B1. Strategies for Selecting and Negotiating with a General Contractor

Contractor Selection

There are three ways to select a contractor:

Request for Contractor Qualifications Request for Proposals with Hard Bid Amount for Construction Contract Referral and Invitation 1. Request for Contractor Qualifications For large and complex projects, the CDC may consider developing a relationship with a general contractor early in the project planning process. A Request for Qualifications ("RFQ") is a process that allows the CDC to state the goals and scope of the homeownership development projects and expand the pool of prospective contractors to build the project. A Request For Qualifications differs from a Request for Proposal ("RFP") because an RFQ does not require candidates to submit hard construction bid amounts. The RFP is used in the early phase of development so that the general contractor, developer, architect and engineer can work collaboratively in value engineering the project. Examples of construction issues that may need further analysis in single-family homeownership include:

New Construction "Stick-Built" Versus Factory-Built Modular Floor Plans Garages and Basements Exterior and Interior Finishes and Treatments HVAC Systems and Energy Efficiency

After design, building process and specifications are refined the general contractor (GC) can present more informed construction estimates which form the basis of the construction contract between the GC and the developer. Projects that use public subsidy funds, often require public bidding. An RFP process includes public bidding of all significant subcontractor work. The added value is that with the GC on board early, the core construction team is established and bids from subcontractors can be analyzed and negotiated in a more informed and rigorous manner. The result is a well-planned project to be built on-time and on-budget. Download: Sample Template for RFQ Process 2. Request for Proposals with Hard Bid Amount for Construction Contract A Request for Proposals with hard bid amount for construction contract ("Hard Bid") involves announcing the project publicly, such as by advertisement in a newspaper or construction trade publication, and asking for a price and delivery from the contractor. This method is often required if the developer is using public funds to pay for the construction project. This selection process is often used when the Architect and Engineer have refined their drawings and specifications and the City has signed-off on the plans. For larger projects the RFP Hard Bid process is competitive and must adhere to standard public bidding procedures in order to comply with City and HUD regulations. The advertisement should clearly describe the scope of the project, the date and time of the bid opening, and the specifications of the items to be included in the bid package.

A. Bids should be submitted in a sealed envelope clearly marked with the job title/address; contractor name; date and time of bid opening on the front of the envelope. B. Bid content must conform to the specifications of the advertisement, with all pertinent information contained on the bid form. C. Bids may be mailed or hand delivered, with the receipt date and time clearly marked on the front of the bid envelope. Bids received after the specified date and time should be rejected. D. Bids will be reviewed for completeness, and the successful bidder selected based on price and/or previous experience.

As part of the Request For Proposals ("RFP") submission by the general contractor ("GC") the developer can ask for responses to the following questions:

How long have you been in business? In what trades are you licensed? How many employees do you have on your payroll? How do you purchase your materials? Is your normal work substantial rehab or new construction?

In the RFP notice, developers must state the selection criteria and the process for choosing a GC. TIP for building good relationships with general contractors: After a contractor is selected for a construction job using the bid method, rank all of the contract proposals and send a post-selection letter to the GC firms who submitted bids. This allows the firm to see how their price and experience compared with the other bids. This also allows the contractor to assess perceived strengths and weaknesses. Always offer to meet with a GC to clarify any issues and share your plans for future business. 3. Referral and Invitation This method of selection is used when there are no public bidding requirements and where a public bid process is costly or not appropriate for the scope of the work. Selection of a contractor is based on recommendations from others who have hired the contractors before. The following are some guidelines that may be helpful:

A. Evaluate the scope of the work and the materials used. B. Solicit referrals of contractors from other developers, friends, and neighbors or research contractor firms from the Yellow Pages, trade manuals, and local publications. C. Contact the local builder's association for references or the Better Business Bureau for information on the firm. D. Ask a minimum of 3 contractors to provide price and delivery for the project - using the same materials list to ensure "apples to apples" comparisons. E. Request a list of references from the contractors and call them! F. Consult with lenders and City Inspectors to verify the quality of the GC's work Questions to ask the references: Were you satisfied with the work that the contractor performed? Was the job completed on time? Were the workers competent and professional? Did they clean up each day? Were you satisfied with work performed by subcontractors? Was the contractor open to suggestions to mutual satisfaction? On a scale of 1 to 10, rate the overall satisfaction with the contractor. Would you hire the contractor again?

Things to Discuss with the Contractor Prior to Hire

The Construction Contingency - The construction contingency is the "set aside" of a certain percentage of funds (the industry standard is 10 percent) in the construction budget for unexpected costs over what was agreed to in the contract. If the contingency fund is not needed, it can either be given to the contractor, can be used for upgrades or additional items in the project, or put back into the general program fund. The Scope of Work - This is described in Construction, Section IIIA of this Tool Box. Deadlines - The skilled construction manager must be able to set realistic construction deadlines up front, even if it goes against the time frame desired by the developer. The deadline is the time needed to complete in a satisfactory and reasonable manner the job without compromising quality. The typical deadline for substantial rehabilitation and new construction of entry-level single-family houses (with less than 1,800 square feet of space) is 4-5 months. TIP: A 90 day construction deadline usually produces a poorly finished product. It is a timeframe which does not leave the contractor, construction manager, or developer any leeway to deal with the unforeseen. Factors that may impede production include:

bad weather shortage of supplies shortage of labor other unexpected conditions

Insurance and Liability Issues - It is absolutely necessary that all general contractors and subcontractors supply proof of liability insurance, Worker's Compensation insurance, and other appropriate risk coverage prior to signing the construction contract. This insurance must protect the building, the workers, the general public, and the equipment, with the developer identified as the loss payee. This means that the developer would be reimbursed for damages in the event of any type of loss. Paying the Contractor - When a general contractor is used, this is the firm that gets paid by the developer. The general contractor then pays the subcontractors for the work that they have provided out of this money. Payments to the general contractor begin when the contractor completes a payment request on the appropriate form, which is described in detail in the construction contract. The information requested usually includes pre-approved tasks and dollar values, with the billing amount based on the percentage of the work completed - which has been inspected and approved by inspectors and the developer for payment. Payment requests should NOT be made if:

the line items as billed are not satisfactory or complete or the quality of the work is substandard or does not meet with the inspector's or owner's satisfaction.

Make every effort to pay contractors in a timely fashion as this creates positive feelings and cultivates good relationship between the developer and contractor. TIP: If the developer cultivates a high degree of success with a specific general or subcontractor, the developer can usually count on that contractor bidding additional work. Retainage - It is recommended that a specific amount of each billing (the industry standard is 10 percent) be withheld from the contractor as a guarantee that the project will be completed satisfactorily. This is standard practice in the construction business, so the contractor should be used to doing this. Once the entire job is completed successfully, all retainage should be paid promptly. TIP: Be careful not to use the retainage as a "weapon" against the contractor to do additional work beyond the signed contract scope of work without additional pay. This practice will almost guarantee a strained relationship between the contractor and the developer and will give the developer's organization a bad name.

Negotiating with the Selected Firm

After selection, the developer should begin negotiations with the GC firm and have the final cost proposal prepared. At this point, it may be necessary to renegotiate some points in the proposal for mutual agreement by all parties. There should be extensive agreement at this point on the process for submitting bills and negotiating all fees. The following considerations are suggested:

A detailed and comprehensive scope of services should be developed jointly by the owner and the firm, after which a work plan is produced. This plan lists all "key players" and their roles and responsibilities. A written contract should be developed - preferably one that is widely used, and time and field-tested. Most general contractors use the American Institute of Architects template. Your real estate attorney and/or architect should be able to provide you with a copy or you can get them from www.AIAonline.com or www.AIAaccess.com. All agreements between the owner/developer and the contractor should ensure that both parties have the same expectations and understanding of the program requirements.

The following are some of the more commonly used AIA construction documents:

A101 Standard Form of Agreement Between Owner and Contractor A201 General Conditions of the Contract for Construction B141 Standard Form of Agreement Between Owner and Architect G701 Change Order G702 Application and Certificate for Payment G704 Certificate of Substantial Completion

Download: B2. Sample General Contractor Request for Qualifications