Sunday, February 26, 2012

Owner-Builder as Prime or Main Contractor?


Many property owners are not aware of a construction process available to them that can save them thousands of dollars, lots of time, and allow them to achieve ultimate project control.

The term for this process is Owner-Builder and under certain conditions the Owner-Builder is exempt from local regulations.  For example, the California Contractors License Law which allows work on his/her own property pursuant to the following Owner-Builder Declaration found in local Building Permit Applications:

In general, the first option permits the property owner or his/her employees to perform construction work so long as the structure is not intended or offered for sale (Sec. 7044, Business and Professions Code reads: The contractor license law does not apply to an owner of property who builds or improves thereon, and who does such work himself or herself or through his or her own employees, provided that such improvements are not intended or offered for sale. If, however, the building or improvement is sold within one year of completion, the owner-builder will have the burden of proving that he or she did not build or improve for the purpose of sale); and

The second option permits the owner to hire the various licensed specialty contractor(s) directly to construct the project thereby eliminating the need for a General Contractor (Sec. 7044, Business and Professions Code reads:  The Contractors License Law does not apply to an owner of property who builds or improves thereon, and who contracts for such projects with a contractor(s) licensed pursuant to the Contractors License Law).

By contracting directly with licensed specialty contractors the Owner-Builder can:

1.         Save money because the general contractor marks up the specialty subcontractors actual bid price and then adds other fees such as overhead, profit and general conditions.  All of these fees and mark ups can be substantial.  Unless you have a cost plus contract with the general contractor and entitled to see actual subcontract agreements, material receipts and actual labor time sheets you never know how much a project really costs; and

2.         Have direct control over the specialty contractors costs, schedule and work quality because you will see and approve actual invoices, schedule results, and work in place quality before releasing any payments.

By answering YES or NO to the following questions could determine if this Owner-Builder process is right for your next construction or alteration project:

  1. Do you understand the scope of the work necessary to begin and complete your project?
  2. Are you capable of preparing a written scope of work or performance specifications?
  3. Do you have the ability to qualify contractors?
  4. Do you have the time to schedule, coordinate and inspect your project?
  5. Is your project absent of structural alterations or improvements?
  6. Will all activities in your project scope or performance specifications allow for the respective      specialty contractors to supply and install all materials, labor and clean-up without you having to do any leg work?
  7. Are you able and willing to have the necessary building permit documents prepared, submitted and obtained for the project?
  8. Are you willing to assume full financial responsibility for your project?
  9. Are you capable of setting up, reviewing and approving contractor progress and final payment requests?
  10. Do you understand the importance of securing certificates or insurance and lien releases from contractors?

A YES answer to all of these questions probably makes you a good Owner-Builder candidate.

However, those who can't answer YES can still take advantage of this Owner-Builder process.  The owner can still have ultimate control over schedule and costs by hiring a Construction Manager for fee who basically acts as his/her agent.  Some Construction Managers will help set up a project and/or work on an as needed consulting basis.  This gives the owner the best of both worlds because Construction Managers are required to be licensed by the Contractors License Board and Construction Management fees are generally substantially less than a General Contractors combined specialty contractor mark ups plus his/her over head and profit.  Also, the Construction Manager for fee, acting as the owners agent, owes a client a "Fiduciary Duty" (Trust).  Where as, a General Contractor is an independent contractor who is free from the influence, guidance, or control of another or others and does not owe a "Fiduciary Duty".

Using the Owner-Builder process can prove extremely beneficial to Homeowner Associations performing Maintenance and/or Repairs because the following licensed specialty contractors can usually be easily coordinated and their scope of work defined without risk of conflict.

Class
Code   Trade Name

C-33    Painting and Decorating
C-39    Roofing (Subs out C-43 Sheet Metal)
C-13    Fencing
C-27    Landscaping
C-12    Earthwork and paving
C-8      Concrete (Subs out C-51 Reinforcing Steel)
C-53    Swimming Pool
C-29    Masonry (Subs out C-51 Reinforcing Steel)
C-5      Carpentry Contractor

Every construction project is unique and as such must be evaluated, planned, implemented based on the owners budget and scheduling objectives. The Owner-Builder process is one way of achieving these objectives. Also, every jurisdiction has it's own regulations regarding the Owner Builder process. Therefore, it is strongly recommended that you contact your local building department for their respective Owner Builder rules and regulations.

Sunday, February 12, 2012

Construction Management: Misunderstood or just Overlooked?

Construction Management, a very old but untapped service that can save time, frustration and help control building costs.

Usually there are three parts of a building team, the General Contractor, the Architect/Engineer, and the Owner. 

Another part of the building team that seems to be overlooked by the Home Owner and Small Business Owner is the "Construction Manager".  Construction Management is "A special management service performed for the purpose of coordination and accomplishment of project planning, design and construction".

The Construction Manager is usually under special agreement with the owner.  However, architects sometimes offer construction management services under separate and special agreements.  Construction Management is not part of the architect's and engineer's basis services, but is an additional service sometimes included in their comprehensive services.

Construction Management is often practiced on extremely large building projects. One of the reasons construction management is used on larger projects is to permit the construction process to start while the design is still progressing which allows the construction manager to recommend construction options for better project and cost control and to allow the building project to be phased over a period of time.

These same construction management techniques are also available to home owners and small business owners for smaller projects.

Construction Management gives the owner the opportunity to act as owner builder (where the owner obtains his own building permit) instead of contracting with a General Contractor.  The professional Construction Manager can assist the owner in obtaining bids from licensed and properly insured subcontractors and materialmen.  The owner signs separate contracts for the construction of the various portions of the project thus saving the General Contractors markup on the separate contract prices.  These savings can be substantial on the average project. The trade off, however, is that the owner signs separate contracts instead of having a single contract with a General Contractor. The separate contracts are often broken into the following phases:

               1.            General Construction
               2.            Plumbing
               3.            Heating (Ventilating, Air Conditioning)
               4.            Electrical
               5.            Sewage Disposal (if applicable)
               6.            Elevators (if applicable)
               7.            Specialties
               8.            Other

The Construction Manager will then assist the owner in overseeing and supervising the building project based on a predetermined scope of services and written agreement between the Construction Manager and property owner.

The construction manager usually works on a fee based on a percentage of the total construction costs of the project.  Also, the Construction Manager is usually reimbursed for his direct out of pocket expenses such as telephone, photocopies, special travel related expenses, and for his direct salary expenses for any on-site staff the Construction Manager employs.

Construction Management fee generally ranges from 2% to 10% per cent of the construction costs. e.g., subcontractors, materials, supplies, equipment costs, and possibly permit fees  plus the Construction Manager's "reimbursable expenses" and "General Conditions" which are usually billed to the owner at cost.  Usually, the larger the project the smaller the overall fee percentage.  Some construction management firms work on a negotiated hourly rate or a predetermined fixed fee.         

The homeowner, business owner, or developer not equipped or interested in managing their own building project could benefit greatly from the services of a Construction Manager.

The most common ways of using an experienced Construction Manager are:
  1. When the Construction Manager acts as the direct agent for the Owner but the owner still assumes total financial responsibility for the project.  Here the owner maintains direct communication with the Architect, General Contractor, and Construction Manager
  2. When the Construction Manager assumes the total financial responsibility for the project.  Here the  owner maintains direct communication with the Construction Manager only.  The construction    manager communicates with the Architect, General Contractor,  and  Subcontractors.
  3. When a joint venture is formed between the Architect, Contractor and the Construction Manager.   Here the owner maintains direct communication with the Joint Venture entity. The joint venture  communicates with the Subcontractors.
  4. When the Construction Manager acts as a consultant to the owner and responds to the owners requests for assistance on building related matters.  Here the owner maintains direct communication   with the Construction Manager, Architect, General Contractor and/or Subcontractors.


Construction Management Companies are listed in the Yellow pages of your telephone directory under the heading of "Construction Management".  Some General Contracting firms have the capability of performing construction management services.

When selecting a Construction Manager or Construction Management firm request a written Construction Management proposal.  The proposal may include all or some of the following depending on the size and complexity of your building project:

  1. Master Planning services, which would include project Budget Information  and                 Scheduling.
  2. Construction Management Services, which would include Systems and Procedures, Cost Management, Time Management, General Consulting, Affirmative Action and Community Relations, and On-Site Management.
Some advantages of using a construction manager are:
  1. Knowledge and payment of actual costs;
  2. Direct control of Subcontractors and Material-men;
  3. Direct control of schedule; 
  4. Ability to negotiate directly with Subcontractors if changes in the work are authorized or if      unforeseen conditions are discovered; 
  5.  Minimize the threat of liens by paying subcontractors and material men directly; 
  6.  Having the option of using a General Contractor or doing the project as "Owner/Builder". 
  7.  Knowledge of  Owners and Contractors rights and obligations during the building process and proper transferring of risk.