Starting a new self-storage project can be a very exciting time for a prospective owner. It can also be a very stressful time because there are many unknowns, and finding a trustworthy contractor is often just another headache. Following are a few tips on selecting a method of project delivery, finding the right contractor, and setting up an agreement that will work for all parties throughout the course of the project.

Method of Project Delivery

In the past, if you wanted to build a new facility, you would hire an architect to draw the plans, competitively bid the work, and award the project to the most qualified contractor. This conventional method is slow and expensive and, worse, you dont know if the project is on budget until bids are received. In many cases, the project is running over, requiring you to spend even more with the architect to redesign the plans and get them back on track.

The biggest problem with this approach is architects usually dont understand why the project is over budget, so asking them to cut costs is ineffective. This isnt a derogatory statement toward architectsits just that cutting costs is not what they typically do. Their role is to ensure the building meets code and is aesthetically pleasing.

Another pitfall of this method is the architect and contractor work independently with the owner. This means that if theres a dispute between parties, the owner is stuck in the middle, thus taking more time away from his primary function: running the business.

The conventional design, bid, redesign, bid, build method has given way to another means of pricing and project delivery (see the accompanying flow charts). With the design-build method, the owner hires the contractor first, creating a single source of responsibility for all aspects of the project. Then the contractor hires the architects, engineers and other consultants needed to start the project. This structure eliminates potential finger-pointing during construction.

The design-build method begins with the end in mind. Contractors well-versed at this type of construction guide their clients through the planning, zoning and design process, providing accurate estimates so they can make informed decisions. Since the parameters (design, materials and costs) are established early on, the resulting proposal meets the owners requirements and can be built on time, within budget. The design-build method makes construction much like buying a new car: You know the base price and the cost of all options up front, before spending money on drawings.

Contractor Qualifications

Once youve received several design-build proposals for your project, how do you hire the right contractor? Here are a few things to consider:

If any of these items are suspect or make you feel uneasy, listen to your instinct and consider the next qualified contractor. The lowest price is not always the best price.

The Contract Agreement

Once you have selected your contractor, you need to know which contract agreement you will use to move forward. This agreement should be mutually beneficial and cover a wide variety of circumstances that can arise during the course of the work. After all, the contract will serve as a road map if anything goes wrong. I recommend using contracts from the American Institute of Architects because they are an industry standard as well as balancedthey dont favor the owner or the contractor.

A cost-plus agreement is usually the best choice when any of the following conditions exist:

Cost-plus means the contractor works on an open-book basis. Each month, the owner sees every penny that was spent on the project. The contractor then adds a fee to all project costs to cover its overhead and make a profit. For example, during one month, lets say the concrete is poured and the steel is erected, the costs for which are $50,000. If the contractors fee is 10 percent, the total bill for the month would be $55,000. This may sound like the contractor is making a killing, but remember, in the early planning stages, the company sometimes works for as long as four or five months with no compensation.

A common misconception with cost-plus agreements is they are an open checkbook. This couldnt be further from the truth. Make sure the contract has provisions for a guaranteed maximum price (GMP), which usually coincides with a shared savings clause. It works like this: The contractor gives you a GMP. If the work is completed for less, the savings are shared between you and the contractor (usually 75/25, 60/40 or 50/50, depending on what you negotiate).

The GMP can be set at any time, but the earlier its determined, the higher the price will generally be. I find its best to set the GMP once drawings are done, permits are received and bidding is complete. This means site work has sometimes begun on the project before the GMP is established; but if the contractor has done his job, there shouldnt be any surprises.

While selecting a contractor seems like it may be one more headache to contend with, finding the right contractor with the right method of project delivery and the right contract will save you time, money and sanity. 

Tyson Hermes is the vice president of Hermes Construction Co., which offers consulting services for site selection, site analysis, site and building design, value engineering, and full construction services. For information, call 859.781.7198; e-mail [email protected]; visit www.hermesconstructionco.com.