decision.

What is Design-Build?

Design-Build is a process by which you hire a single entity to run your project, and everyone from the architect to the interior designer to the construction manager falls under this entity. You’ll often have a single point of contact who will take responsibility for the overall project.

There are several benefits to these contracts, and also some things to keep in mind:

  • Staying Within Budget: Your team will start the design of the project with your budget in mind. That’s great news. But it’s also important to keep in mind that in order to come in on budget, your design-build team will need to make some tradeoffs along the way. For example, if one area of the project cost more than planned, your team might need to choose a lower quality material that doesn’t necessarily meet your expectations - meaning you might need to sacrifice certain elements such as finishes in order to stay within your budget.
  • Time in On Your Side: A design-build approach is often the fastest way to get a project done. The timeline is a part of the team’s conversation upfront and because you’re working with a single entity, the entire project including timeline and budget are considered at the outset. The team will weigh all of the factors together, because they are all working together. For example, the team might decide it’s worth it to pay extra for a subcontractor to work overtime because it will accelerate the timeline.
  • One Team, One Dream: Since you are working with a single entity on the project, the entire team is working toward a single goal – getting you open as quickly as possible while staying on budget. Unlike other contract types, everything can run concurrently. The team will consider costs during the design phase of the project, which can save time and prevent the need to go back to the drawing board if the build out price ends up being more than expected.

Pro Tip: Be sure to have an extremely detailed scope list. Be as clear as possible – define the grade of carpet you’re looking for, the number of people you need an HVAC system that can handle so many people, etc. The more detail you define upfront the less risk there is for you.

What is Fixed Bid?

A fixed bid is a bid that a general contractor provides the client with a total price for a build out. It is sometimes a competitive bid, where a client might ask three different GCs to provide a price so the owner can compare and contrast.

Pro Tip: Always make sure you are comparing and contrasting apples to apples. You don’t want a surprise after you went with the lowest bidder that a portion of the work you need done wasn’t included in the bid.

In a fixed bid scenario, the client often begins with an architect. During this phase, the client informs the architect of his or her goals and vision for the space, and after a lot of collaboration, the architect delivers the client and/or the general contractor a blueprint.

As with the other approaches, there are benefits and also things to consider:

  • Potential Budget Overruns: With this approach, the architect and client are working closely together creating an ideal space for the concept. Once the blueprint is complete, the client will give it to a general contractor for a price. Specific pricing isn’t necessarily part of the design process, so at this point the client can be surprised to find how much it will cost to build out that design. Sometimes, he or she might need to literally go back to the drawing board for a redesign to bring down the overall project cost. This all takes time, which leads us to the second point.
  • Sequential Process: This is often a slower process because it takes more of a step by step approach that requires a sequential order. First, the design, then the pricing out, then the build. • Client Beware: From a budget standpoint, the client is taking a bigger risk with this approach.
  • Client Beware: From a budget standpoint, the client is taking a bigger risk with this approach. For example, if an architect inadvertently misses a few electrical outlets on the plan that you needed, the cost of those electrical outlets will not be included in the budget you get from the general contractor. Once that is realized, the client will need a change order to adjust the plan. The lesson? The more detailed your plan is upfront, the more money you will save in a fixed bid.

Pro Tip: Ask your general contractor for transparency on change orders. An inexperienced general contractor might bid low to get the project, and then look to make a higher percentage on change orders. Ask for back-up on change orders and negotiate the percentage ahead of time. Reputable GCs welcome the transparency and clarity.

What is Cost Plus (also called Time and Materials)?

Cost Plus, otherwise known as Time and Materials, is when you as the client are charged what it takes to get the job done- nothing more and nothing less. There are a few things to keep in mind when using this approach:

  • Client Risk: This approach leaves the risk with the owner, so be prepared to be heavily involved in the process so you can watch the budget closely. The risk is that the project can go over budget, potentially in a big way, so you need to know what is always going on with the project at each stage.
  • Potential to Come Out Ahead: Since you are taking the risk, there could be a big reward. Remember, you are only paying for what you need. Look at winter conditions as an example. In a fixed bid, a general contractor will put money aside to bring heat into the building to paint if it’s too cold. But you might have a warm winter, and no heat is needed – so you’re not paying for it. Again, you’re taking the risk, but also might reap the reward.
  • Do Your Homework: No matter what approach you go with, you need to choose people you trust, but with Cost Plus this is especially important. The general contractor will charge you for what they do, so you need to trust that your team is working in your best interest.

Pro Tip: This option is best for people who have a tremendous amount of trust in their general contractor and/or they are very educated and willing to be involved in the construction process.

In Summary

What option is best? Not surprisingly, that depends on the project. Design build is often a strong choice because the entire team is working closely together with your end goal in mind. But you need to have a high level of trust in the team you choose. A fixed bid is a great choice for clients who want to be hands off and turn over the project to trusted professionals. Once again, you need a reputable general contractor. Cost Plus is a fantastic option if you are construction-savvy and plan to monitor the project on a very regular basis. You need to walk in with eyes wide open though- you could spend more than you intended but you could also come out ahead.

At the end of the day, we suggest you ask around for recommendations from people in similar shoes. If you are building a restaurant, ask other restaurant owners. When you keep hearing the names of certain architects and general contractors over and over, you can go to them for advice on the best path for you.

Restaurant Construction - St. Louis