How to Select a GC

Nov 03, 2022

Main topic: How to select a GC*

As with many aspects of niche professional arenas, selecting a GC is not always a simple, straightforward process. It requires the right mix of art and science that is typically found only through experience. This is one of the reasons many people struggle with it, especially when first starting out.

Additionally, every project is likely to have unique needs, so establishing a 'one-size-fits-all' formula would be disingenuous. This adds to the difficulty in gaining experience in this area, since not every lesson you learn as you go through the process of hiring and working with a GC transfers to the next project

It can also be particularly disorienting if you're entering a different market or asset class where processes and methods you've become familiar with elsewhere may not apply.

In order to provide the best 'guide' to assess and hire a GC, while taking into consideration that each project should really have a tailored approach, I will focus on providing general guidelines that can be applied to most projects.

Last, one of the most important aspects of this process is that the owner should look at it as an extended interview. This is not the time to be expecting hard bids or commitments from any of the parties you contact. The key is to use this time to get to know the companies you've reached out to and assess who is really the best fit for your project, particularly if you're looking to hire a GC to assist in the design process.

*For the purpose of keeping this newsletter focused, I will use the term 'General Contractor' interchangeably with 'Construction Manager."

1. Create a good pool (2-3 weeks)

This is the same step you would take in any kind of hiring process. Poll your network, search online, or ask owners of similar projects nearby for recommendations and create an initial list of names.
Research the list of names and ensure they provide a wide enough range of experience, company size and area of operation. In most instances you'll want local and regional players (unless you're in a large metro area where specific jurisdictional experience is mandatory). Typically, regional companies can pull resources from nearby markets, and offer better pricing for some trades. This is particularly relevant in secondary markets where trade and labor pools are small. When you're assessing the companies for experience, you'll want to make sure they are familiar with the construction and asset type you're looking to build and a good grasp of your specific market. This means they should have completed at least a couple of projects like yours either in the immediate area or nearby.
Then, reach out to all of them and briefly describe who you are and the project you're working on to gauge their interest. Whoever does not seem interested or does not return your call within a reasonable number of days should be struck out of the list. At this point, the list should be comprised of no less than 3 and no more than 6-8 different companies.
Once you establish the list of interested parties, set up interview calls with all of them very soon after the initial inquiry-- ideally, all the calls should occur the same week. The people on the calls should be the business development representative (if they have one) and company leadership. In some instances, this includes the owner or CEO, but doesn't always. In those cases, you're at least going to want to have a project executive on the call, so you can begin to assess the people who would be directly involved in the project.
During the calls, ask them about company age, size, structure, revenue, and project types they have completed. Ask them again about all the jurisdictions where they have completed work. Additionally, ask them about their typical project team structure and ask about the qualifications of the people they would put in charge of a project like yours.

Keep in mind that you're looking to assess minimum, general requirements like: are they financially stable, do they have the experience required, and are they interested? Be extra wary of companies that take too long to respond or that are unwilling to set up a call with their leadership. This typically means they are too busy and not interested or careless with their clients-- neither is good for the future health of your project.

2. Request project-specific information (4-6 weeks)

At this stage, you'll want to get a little more specific. This will also help you understand the market better and clarify a reasonable range to use for target construction costs.

To request project specific feedback, you'll need to provide general project information that includes the following:
- Building type, construction type
- Total number of stories, units, parking spaces
- General descriptions (as applicable) of amenity areas, level of finishes
- Gross square footage

If you don't already have this information handy, this would be the perfect time to coordinate with the architect and other project consultants to put this together.

Once you've gathered the general project information, include it in an email, then send it out to each group right after a successful initial interview. If something did not sound quite right to you during the initial call, investigate further. If you're not satisfied that a specific group can complete the project and is interested in your business, cross them off the list. In addition to the project information, the email should include the following requests:
- Cost comparisons of similar work - This should include (2-4) similar projects that the contractor has completed or bought out within the target market in recent months (18-36 months). Anything older than 3 years is unlikely to be a good data point.
- Resumes of potential team members and project team org chart - The main point of this is to make sure they have depth of experience in the team. Be extra cautious of project teams that exceed 10 people unless your project is around or more than couple hundred million dollars.
- General fee terms based on the specific contract type you're looking to use for the project - This item is very important since it is one of few, truly negotiable lines in your contract. When properly negotiated, this line alone can save you millions. GC fees are highly dependent on the job type and contract price and that range should be evident as you begin to receive responses from the different groups you're interviewing.
- Sample breakdown of general conditions - You want to know what the GC typically spends general conditions funds on. This is another negotiable item. Watch out for items that are not necessarily specific to your project, like executive phone bills and company car allowances. Understanding the general conditions breakdown is not only very important through contractor selection and negotiation but keeping a keen eye on these costs may save you a lot of money over the course of the project. (For a general primer on what is typically included in general conditions, check out this article.)
- Contractor/subcontractor Bond or SDI terms - On most large projects, lenders will require the contractor and (at least) several subcontractors to bond the project. In all cases, these costs are passed down to the owner. An important fact to note about bonding: the cost that bonding companies charge is indicative of the risk category a particular company falls into. In other words, the less of an established track record your potential GC has, the more the bond will cost (so it really pays to do your homework and work with people who are well-established and financially stable).

On smaller projects (<$5M), bonding is less common unless the project is public or there are specific lender/investor requirements. If your project requires bonding, you will want to make sure your list of potential GCs includes 'bondable' contractors. There are contractors out there who either don't have the track record or financial history required for a bonding company to guarantee a bond. Bonding typically includes two lines: one for the GC bond and another for the estimated subcontractor bond costs. For mid-sized projects, these should be expected to be around .75% (each) of the hard costs of the job. Another option to bonding is Subcontractor Default Insurance (SDI). This option is typically less expensive to cover, but less companies offer it.
For projects <$20M, I highly recommend requesting SDI and while many companies do not carry it as a standard, they can request a quote from their insurance brokers. This is yet another item that can save you several hundreds of thousands, if not millions depending on the project cost.

Estimated project budget breakdown organized in CSI master format - The main point of requesting this is to begin understanding the cost range within which each major trade should be. Again, keep in mind this is not a hard estimate or a formal bid. This is merely a detailed answer to asking the contractor 'what do you think of the current market and what are the major forces?' The answers you receive to this can shed a lot of light on the character and collaborative attitude of the contractor. It is important to request these in CSI master format so it is easier to understand which trades make up what percentage of the total project cost and so they are easier to compare vs. each other.

Typical project duration - This last one is a straightforward request. The expectation is that most of the groups on your list will fall within months of each other. Be wary of GCs that claim durations far outside the range established through all the feedback you receive.

It is important to keep in mind this is part of an interview process, so continuing to be on the lookout for behavior you're looking to avoid during project execution is key. Things to look out for include budget estimates grossly outside of the range (high and low), very slow response times, poor communication and missed deadlines.

My advice always goes that (assuming professionalism between groups being equal) you won't be able to build a building with someone you don't like. Remember you'll be trusting this person/group with what may be the majority of your capital investment into the project and that you'll have to deal with them for months or years to come. Is this someone you can see yourself working through conflict with?

Extra Tip: To add a layer of benchmarking to the process, I often recommend keeping track of the time between when materials are requested and when each GC responds. Looking at this information as pure data can help identify which groups provide the best service and clearly stand out of the pack. While keeping score of response times may be tedious, it can help solve a 'tie-break' between groups that are otherwise equally qualified and can help keep personality bias at bay.

3. Drill into the numbers (1-2 weeks)

Once the information requested begins to roll in, enter all the information into a 'leveling sheet' where each line is compared directly vs. what other groups issue. There are two main purposes to this exercise: 1) to identify areas where information may be missing (when one of the groups misses a line or bundles lines together) and 2) to begin comparing the data 'apples to apples.' The main goal is to refine the quality of the data so that it is useful as you begin inching towards creating a target budget.

GC fee, general conditions, SDI/Bond terms and contingency lines should be organized separately from hard costs (either above or below on the spreadsheet). These are the terms that can be negotiated with the GC and that you can have the most impact on via focused conversations and aggressive budget targets. Trade costs will likely be very similar between GCs, especially in smaller markets where they will presumably be requesting bids from the same subcontractors. This means most project saving are not anticipated to come from trade costs, but rather from fee, general conditions, and insurance negotiations with the GC.

Then, you can set up at least another round of calls with the groups you still believe should be in the running with the purpose of addressing the many questions that came up as you made your way through the data during the first round of leveling. While follow-up calls don't have to be so formal (hopefully, by now you've begun developing relationships with the different groups), the nature of your questions should be standardized and pretty much the same for all groups, in the spirit of fairness. Everyone should get the same chance to explain their assumptions. If you're having trouble assessing the data in a way that yields good questions, the following questions may provide a good starting point:
- Ask the GC to state their assumptions on methods and materials at least for the highest lines.
- If one group includes a major item and other groups don't, ask them about it. If reasonable, request updated pricing from the other groups to reflect said item.
- Whenever a group is grossly outside the range, ask them how they are approaching that specific line and note your inquiry is related to the fact that they are so far outside the range. Note that ‘too low’ is also outside the range, and not necessarily a good thing.

At this point, consider narrowing down the list. If you still have pending questions after the second round of calls, don't hesitate to make quick calls to request answers to the last few questions. In many instances, this process can show you how easily available the different project managers/executives typically are and how quickly they can process unstructured requests for information.

Not to beat the proverbial dead horse, but remember, these are not hard bids. That is not what you're looking for out of this process. You're assessing each group's ability to follow directions, meet deadlines, communicate effectively and you're simultaneously testing their knowledge of the product and market you're targeting.

Look out for groups that overstate their knowledge of the market. This will be easily evident when they make claims that contradict every other group. If you think it is an honest mistake, talk to them about it. If you think it's indicative of ill-intentioned misrepresentation or an attempt to cover up their lack of diligence or market-specific expertise, consider striking them off the list.

4. Create a target budget (1 week)

This is the part of this exercise that will require the most 'art' and certainly some of the most discipline.

After you've finalized all questions and are sure your data is as good as it's going to get, it's time to begin creating a target budget. This process is usually very straightforward since you've already done most of the work in understanding trade cost ranges.

Take the CSI Master Format you've been working with up to this point and copy it to a separate tab. Then, select numbers close to the bottom end of the range for each line. Don't pick the absolute lowest numbers.

If you follow the process without computing the total as you go, you are more likely to stick to selecting the 'reasonable, yet low' numbers from the initial phase.

After you go through the trade costs, set target percentages for insurance, SDI, general conditions, GC fee, etc. and compute the total. That number should be your minimum reasonable budget estimate. The purpose of this is to establish the minimum you will be able to build the project for with the information you have up to that moment.

The point of this step is to check vs. your original target construction budget costs. You can also use this as a very aggressive target budget to help guide the buyout process, so each trade line has an expected range. One of the biggest mistakes I often see owners make is not have target budgets broken down by trade. If there is no goalpost for the project, it is very difficult to achieve a goal.

It is important to keep in mind this is an aggressive target estimate. This is not a hard bid!

5. Make your decision, thank everyone (2 weeks max)

After assessing all the groups and their respective numbers, gather your team and talk about everyone's experiences with each of the groups. You'll want to make sure that the person who will be expected to manage the project was able to build a good rapport with the potential GC. Just because you liked a joke a guy made once, it doesn't mean they were respectful and professional with all of your team members. This goes back to some of the most salient advice in this newsletter: "you won't be able to build a building with someone you don't like."

Once you make a decision, promptly give each one of your contacts a quick call. Yes, a call—(don't do this by email) and make sure to do it sooner rather than later! Thank each of them for their time and leave the conversation in a way where now you have the foundation of a good relationship. Seeing how someone behaves when things don't go their way is a great way to test their character. Some of the best professional relationships I have are with people I did not get to work with on the first shot. If you and your team were kind and courteous throughout the process, you will now have a list of people that would be happy to work with you in the future and willing to help you out in a pinch if needed. This is probably the second most important bit of advice here: "don't be a jerk!"

Ultimately, this last step is a great way to begin cementing your reputation in the industry, particularly if you work in a small market. This whole process allowed you not only to assess different groups but also gave you a chance to show people who you are. You want to make sure people remember your kindness and diligence, the character traits of a professional. With time, building a good professional reputation will not only strengthen your network, but people will be less likely to try to take advantage of you in the future, while still believing you are fair.

In the time between when I first wrote this newsletter and now, I've often been asked how long it usually takes to hire a GC. Most people are surprised to hear it can take up to three months! I added some durations to this issuance, mostly to illustrate that this should not be expected to be a quick process and to reassure the teams taking this on. It's ok if it takes some time, because it should.

While it can take less time to hire a GC on a smaller project or in a situation where the team is familiar with the companies they’re interviewing, I don’t recommend rushing through the process.

Instead, planning the project schedule accordingly is the better approach. Keep in mind this timeline does not include the amount of time it will take to draft up and negotiate the construction management agreement—that usually takes just as long, if not a few weeks longer!

The main takeaway from this should be that in addition to financial stability and relevant experience, it is character, professionalism and market knowledge that are the most important qualifications when hiring a GC. Trade pricing is, for the most part, market-led and the only true "negotiables" are fee, general conditions, insurance, and SDI/bond terms.

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.

Creating contract templates (guest newsletter writer)
Why are subcontractor lien waivers important?
How to create an Anticipated Cost Report

Have a specific subject you want to see us tackle? Drop us a note!

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