For the last 9 years I’ve been working with property owners. Owners of shopping centers, rental properties, custom homes, gyms, medical offices, spec buildings, small tenant improvement spaces and others. These owners (and their properties) are unique in their project need, personality and expectations.
But they were all similar in one regard: they struggle with how to choose a contractor more than who to choose.
There are to main schools of thought to selecting a contractor, or more accurately, a development team:
The Hard Bid Approach
This is by far the method most people think of when selecting a contractor. I’m convinced this method is innate to our culture, mostly due to 1) historical precedence and 2) declining trust in our fellow man.
The hard-bid approach goes like this:
I have a need for a contractor. I will contact all the contractors I know. I will ask them to give me bids. Whoever is the cheapest is the one I will use.
The Negotiated Approach
This method is most often used by 1) owners who like to collaborate on their project and/or 2) owners that have been burned by using the hard-bid approach. I find this method common among experienced property owners who have built before and know what they want.
The negotiated approach goes like this:
I have a need for a contractor. I contact one contractor that I know and trust, perhaps one referred by a friend or family member. My contractor develops a budget for the project before I waste money on a design team. After all, I need a budget to start with, right? If their budget fits my budget, I work with my contractor and design team to finalize the plans and scope. I work with my contractor using an open-book process to review all costs. I know exactly how much my contractor is making on the job, so I can evaluate if I am getting a fair value. I then build my project.
Each Approach Has Its Place
The hard-bid approach works best when the project scope is defined down to the most minute of details. If the plans are complete, the permit secured, the finishes selected, the timing known, the payment structure established and the specification requirements are written, then hard-bid might be the way to go. Property owners should be acutely aware that they are responsible for any item missing from the above list.
The negotiated approach is a good fit for projects not having one or more of the above elements. I especially recommended this approach for property owners who have yet to go very far in design. The value of establishing a team and budget early on can save significant time and money.
One Last Aside
We select contractors differently than we select nearly every other service provider. Have you ever gotten three bids from a cardiologist for a triple bypass? How about your lawyer? Did you get five bids for setting up your will or estate? Or on your last vacation, did you choose the cheapest hotel available? Did you end up at a Red Roof Inn?
My guess is you have not and will not do any of these things. The bottom line is you valued the service provider and their expertise too much to just pick the cheapest option.
The Bottom Line
General contractors use the same local subs as their competitors. That’s a fact. They also use the same material suppliers. So really, the only thing a property owner is negotiating with their contractor is the mark-up on the job. And that’s the beauty of the negotiated approach. This mark-up is established, up front, for all parties to see. No hidden mark-up. If a property owner does not think the contractors is worth the mark-up, they can make that decision up front. It’s that simple.
Imagine going to a car dealer, and the car dealer saying “I paid $32,000 for this car from the dealership. Here is the inventory tag to prove it. I need to make $2,000 on this deal. Do you want the car for $34,000?”
Wouldn’t that be refreshing? Well, that’s how we operate at Trinity Renovation. You see all our costs up front, you see our margin, and at the end of the job we are happy to prove all of it.
If you are interested in this approach, give us a call. We might be a good fit for your team.
