The general contractor represents the Unknown Soldier in the construction project. He is the one who supervises all the construction job, responsible for quality control, inspects and assures that all the work continues smoothly. A unique building does not rely only on imaginations and creative drawings. Of course, it’s important, but more importantly, those who bring those dreams into reality through hard work.
General contractors don’t perform their work in air-conditioned offices, instead, they follow their job on-site. They are the first decision makers on the construction site. There are usually risks and issues which will be common for all construction projects and one of these main risks is that different contracts interfere with each other, which leads to a huge obstruction. We know that general contractor tasks are burdensome and become more complicated over time.
Find in this article:
- The general contractor contract content and its types
- 5 main risks for general contractors avoided with PlanRadar
- What differentiates the contractor from the architect
- Mission and importance of general contractor for project success
The upcoming information is extracted from the fundamental construction theories book Project management for construction by Chris Hendrickson. The book tried to make a full documentation of the project management of construction project process and techniques.
What is the content of a general building contractor contract?
The contract provides a record of commitments and agreements between the owner and contractor. Contracts are useful when performance involves substantial, complex or extended commitments and particularly when these factors are interdependent with each other. It also provides a foundation for court decisions if one party fails to perform. A workable contract should define the scope of work, each party’s obligations and any limits on the obligations of either party.
It is necessary that the contract be in writing and signed by both parties to be enforceable even after years. The contract should be clear, concise and complete. Contract arrangements also play an important role in the successful execution of a construction job. The use of a well-prepared standard contract form can significantly simplify contract formation and administration. Such a document forms the content of the legal terms considering all services, requirements, payment modalities and the rights of each party.
A balanced approach to risk allocation is essential for success. The CII study recommends the allocation of risk in the following areas for an improved performance and owner-contractor relationship:
- Consequential damages
- Differing condition
- Delay (excluding force majeure)
Which types of general contractor contracts do we know?
While construction contracts serve as a means of pricing construction, they also structure the allocation of risk to the various parties involved for the following years. The owner has the sole power to decide what type of contract should be used for a specific facility to be constructed and to set forth the terms in a contractual agreement. It is important to understand the risks of the contractors associated with different types of construction contracts. You can use PlanRadar now 30 days free of charge to minimize these risks.
Lump Sum Contract
In a lump sum contract, the owner has essentially assigned all the risk to the contractor, who in turn can be expected to ask for a higher markup in order to take care of unforeseen contingencies. Beside the fixed lump sum price, other commitments are often made by the contractor in the form of submittals such as a specific schedule, the management reporting system or a quality control program. If the actual cost of the job is underestimated, the underestimated cost will reduce the contractor’s profit by that amount. An overestimate has the opposite effect but may reduce the chance of being a low bidder for the job. Well calculated projects and services are the keys to a profitable agreement for the contractor.
Unit Price Contract
In a unit price contract, the risk of inaccurate estimation of uncertain quantities for some key tasks has been removed from the contractor. However, some contractors may submit an “unbalanced bid” when it discovers large discrepancies between its estimates and the owner’s estimates of these quantities. Depending on the confidence of the contractor on its own estimates and its propensity on risk, a contractor can slightly raise the unit prices on the underestimated tasks while lowering the unit prices on other tasks. If the contractor is correct in its assessment, it can increase his profit substantially since the payment is made on the actual quantities of tasks. If the opposite is true he will lose on the same basis. Furthermore, the owner may disqualify a contractor if the bid appears to be heavily unbalanced. To the extent that an underestimate or overestimate caused by changes in the quantities of work, neither error will affect the contractor’s profit beyond the markup in the unit prices.
Cost Plus Fixed Percentage Contract
For certain types of construction involving new technology or extremely pressing needs, the owner is sometimes forced to assume all risks of cost overruns. The contractor will receive the actual direct job cost plus a fixed percentage and have little incentive to reduce job costs. Furthermore, if there are pressing needs to complete the job, overtime payments to workers are common and will further increase costs. Unless there are compelling reasons, such as the urgency in the construction of military installations, the owner should not use this type of contract.
Cost Plus Fixed Fee Contract
Under this type of contract, the contractor will receive the actual direct job cost plus a fixed fee. The contractor will have some incentive to complete the job quickly since its fee is fixed regardless of the duration of the task. However, the owner still assumes the risks of direct job cost overrun while the contractor may risk the erosion of its profits if the job is dragged on beyond the expected duration.
Cost Plus Variable Percentage Contract
For this type of contract, the contractor agrees to a penalty if the actual cost exceeds the estimated job cost, or a reward if the actual cost is below the estimated expenses. In return for taking the risk on its own estimate, the contractor is allowed to use a variable percentage of the direct job-cost for his fee. Furthermore, the job duration is usually specified, and the contractor must abide by the deadline for completion. This type of contract allocates considerable risk for cost overruns to the owner, but also provides incentives to contractors to reduce costs as much as possible.
Target Estimate Contract
This is another form of contract which specifies a penalty or reward to a contractor, depending on whether the actual cost is greater than or less than the contractor’s estimated direct job cost. Usually, the percentages of savings or overrun to be shared by the owner and the contractor are predetermined and the work duration is specified in the contract. Bonuses or penalties may be stipulated for different completion dates.
Guaranteed Maximum Cost Contract
When the scope is well defined, an owner may choose to ask the contractor to take all the risks, both in terms of actual cost and duration. Any work change orders from the owner must be extremely minor if at all, since performance specifications are provided to the owner at the outset of construction. The owner and the contractor agree to a job cost guaranteed by the contractor as a maximum. There may be or may not be additional provisions to share any savings if any in the contract. This type of contract is particularly suitable for turnkey operation.
5 main risks for the general contractor contract avoided with PlanRadar
The job of constructing a building comes with great responsibility. A building contractor has a difficult job that requires hard work and many processes. They engage in planning and coordinating activities during the project. There is no contractual document and no forms to cover all his risks. His legal rights and his payment depend very much on his performance and defect-free services. A building contractor faces 5 main risks in the construction job that are listed as follows.
1. Planning, developing and coordinating all the tasks
A construction project is full of categories of defects. Dismantling the tasks into layers to manage all these defects and keep the building up to code is a constructive approach for the construction business. PlanRadar provides the easiest way using comprehensive filter functions that allow you to select and view your data in during construction and remodeling.
2. Construction defects
A construction defect is generally defined as a defect in the design, the labor and in the materials or systems used on the project that results in the failure of any building part. PlanRadar solved this problem with the ticketing system any defect can be captured and saved to be documented and scheduled. This way you can follow up the defect until it is fixed. You also can inform the owner or any other participant about this defect with a few clicks. Filling in complicated legal forms for every single process becomes a thing of the past.
3. Missed delivery deadline
Missing the delivery deadline leads to more costs and many structural defects. You can avoid all this confusion using PlanRadar which allows you to view your latest completion level of all defects and orders at a glance on your mobile device.
4. Supervision on the whole workflow
The building contractor is always responsible for the supervision of the workers and materials. PlanRadar provides a full safety documentation in a cloud that will be done directly on site using your smartphone or tablet. In a single step, you can record image, text, date, voice memos and positions in the digital plan – even if your device is offline. This is going to save your business heaps of time!
5. Acquire all the licenses and permissions to keep the building process legal
If the object doesn’t comply with local, state, and federal building regulations, the building owner will lose money and time. This will have serious consequences on your working reputation. This task can’t be done by only the building contractor. There are other work participants needed to carry out and supervise this job. PlanRadar lets you invite users to your projects. Depending on their access right and role assignments, participants can manage the platform or document any of the project parts. You´ll stay up-to-date even if your working from home.
The contract, in the end, is the governing link for all the members involved to control the recent roles that overlap in the construction field. The traditional role of the Architect has always been known as the designer and the one who offers the conceptual idea. However, a recent study indicated that design-and-build arrangements now exceed traditional procurement in terms of their total volume in construction. On such projects, architects and other designers are engaged, not by the employer, but under sub-contract to the main contractor.
What differentiates the general building contractor from the architect?
A Study differentiated between the contractor and architect job responsibilities showed the following results:
Responsibilities of Contractors vs. Architects
Both architects and contractors work with clients to ensure their visions become reality. They also both consider costs to keep the job feasible. Architects focus on sketching out the details of the design, while contractors offer their expertise to the construction. Additionally, contractors spend most of their time supervising and working with crews on site, while architects generally spend more time in the office. We´re talking about two business models that absolutely depend on each other even their area of responsibility couldn´t be more diverse. Their final goal is to deliver a state of the art object.
Contractors supervise home-improvement and remodeling projects, as well as new builds. They first meet with clients to gain an understanding of their mission, and they then offer bids. These bids are based on a contractor’s estimate for labor and materials. The client hires the contractor who offers the best deal. The experience and special knowledge of the contractor and his team could also influence a client’s decision to hire them. Therefore, it is important that contractors hire employees based on their skills and knowledge.
Job responsibilities of a contractor include:
- Completing jobs that could include roofing, flooring, and electrical work
- Obtaining the appropriate building permits from the city and county
- Supervising construction crews to ensure the build is going to plan and everyone is safe
- Utilizing power-tools and other instruments, such as drills, and hammers during construction.
To make a home or public space safe and visually appealing, architects act as engineers and artists. Not only do they attempt to meet the desires of their clients, but they have to also ensure building codes for safety are being met during the design process. After meeting with clients, architects create a scaled sketch of the building, which often includes structural systems like plumbing. The planner determines the state of the art of architecture. To keep the build on schedule, they may periodically visit the building site and check the progress.
Job responsibilities of an architect include:
- Assisting in the selection of building materials based on both, code and design elements
- Negotiating contracts with contractors to hire crews for the actual build
- Renovating parts of old buildings to bring them up to code or to restore them to the original design
- Considering the intended use of a building to ensure the best design.
Other types of contractors besides the general contractor
Specialty contractors include mechanical, electrical, foundation, excavation, and demolition contractors among others. They usually serve as subcontractors to the general contractor of a project. In some cases, legal statutes may require an owner to deal with various specialty contractors directly. In the State of New York, specialty contractors, are not subjected to the supervision of the general contractor of a construction job. They must be given separate prime contracts on public works. With the exception of such special cases, an owner will hold the general contractor responsible for negotiating and fulfilling the contractual agreements with the subcontractors.
Material and Equipment contractors
Major material suppliers include specialty contractors in structural steel fabrication and erection, sheet metal, ready-mixed concrete delivery, reinforcing steel bar detailers, roofing, glazing etc. Major equipment suppliers for industrial construction include manufacturers of generators, boilers and piping and other equipment. Many suppliers handle on-site installation to ensure that the requirements and contractual specifications are met. As more and larger structural units are prefabricated off-site, the distribution between specialty contractors and material suppliers becomes even less obvious.
What is the general contractor mission in the construction project?
The function of a general contractor is to coordinate all the tasks in a construction project. His first duty is planning how the construction job will be carried out, starting from hiring the labor, supplying materials and supervising the workflow step by step. The general contractor is the one who holds the responsibility of minimizing the defects percentage in his work. A good general contractor is a person who has worked with a team of directors, specialty contractors or subcontractors for several projects and on multidimensional tasks at the same time productively. The experienced building contractor will enhance his specific job with effective communication and will be capable of avoiding the pitfalls and gain benefits in coordination with the construction labor. His goal is to deliver a state of the art and defect-free object.
Why is a general contractor important for project success?
Building contractors are people with critical and multi-faceted duties and responsibilities. Those building contractors who are determined, ambitious and seek quick decisions are ones who can flourish in their profession. They play a significant role in a construction task since they establish delivery conditions, stocking materials, and equipment, supervise the quality, cost, and timely completion of the job. The general contractor coordinates various tasks to reach his goal while the specialty contractors such as mechanical or electrical contractors perform jobs in their specialties. Material and equipment suppliers often act as installation contractors. In order to be the best building contractor, you should acquire experience and decisiveness for the optimum results. PlanRadar knows how hard it is for building contractors to finish all of these tasks without help. No matter if you´re working on a new home or an enormous skyscraper, we´re going to support you. Therefore here’s a 30 days free trial of the smartest construction software!
The construction process is very complicated, and nothing will help your business through this except a proper planning and scheduling. All you need for this is a technology companion that can help you in planning and documenting everything you need to remember later. No more stress or working pressure! Take advantage of PlanRadar’s strengths to improve building quality, reduce costs, optimize planning, communication and save time.