Is Hiring a General Contractor Worth the Investment?

As a developer I have always relied on general contractors (GCs) to help me build.??Most of my experiences have been good, but a few have not gone the way I wanted.

To start, I’ll define some of the key roles a GC does (from a developers perspective).

1. They solve problems (daily)
2. They prevent mistakes
3. They schedule trades
4. They chose and award trades
5. They are the point person between consultants, architect, developer and inspectors.
6. They do some of the work (self performing)
7. They hold people accountable
8. They confirm things were done well
9. They make sure everyone on site is safe
10. They verify work done prior to payment

Poor GC’s do the exact opposite on that list (don’t solve problems- they create problems.??Cause mistakes etc).??

For context, I recently became a partner in a construction company ( Kalamoir ) so??I understand both sides of the equation; developer and contractor.??

When I’m meeting with developers (usually newbie)- they ask me: Are you really worth the money, or, should I just do it myself and self perform??

There is no simple answer.??

If you’re familiar with construction, have good relationships with trades and the time to oversee a development - maybe it would make sense to do it yourself.

For most, even if you have construction experience, I would argue it is not the highest and best use of your time to manage the day-to-day site super and PM responsibilities.??I see what these people do daily, and I would not want to be in their shoes.

As of this writing, I have 5 developments at various stages and would not be realistic to be the site super and PM on each project.??

My time is betters spent:

• finding the next development
• Ensuring leasing is complete
• Financing (both equity and debt)
• Overseeing the development (with consultants, GC, inspectors)
• Accounting/tracking money

Quick story….

Last week, I got a call from an architect.??He was in the middle of a multifamily project which he was overseeing the entire build.

He’d read our article on “What does it cost to build??a townhouse” and said that he had another development and wanted our help.??

I asked him, why now, was he considering hiring a GC???He has the skill set (he’d been doing it for a few years).

He said, I’m burned out.??The amount of energy and work required to PM and GC his projects were killing him and his partner.??

I suggested the skill set of being an architect (creative thinking) and what is required to manage and drive a construction project (organization + babysitting) were not the same.??

And, it’s common for developers with experience to come to this realization at some point.??They understand the real value in hiring a great GC.??

For new developers, without experience, they don’t really appreciate the complexities that go along with developing.??The framers are scheduled to come back to my site on Mon, but they didn’t factor in that late Fri, another developer (in need of a framer) drove by your site and offered the crew an extra $1 psf to leave your site and come to theirs on Mon.??

Or, they ordered windows a month ago, but they are delayed 2 weeks and now the trades relying on that, are delayed.???Or your stone is stuck at the boarder.??

There are so many places a project get’s derailed- that it generally requires living through a development to understand the issues.??No amount of reading articles or research will replace the real life experience of a development.??

Ok, so where do GC’s add the most value (these are my insights):

1. Pre-construction: Engage your GC on the front end of a project to be part of the conversations with your consultants.??My main goal is to find out: does my GC add value early in the project???

Do the GC, Architect and Consultants work together ok???Side note - I’ve had situations in the past where my GC and Architect didn’t get along.??You’ll need Schedules signed off at the end of your project and an architect can hold you (the developer) hostage if they want to be pricks.??

So, I’m very intentional on making sure the team is on the same page.??The GC has reviewed the drawings and understands what is being built.??I don’t expect them to get the drawings 100% - but I want them to start solving problems today on paper (when it’s cheap and easy) vs on site when I’m stuck with change orders.??

2. Project management expertise: A great GC will have the proper manpower to oversee your project.??In my experience, I like to have the right amount of manpower on my projects: a PM, Project Coordinator and Site Super.??

This doesn’t’ mean that the PM and PC will be dedicated 100% to my job - but they should be dedicated to supporting the site super.??One of biggest ways projects go over budget is delays in scheduling and coordinating sub contractors and getting input from the consultants.??

3. Access to Right subcontractors:?There is a townhouse project right beside one I developed a year ago.??Our 10 unit project took 11 months, from start to finish.??

The neighboring developer called me and asked if he could use our framers.??Unfortunately we didn't have any extra capacity.??We have several framers we work with and we are focused on keeping them busy and paying them well (so they don't leave).??We are not so foolish to let them moonlight for someone who ‘needs’ them.??

Today, there is a shortage of reliable and good trades.??When you find them, you do your best to keep them and pay them well.??

As a new developer, it’s highly unlikely you know who these trades are, or that you’ll get the pricing you need.??We ( Kalamoir ) will do over $80M in business this year so we have buying power.??If you’re doing 1 or 2 projects a year, it’s difficult to keep any of these subs busy enough.??One more comment on this- we will generally carry 3-4 subs.??Just because we had a good experience with a sub for 2 years, doesn’t mean that the crew showing up is going to execute.??We need to keep them honest (on pricing and quality of work).?

Construction can be a cut throat business.??

Tight margins, complex builds, managing a lot of people (on our townhouse project in Chestermere, we had more than 70 people on site yesterday).??To do it right, requires a team that is fully committed.??

But not all GC’s are good.??In my experience, here are a few key things you should watch out for prior to engaging a GC.??

1. Cost vs Value: Hiring a general contractor is going to cost you money.??As a developer, I look at the cost benefit analysis.??Does hiring the GC save me time, and prevent me from making expensive mistakes???If the answer is no, they have not shown enough value.??

One reason engaging a GC at precon works - is that you get to test them early and see if they are contributing to your project at the outset. A GC should be able to look at your plans and in 2 weeks come up with a short list of valuable insights on how to better build your project.??To do this right, will take time and don’t expect them to do it for free.??The best GC’s are not begging to do free consulting.??

2. Communication issues: This is probably the biggest frustration for developers when hiring contractors.??Developers hear from a GC when there’s a problem and often once the problem has become a crisis. As a developer, I want to know how things are going constantly.??

Getting weekly/biweekly updates is key.??Don’t surprise me with an issue when we could have dealt with this a month ago.??I like when a team is on my project from start to finish.??When I see a merry-go-round of site supers and PM on a project, it’s typically a bad sign.?

3. Lack of experience: As a developer, I don’t want my GC learning on the job at my expense.??I want a team with relevant experience.??

This would seem like common sense, but not common practice.??In my experience, it’s rare that a GC will turn away business.??They have a machine to feed and need to keep funneling in business.??I can sympathize with these companies, it’s difficult to keep the right amount of new work coming in and having the team that can execute.??

At Kalamoir, we turn away business frequently.??Either we are not the best to build it, or we don’t have the manpower to execute.??Our reputation is too important to take on projects that we can’t look our clients in the eyes and with confidence tell them we can handle it.??We have carved out a niche in wood frame construction, doing hundreds of townhouse projects and Multifamily each year.??

We are not trying to be everything to everyone.??I think it makes a big difference if you have a team that has done 10 of the same project before - they have insights in to how who (subs) to use.??Consultants that are good to work with.??But, if you’re going in blind, this is where the issues can develop.?

When it comes to construction projects, there's no one-size-fits-all approach. Whether you hire a general contractor or do it yourself ultimately comes down to your situation.??If you’re getting bank financing, a lender is going to want to ensure the GC is credible.??

Coming from the lending world, banks are not in the business of saving a broken development.?

I’ll end with this quote from Richard Branson:

The purpose of a business is just to make someone else’s life easier.??

Contractors who prosper do this for their clients - they make their lives easier.??