General Contractor Selection
The selection of a general contractor for a project must take into account numerous factors:
1. The type of contract is important: Lump Sum Bid, Greatest Maximum Price, or Open Book – Time and Material are the most common types.
a. Lump Sum is a good idea if the project is going to be bid out to several contractors. A good set of drawings and specifications is required or the amount of change orders during the project will be immense.
b. Greatest Maximum Price is good if some design/build elements are present in the project. The contractor will usually have a fixed fee for the profit and overhead and a variable fee for the General Conditions, which includes field supervision, trailer expense, shipping and handling costs, etc.
c. Open Book is good for a design/build type of project. The contractor will show all of the subcontractor costs and material costs and then add a markup.
2. The size of the contractor versus the size of the project is important so that the project does not swamp the contractor with carrying costs that are too big of a burden for the contractor’s cash reserves. A contractor that takes on too large of a project often runs into payment problems to the subcontractors and to the suppliers. A good rule is to not assign a project to a contractor that is more than 35% of the annual volume of work.
3. The schedule of the project is important when selecting a contractor because if a contractor promises to begin work when they are already too busy, the project often gets started with regular delays in manpower on the project. The contractors intentions are usually fine, but then the other work is delayed for a variety of reasons and then it affects your project.
4. Quality is a big factor in selecting a contractor. As in most things in life, higher quality tends to cost more and takes a little more time. Optimizing quality with cost and schedule is a difficult task.
5. Insurance qualifications are another factor to consider when selecting a contractor for your project. If their insurance is lacking due to financing issues or high accident rates, then it will be difficult for that contractor to obtain the service of qualified subcontractors, which in turn affects the schedule, quality, and budget of your project.
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