Why do general contractors have such a bad rap? What’s so hard with taking precise technical instructions and making a building out of them? Be sure to ask yourself this next time you put that outdoor grill together, or install a garbage disposal or replace the broken toilet. General construction is a thankless business filled with good and bad players and notorious for oversight and finger pointing. How in the world do you work with a general contractor that is continuously talking over your head and leaving you second guessing every word of the conversation? Very easy, hire someone to manage this for you! You think a construction manager is going to break the budget? Try redoing your project 3 times and then compare the costs… Making sense yet?
For some reason, companies will spend thousands of dollars on great attorneys, talented architects, gifted engineers, elite advisors and then hire the lowest bidder to construct the very thing that they hired all the previous talent to create. It is quite comical when you sit back and really think about it! How did general construction get the shortest straw? The short answer is LINEUP (basically where this process falls in comparison to the other store development processes).
Capital, time and patience are all in very short supply when the general construction phase begins and the anticipation associated with opening your doors for business becomes so close you can literally taste it. It is a fact of life for the general contractor and will probably remain that way for many years to come.
Project costs change over time as due diligence continues to develop, store layouts firm up, decision makers put down their pencils and architects and engineers finalize plans. It is very important to plan for these changes early in the development cycle, because change is going to happen. It is very important to know your material costs along with your FF&E package (Furniture, Fixtures & Equipment) if you plan on properly estimating general construction costs. It is also extremely important to know how the landlord is to deliver your space. Some restaurant tenants try to use TIA (Tenant Improvement Allowance) as a catch all for oversight (not recommended). More sophisticated tenants create a ‘Landlord Work Letter’ standard that is included as an exhibit to the lease contract. This letter places most of the permanent build out requirements in the hands of the landlord and standardizes the typical build out costs of most multi-unit restaurants. A well-crafted landlord work letter can create leverage and expedite the store development process if used correctly.
Periodic proforma updates are a necessary component of store development and should be performed at various milestones throughout the due diligence process. This keeps everyone sharp and more importantly, honest, throughout the entire project. For example, a preliminary proforma should be used during the LOI (Letter of Intent) negotiations with input from an experienced construction manager and operations discipline.
As the deal matures from LOI execution to Lease/Contract execution, certain due diligence should have taken place that forces the team to dust off the old preliminary proforma and revise it with the most relevant information. Once the construction drawings are complete by the architects and engineers, the proforma should once again be reviewed by the team with lead from the construction discipline. Now that you have actual material quantities, complete FF&E plans, scopes of work and time lines established, you have everything you need for a pre-construction estimate (except for the general contractor’s bid). With this information in hand, you can now bid out your project to various general contractors. This process allows you to question/confirm/critique the bids that you receive back from your general contractors and therefore reduces the risk of someone taking advantage of you.
Call it keeping them honest or risk mitigation, the bottom line is that you are being wise with you money, time and energy. With simple organization and a good understanding of your business, the gut wrenching process of general construction can actually be enlightening. You will earn some great street credit and you don’t have to be a licensed general contractor to understand this process. There are too many details in this business for anyone to fully master. Hiring the right talent to guide you through best in class practices that have taken 1,000’s of sites and billions of dollars to develop is really what your goal should be in this phase of the process. Learning these lessons on your own requires DEEP pockets and patience on a scale that is beyond human expectation.
For more information on our unique approach to general construction, please do not hesitate to call us direct anytime or shoot us an e-mail with your questions and we will be sure to promptly respond.