Selecting the right contractor is a crucial decision you’ll have to make in the process of building your dream home. Understand clearly your options when deciding which qualified professional to take on, as this home is surely one of the most important investments you will ever make, not only in terms of monetary value, but also in terms of your happiness and well being.
Important factors in deciding on a contractor:
- Experience level / appropriateness for your type of project.
- Trust, and the right level of chemistry.
There are generally two ways to select a contractor.
1. Multiple competitive bids:
Common wisdom is that you should get several competitive bids before selecting a contractor. This is the most popular route. The selected contractor may or may not have had the lowest bid, sometimes other factors come into play as mentioned above. The bid process will be overseen by your architect at an appropriate stage of the project.
If you won’t rest easy unless you know you’re getting the best price possible by getting several bids, then this should be the way to go. In order for this to be successful, you should have a set of drawings, specifications and product selections that are as complete as possible before sending out to bid to make sure that all bidders are working from the same assumptions. When things are vague, contractors either leave out portions of the work that aren’t well defined, or include lower priced allowances in order to make their bid competitive, knowing that it’s likely there will be change orders once the project gets going. This makes it more difficult to do a fair comparison between bids. A complete set of documents means the bids will be more accurate to the real final cost and easier to compare.
Once the bids are in, one should be wary about hiring the one contractor whose price was so much less than the others. These situations usually end badly. I’ve seen contractors walk away from the job because they realized they underbid and would rather cut their losses.
- Multiple bids offer the opportunity to compare several contractors’ pricing to try to get the best value.
- Going through the bid process provides an opportunity to assess a contractor’s understanding of the project and methods of communicating before making a commitment.
- Waiting until all the drawings are complete before getting accurate pricing of the project.
- Adds extra time to the pre-construction process
- Temptation to select a very low bid can lead to problems down the road.
2. Pre-selecting a Contractor
A client might have an existing relationship with a contractor, or have a trusted recommendation of someone they would like to work on their house. Alternatively one might interview several contractors, get references, then commit to one of them in advance.
Having a pre-selected contractor offers the opportunity to bring them on board during the design phase to prepare preliminary estimates, which will then be adjusted to a final budget before you start the work. They become part of the team and can help suggest construction methods during the design phase that would make the house easier to build, without compromising the design intent. You can also get input from some of their subcontractors.
This process also can save time, as you’re not waiting for the 3-4 weeks for bids to come back after you have a complete set of documents. The selected contractor can also submit drawings for permits before all the design details are worked out, giving you a jump on that process as well. This method of contractor selection may not guarantee you the lowest price at first, but they can help value engineer during design phase to save you money down the road. There is more of a sense that the contractor is part of the team early on, who knows the project well before starting to build.
- Contractor becomes part of the team early in the design process.
- Project budget can be developed along with the design process.
- Can get the project started more quickly.
- Not knowing if you’re getting the best possible price.
In the case of a pre-selected contractor, there are then two options for moving forward. A fixed price contract can be created once the bulk of the project details are known. Allowances would be included for any items not yet selected. This way, unless there are changes during construction, you know the cost before starting the work. However, fixed cost projects by their nature generate change orders, and they may very well negate the possible savings and cost control of a fixed bid. These change orders can become a bone of contention that derails the project with disputes over time and money.
The other option is a construction management arrangement, sometimes know as “cost plus.” This method works well for projects that need to get started quickly, and you have to make many decisions even after the work has started. It can also work as a way to get best price subcontractor bids as you need them. A builder will often work at a lower profit margin if the risk is reduced. This method works best when there is a strong level of trust between the owner and contractor.
Whatever method you choose, it’s important to hire a contractor who is well qualified and well suited to do the type of project you intend to build. I’ve seen and heard too many situations of hiring the wrong contractor ending up with poor results. You will have an extended relationship with the people building your home, so you need to have trust and some good chemistry. Choosing the right contractor will make all the difference in your experience building the home, and in your satisfaction once you move in.