Show notes
On today’s show we’re talking about how to negotiate with your general contractor.
Often times, when a project is designed by an architect there are design tradeoffs that seem perfectly reasonable at the time. The design process consists of a complex puzzle of conflicting constraints of function, aesthetic, zoning constraints, building code, and cost. At the end of that process you get a few hundred pages of detailed drawings and specifications.
The General Contractor will take the drawings send them out for bid to multiple subcontractors and get multiple bids for each sub trade. When the results come back, how should you as the project owner respond to the General Contractor?
Most of the time the General Contractor will provide you with summary data for each of the major divisions of work. You will get a number for site work, another one for framing. You will have a bid for electrical, for plumbing and so on. This will probably consist of about 25 line items.
So the question is, how do you decide if any of the numbers are acceptable? Even if the summary numbers match your budget, you may still have a problem. If the numbers are too high relative to your budget, you definitely have a problem.
So how do you resolve it? You could try and negotiate with the General Contractor. But in my estimation, that kind of arm twisting is a pretty blunt instrument. You may get a little bit of savings but not much.
In my experience the problems in most construction budgets are the result of mismatches in assumptions. In some cases, design decisions have unintended consequences that if they were fully understood at design time, would never have been made.
We were recently reviewing a construction budget for a project and were shocked to see $225,000 in expenses for outdoor electrical work on the site. Only by digging deeper, we were able to determine that the electrician had specified 25,000 linear feet of 1” conduit on a site that measures 300 feet by 800 feet. Where on earth could you even begin to bury that much conduit on such a small site?
By digging into the details we were able to determine that by using building mounted lighting, we could eliminate the lamp posts, and by using optical fibre that is specified for outdoor underground placement, we could eliminate the need for the 1” conduit almost entirely.
This whole process is called value engineering. By systematically digging into the details of the specifications with the General Contractor, and the architecture team you can create major savings in a project.
I’ll give you another example. We had completed the site plan and everything was working. But when we looked at the routing of the utilities, we had far more pipe circulating around the property than necessary. This was because the spacing between the buildings was too narrow to allow the utilities to be routed between buildings. They had to be routed around the buildings at much higher cost. By making a minor change to the site plan, we were able to move the buildings apart and save a bunch of money on the underground utilities. We also noted that when the buildings were close together, we had to use fire rated windows on the walls that were close to the neighbouring buildings. Fire rated windows cost about double the price of regular windows. The end user can’t tell the difference. The windows look the same. By moving the buildings apart we were also able to save 50% of the cost of the windows.
Each one of these savings are not huge by themselves. In every case, we were able to save cost without sacrificing quality or the value of the end product. The changes would be completely invisible to the end user of the property.
After you’ve completed that exercise, and saved as much as you can save on the scope of work, then it's time to negotiate with the contractor and save a few pennies more.
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