Things developers should not 'DIY'
Main topic: What parts of the design/construction process should Commercial Real Estate Developers not 'DIY'?
I was somewhat hesitant in the approach to this newsletter because on thinking about this subject I realized I run a real risk of making this newsletter sound like an ad for MADDPROJECT. After all, this is what my company does-- manage the design and construction process for Real Estate owners. We are experts at all the things 'you shouldn't (and/or probably that you don't want to) DIY.'
So, I'm taking advantage of my experience and basing it on 'lessons learned' from real projects, hoping that sharing these lessons will prevent someone from making some of these same mistakes.
Additionally, I'm treating the idea of 'DIY' quite literally—to mean 'you should not go at it alone' rather than to mean that you should not do these things at all. If anything, these things are so important that they must be done and done right, so you should lean on your project team and not try to do them all by yourself.
1. Design. Unless you have extensive experience or training, you will likely be best served by letting your Architect design the project. Many people will be surprised this is even on the list!
This doesn't mean you should not have input during the process, but rather that you should defer to the Architect's experience when it comes to making decisions that affect the scale and flow of a space or when a design decision has code implications. The last thing you want is to have something built that does not meet code requirements or that may look fine on plan but ridiculous once built.
2. Manage Contracts. This item is not only one that you shouldn't DIY, it's also one that you just might not want to.
I always advise that you should not sign other people's contracts.
In most instances, commercial projects will require multiple contracts with many different parties. This means you'll want to have contract templates on hand to cover at least the instances where you'll be negotiating repetitive terms under similar contracts-- like for (non-architectural) professional consultants. Having a template doesn't only mean you're ensuring your preferred terms are definitely in the contract, but you'll also save a lot of billable legal hours renegotiating other people's terms.
In general, your contracts need at least these two things: to be unambiguous and for you/your team to know exactly what the major terms say. You should be able to answer questions like:
Do you own the drawings per the contract?
Can you terminate the contract for convenience?
What is the markup this consultant/contractor is allowed to charge per contract?
To ensure your contracts are favorable, you'll need construction counsel (and no, Aunt Marie, who also does your personal taxes, is probably not an expert on construction contracts) to create owner-friendly contracts. There is no substitute for that type of expertise, and you'll be surprised how inexpensive contract templates actually are.
Then, to be familiar with your contracts, you'll need to read and understand them.
There is also no substitute for that.
There are several options for managing contracts successfully. Your team and company structure may favor one strategy over another, so there is no 'one size fits all'.
One option is to have a designated team member create contract abstracts based on a template to distill the significant terms into an easily accessible document.
Another option is to let counsel manage the whole process and advise whenever a matter related to contract terms arises (this can get pricey).
Finally, you can have a team member who is specifically tasked with managing design and construction. This person would also be responsible for knowing what the contracts say. This method is often the most efficient, as there is no lag between contract knowledge and application.
Notice how these options rely on internal or external professional team members. Once your development volume is at this stage, you should certainly not tackle this alone.
3. Purchase materials directly. If you’ve read this newsletter, where I discuss ‘how the big guys do it,’ you may be thinking, “Should I do these things or not?"
The key here is that "the big guys" hire a team, and they lean on the pros to handle the detailed specifics so as not to fail at these big items. This doesn't mean you can't be aware of the pitfalls and ultimately master the process by starting out not doing it alone.
When it comes to direct material purchases, the two main aspects you need to nail are quality and quantity.
Just because a vendor offers you tile at $0.80/SF doesn't mean it's a good deal.
Whenever you're selecting a substitute as part of a value engineering exercise, make sure to order a physical sample and request all specs and warranty information. Then, run the substitute product by your team (architect, contractor, etc). They should have some feedback that may shed some light on the reasoning behind a very low unit cost.
Once you have selected materials and know you'll want to purchase them directly, you must ensure you understand the required quantities.
There is no better judge of required quantities than the trade installing the material in question. Get confirmation from your CM/GC or trade on how much you will need to install and how much will be considered waste. Most materials will require a certain percentage to be accounted for for waste. This is typically related to the pattern called for in flooring and walls vs. the size of the material. If you see more than 10-15% being calculated for waste, ask why. There may be a legitimate explanation, but you should not see numbers much higher than that.
Finally, there are certain materials I recommend you do not purchase directly, and if you do, that you have the CM or related trade directly involved in assisting the selection and purchase.
These materials include plumbing, electrical, and waterproofing components. The last thing you need is to purchase 600 shower trim kits that are incompatible with your shower valves! I also recommend leaving the purchase of materials required for installation, like grout, glue, compound, etc., up to the trade that will be installing them. They generally understand the compatibility requirements of materials and know their workforce's ability to handle the different install methods related to specific materials.
Ultimately, the direct purchase of materials can provide great discounts and cement very strong relationships with vendors and suppliers. Additionally, this process can be incredibly educational if you are actively involved and ask lots of questions.
4. Manage project costs. This one falls into the dual category that you shouldn't / might not want to DIY.
Cost management is easy, but it can get very tedious on large, complex projects if you're looking actually to get feedback from the data.
For the purpose of narrowing down what you should DIY regarding cost management vs. what you probably shouldn't/don't want to, I'm separating cost management into two categories: simple and integrated.
Simple cost management involves keeping track of invoices funded. Integrated cost management involves setting up a system that compares contracts vs. invoices billed and paid in a manner that allows you to easily understand project metrics and make cost-related decisions.
You should absolutely have simple cost tracking, at minimum. It should contain all invoice information and track paid invoices vs. agreed contract values. This document should be updated at least weekly, and the data should be input in a predetermined standardized manner so items are not lost.
For large ($5M+) or complex jobs, I highly recommend an integrated approach that generally mirrors a classic Anticipated Cost Report (ACR). (The ACR will likely be a future standalone newsletter topic as it has received some Twitter hive interest.)
This approach can be very time consuming and requires constant updating to be useful. This is the part where a team is important, both to address the labor-intensive nature of the task and to provide the required know-how to set up a reporting sheet that tracks billed, paid, and completed percentages in a way that is easy to understand.
Ultimately, cost reporting is a development project must.
You will need it to report to the lender and investors, but if you want to get the most out of it, you should use it as a project management tool with your team.
5. Strategize the construction management process. This item requires extensive experience to adequately pull off-- if we were rating these on a scale of 'easy as pie' to 'extra hairy', this one would be at the top.
Every project is different, and the building type, location, expected level of finishes, funding structure, lender, development team structure, etc., will affect the construction management structure.
This one is definitely not a 'one-size-fits-all', which is precisely why having professional input is key.
Two indicators of a good construction management process are that 1) it facilitates lender and investor requirement compliance and 2) it promotes team collaboration specific to the existing team structure.
Obviously, the management structure should also support staying on budget and on schedule, and that is typically achieved through built-in transparency. (How to achieve this is an entirely different topic.)
A very good construction manager may be able to help set up the process for a less experienced developer. It is important to note, though, that a CM's incentives are not always aligned with an owner's, so their input requires the proverbial 'grain of salt' as a project is structured. It is important to understand the pros/cons of each point before settling on terms, and this is an aspect where assistance from construction counsel may prove valuable.
Often, this part of the process is overlooked, and the details are not fully understood or worked out from a big-picture perspective. This can have a significant impact down the road, either through unexpected fees assessed through change orders or scope gaps in delegating project responsibilities, among other issues. At the end of the day, coming up with a sound project management structure is key, and learning how to do it is a process in itself.
The best approach is to leverage your CM, lawyer and industry connections to distill and decide on the most important aspects of a strategy as it applies to your project.
6. Direct the field. As with all domains of expertise, this is best left to the professionals. Often, project owners will walk the field and not understand some aspect of the work, either the sequencing of trades or the application of a specific material. This is not to say that walking a job and asking questions is not something you should be doing—you should absolutely walk the field!
One of my early mentors in architecture always said: "learn to master the process so you are eventually able to create different kinds of connections without having to short-circuit the job." With this, he meant that once you understand the design and construction process and its relationship to development, you can find moments of efficiency.
The problems begin when you try to skip steps without having the experience required not to self-sabotage inadvertently.
So next time you're walking the field and see something you don't understand or that doesn't look right, follow the process 'chain of command' and talk to the project superintendent or the project manager rather than asking the trades in the field to do something differently.
When speaking to the project PM or super, ask all the questions and offer suggestions if you have any while paying attention to their recommendations and reasoning. If you're willing to show them an eagerness to listen and learn from their experience, this will also help strengthen your relationship with the field team.
Creating this relationship with the field team will also give you the opportunity to assess their competence more closely. If they're not able to answer questions or provide sound reasons for major decisions, it may be worth discussing this with the project executive in charge of the job.
The only instance when it is considered appropriate to ask field teams to stop ongoing work is when there is a clear and imminent safety concern. In that case, it is reasonable to request that the team stop the work and a site super get immediately involved to resolve the issue.
As with all other items on this list, once you've gathered some experience in understanding the field, you'll be better informed to make suggestions on future projects. Part of having a significant level of understanding is also the acknowledgment that it is unlikely to match the level of mastery that most industry veterans possess.
In the meantime, relying on your team to help you navigate the nuances of the field is the best way to gain meaningful subject knowledge and experience.
As always, this list of 6 items does not include all the parts of the process that I highly recommend getting help with. It is also important to note that the descriptions are meant to be brief, so in some instances, I oversimplify more complex principles. Despite the brevity of the descriptions, the hope is that these provide some insight into what aspects of the design and construction process you are best served leaning on your team.
Not sure where to start and think we can help? You can find us here!
Main topic ideas for future newsletters.
Between conversations with clients, industry professionals (and RE Twitter) these are some subjects we will be diving deeper into in future newsletters.
Deconstructing the GMP
Construction contract terms everyone should know
How to scope out a contract
Have a specific subject you want to see us tackle? Drop us a note!
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Project Audit
Contract Administration Oversight
Procurement management
For more details, check out our site!
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