Owner/Builder with a CM vs Bid/Build with a GC

Posted: October 27, 2014 in Business, Contracting

I’m surprised at how many people are unaware that as a property owner they have the right to make improvements to their property without hiring a general contractor. It’s called “owner/builder” which means that the owner will do the work or hire others to do the work by trade. But there are some rules that still apply and things the owner needs to know. Here are some things to note:

  • All work has to be done in accordance with the applicable codes and regulations.
  • The owner cannot perform any work that requires a licensed tradesman and that includes plumbing and electrical work.
  • When a contractor gives you a bid for any portion of the work, the contractor must be licensed and bonded.
  • The owner has an additional level of responsibility and risk since there is not a general contractor involved.

Only those owners that are business savvy and have some experience in construction should choose this method of getting the job done. The only reason I bring this is option up is because the owner/builder option can be an effective choice. I have seen this method employed successfully projects where a construction manager is hired instead of a general contractor (called “bid/build”). But an owner who choses this methodology and doesn’t employ a professional to manage the project will be asking for trouble. Most people think they can cut the cost of the general contractor and save money by doing it themselves but you have to understand that there are many risks to not hiring a general contractor if you do not employ a construction professional to work with you. You should hire either a general contractor (GC) or a construction manager (CM).

The type of project and the size of project are taken into consideration when deciding on whether to employ a GC or a CM. Larger or complex projects may require both a GC and a CM. When it comes to the choice between a GC or a CM, there are pros and cons both ways. Typically, the fee for a construction manager is much less than the fee for a general contractor and depending on the ability and resources of the owner the construction manager’s fee can be tailored to meet the client’s needs. But that reduced fee is offset by more responsibility and risk being taken on by the owner. I should mention that there are CM at-risk and CM not-at-risk arrangements. For the sake of this article we are talking about CM not-at-risk. Here are some key features of the owner/builder construction manager arrangement:

  • The contractors all work directly for the owner.
  • The owner pays for all materials and labor directly and is responsible for tracking payment and releases.
  • The CM acts as the owner’s representative to oversee the work, schedule and administrate the project working with the owner to deal with issues.
  • The CM provides resources such as lists of contractors and vendors, forms to be used, estimating and everything needed to do the job.

Here are some key features of the bid/build general contractor arrangement:

  • The subcontractors and vendors all work for the general contractor.
  • The GC pays all materials and labor from monies paid by the owner. The owner still has to track payments and releases.
  • The GC is responsible to oversee, schedule and administrate the project. The owner has to deal with the GC regarding all issues.
  • The GC is responsible for providing most resources for the job but the owner still has to provide so resources like testing and inspections.

There is certainly a lot more to the CM and GC methodologies but you can see from the comparison why some owners are taking advantage of the CM option.

If you have any questions about this subject, please send me an email at service@raconsulting.cc or fill out the contact form.

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