Knowledge--The Most Important Tool for Building

When landowners decide to build, the project can seem daunting. Permits, architectural designs, and engineering issues can be overwhelming. To help sort through the details, the following is a checklist to assist landowners with the entire building process.

Getting Started

There are many ways to proceed, however there are three ways owners most often embark on the building journey.

Do it yourself —

The owner must be a licensed contractor to build a commercial building. He or she hires the architect, civil engineer, and subcontractors. This involves conducting background and reference checks and coordinating the bidding process. Permitting is the responsibility of the owner and he or she makes every decision.

Hire a General Contractor —

The owner hires a general contractor for the total contract sum. He or she handles permitting and hiring subcontractors. It is the owner’s responsibility to hire the architect and civil engineer. The contractor oversees the daily operations at the job. The owner can also hire the contractor on a construction management basis, where the contractor works on a set fee.

Design Build —

The owner chooses a general contractor to handle all aspects of the project. The contractor hires the architect and engineers to design the project and works with the owner to complete the design and construction drawings. The general contractor and owner then work together to build the project within the budget and completion time. The general contractor hires all subcontractors, submits drawings to the owner, and pays the subcontractors.

How to find a good contractor-

If the owner is not the contractor, hiring a reputable contractor or construction management company is the first step. With the numerous choices available, thorough research of prospects will narrow the search.

Experience —

When interviewing the builder, ask specific questions that will give an accurate picture of his or her scope of service. Ask for a list of completed projects, timelines, and budgets. How many did the company complete on time, within the budget? How long has the company been in business? Longevity and local market experience is very important.

Insurance—

Is the contractor licensed and insured? What are the limits of liability coverage? Is the insurance maximum adequate to cover catastrophic accidents on the job site? What are your responsibilities as owner?

References —

Check as many references as possible. By obtaining several different viewpoints you’ll attain a more accurate picture of the builder.

Subcontractors—

Is the contractor a good employer?

Materials suppliers —

Does the contractor pay bills on time?

Prior customers —

Ask your contractor for the name of a client who wasn’t happy as well as several that were happy. Ask for a list of the five most recent projects and inspect them all.

Builder’s Risk Policy —

Ask to see proof of the builder’s risk policy on the project. In the event of an unforeseen event, such as hurricane or fire, a good builder’s risk policy will cover the replacement costs of building.

Financial responsibility —

Check Dunn & Bradstreet. Ask for an audited financial statement and the name of the contractor’s banker. A financially stable builder will be able to finish the job.

The permitting process-

The permitting process is challenging. There are thousands of considerations to take into account. It is imperative that the building is designed and built to code and it is the responsibility of the general contractor and the architect to make sure that happens. The best way to stay on top of the permitting process is to hire competent architects, contractors and engineers to be certain every aspect of the building codes are addressed.

Financing-

When seeking financing for a building, banks require a pro forma that details all hard and soft expenses involved with the building. From design costs to bricks and mortar, expenses must be determined prior to securing a loan commitment. These include:

• Estimated interest expense during the construction period (interest reserve)

• Fees for real estate brokers who help lease up space after construction

• Tenant allowances

• Real estate taxes, assessments, and insurance fees during the construction period

• Legal fees, appraisal fees, and recording fees

• Plans are finished — Loan is approved — Permit is ready

Once the legwork is done, it’s time to start building. As the owner, you’ll rightfully rely on your contractor to handle the details, but it’s good practice to follow up on certain items. Frequently walk the job site to keep abreast of any changes or delays.

Drawings—

Distribute the most current set of plans to everyone involved — builder, architect, bank, electric company, telephone company, and all utility companies. These are the communication tools that make sure your building is built to your specifications.

Utilities—

Contractor should verify that all utilities have been notified of construction. Owners should follow up to be sure no delays occur.

Banking—

Contractors generally make monthly draw applications to the construction lender. These draw requests are supported by documentation including inspection reports and lien waivers. Owners should work with the bank to assure proper inspections are made. Although contractors are responsible for paying sub contractors, the owner is ultimately responsible for payment to subcontractors and materials suppliers.

Job Schedule—

The contractor should provide a job schedule to show the expected progression of the project. Owners should plan weekly on-site meetings with the job superintendent to establish an ongoing open line of communication. This keeps the owner updated on the progress of the building.

“As-built” drawings—

After the job is completed obtain “as-built” drawings from the contractor for future reference. Also obtain operations and maintenance manuals for all equipment as well as warranty documentation.

Insurance—

Although contractors carry liability insurance, owners should check with their insurance agents for liability responsibilities. Request insurance certificates as proof of insurance. The law requires contractors to comply with worker’s compensation policies as well as carry liability, automobile, and property damage insurance.

Hidden costs—

When you sign an agreement with a contractor, there will always be contingencies. As construction starts, if unforeseen problems exist, such as contaminated soil, rock beds, unacceptable soil test findings, debris dumped on the site, sink holes, etc., costs to the owner will increase. A prudent buyer should have completed his due diligence prior to purchasing the site. A thorough review of the property can eliminate potential problems before the contract is signed.

Finally, no matter how many precautions are taken, a certain element of risk remains. What happens if your contractor files for bankruptcy? What if there is fire, storm, or wind damage? What if a sewer moratorium is declared or endangered species inhabit your land? It’s all part of the process when you are building. Just be aware that it’s a rare occurrence when everything goes exactly according to plan. But the bumps in the process help build a knowledge and experience base for future building projects.

William V. Gonnering, CCIM, SIOR is a principal with Grubb & Ellis|IPC, a full-service commercial real estate company serving Southwest Florida.