You will want a qualified contractor for a commercial building project like hotel construction or renovation and for major or highly technical repairs. While you don’t need a contractor for every repair, these are indications that engaging a contractor is in your best interest:
- If the project involves more than one specialist such as plumber, electrician, installer, millworker, etc. you want a contractor to coordinate subcontractors, manage timing, and inspect for completion and quality
- If project cost will be larger than one or two months of your maintenance department budget, you want a contractor because it is beyond the capacity and experience of your own crew
- If the project is large enough to require a loan or building permit you want a contractor because loans and building permits have reporting and inspection requirements that are likely to require an experienced professional
You can contract yourself, or your architect or construction manager can handle this process for you.
Contracting
A “hard bid” is when the RFP commits to engaging the proposal with the lowest price.
“Design/build” is when you obtain design and construction from a single entity, thereby having a single point of responsibility for all phases of work. This tends to simply the process.
With a negotiated General Contractor arrangement, there are additional checks and balances because the architect and GC are independent. The contractor, architect and owner collaborate closely on the project. A GMP (guaranteed maximum price) is typically provided. You should still expect reasonable extras and some change orders not anticipated in the GMP. A contract manager may work with the owner in this arrangement to provide value engineering and to keep the project on time and on budget.
As with any major expenditure, you evaluate several prospective firms and accept detailed proposals from a short list of three or so. As you learn about the firms, use consistent selection criteria so you can compare the companies fairly. Generally, you want a GC (general contractor) that is:
- The right size for your project
- Aligned with the hotel industry and your type of hotel, understands the process with relation to guests, and is experienced with this scope of project
- A good partner, trustworthy, good at listening and communicating, proactive about adding value
- A fit with your team of architects, engineers, purchasing agents, construction lender and brand
- Known for maintaining good relationships with clients, subcontractors and specialists
- Able to demonstrate a great safety rating and insurance (Insurance is a reason use a GC, general contractor, for bigger jobs.)
For a contractor or construction firm, this is an opportunity to win new business. However, construction is full of unknowns and the firms must not lose money. A bid is a tight balance between offering you a competitive price and keeping their company profitable. The more detailed information you can provide, the better they will be able to give you a price that is the best value with the least surprises. The contractor can review your drawings and issue RFI (Requests for Information) to architects and designers as needed to avoid mistakes when the project is in progress.
It is hard not to think that you get the most value when the contractor loses money. This is a fallacy. When contractors lose money, project quality slips, mistakes are made, deadlines are missed so the hotel loses revenue, relationships are destroyed, and the hotel owner ends up with expensive delays, re-dos, legal bills, no one to make minor fixes after project completion, and a host of other problems. You get the best value when the contractor is reasonably profitable and you have a relationship that lets you work together again.
Contracting starts when you gather a list of firms that work on your type of hotel in your part of the country. Get referrals from other hotel owners, your brand/franchise representative, your architect, your lender, from people you meet at industry conferences and of course you can use Google. Digital marketing is prevalent among construction firms. You can read about the firms online and call to talk with them about their services and client relationships. You will find significant differences in the way these companies treat you, availability (some will be booked up), size from family firms to multi-national enterprises, experience, and specialization. You can gather this information informally or you can use an RFQ (Request for Qualifications) if the project is large. RFQs cover a firm’s experience, previous projects, and credentials. The AIA (American Institute of Architects) developed this form for RFQs and you can also use it to collect information informally.
Once you have identified several firms that you think would be a good fit and have checked that they are interested in the project and have availability, check references. Here are some questions to ask:
- Did they provide strong on-site management?
- Did they show strong diagnostic and resolution skills?
- How did their status updates go?
- Was communication proactive and transparent?
- How were change orders managed; were they reasonable; were they timely?
- Was the initial bid well thought out and close to actual?
- Did they communicate with the architect when they needed clarification?
- Did the project run on budget and on schedule?
- Were there avoidable delays or cost overruns?
- Would you use them again or recommend them?
Once you have references and have narrowed your list down to three to five contractors, you set up a meeting to talk about the project in detail. Ask the contractor to walk you through their project life cycle, review completed bids with you, and show you how they manage and communicate during projects. Look for information on their accounting, draw and payment processes.
Invite bidders to a site visit. This enables them to make an informed bid. When you tour the site with them, you will also learn more about the project. Each contractor may have a different recommendation about some aspects of the project and you can discuss the options with them as you tour the site.
Then send the chosen firms (about three) your RFP (Request for Proposal) and ask them to provide you with a quote by a given date. They will require a reasonable amount of time to prepare the bid. Your architect can suggest a time frame and the contractors will tell you if they need more time. Delivering a bid on time is the first indication that a contractor is serious about delivering a project on time.
Contractor tip: Contracting is full of jargon. Don’t let it undermine your confidence or confuse you. If you don’t understand the word or the acronym – or if you know the word but aren’t sure what it means in a contracting context – ASK. You can build your own glossary. You can also look it up on Wikipedia. You are not the only person – male or female – to ask what the jargon means.
RFP (Request for Proposal)
RFPs announce and provide details about a project and solicit bids from contractors. They cover scope, services and assumptions. The RFP reflects your vision and goals for the hotel and is essential to getting apples-to-apples bids. Your architect can help with the RFP and it is common for the architect to develop the RFP, including design documents, for your review and approval. Often architects handle the entire RFP process.
Responding to an RFP is time consuming and therefore expensive for a contractor so you should expect them to verify that you are a serious potential customer. They will want to know that you:
- Control the property (own or have a contract on the land or hotel)
- Have access to a realistic amount of money to complete the project
- Provide detailed drawings and specs (from your architect) for them to use in preparing the bid
- Can give them access to the property to assess existing conditions on the ground
- Are professional and will properly process their invoices, respond promptly to their questions, and treat their team with courtesy
It is reasonable to expect a contractor to accept an inexperienced client and you should have a lot of questions. That’s okay! Write down the answers so you only ask once. Communicate, but do not waste their time. Particularly as a new owner, it is important to be professional and courteous. Remember this is a team effort and the contractor wants to do the right thing and have referrals and a satisfied repeat customer.
Plan interviews after the RFP so that you have a chance to question each GC about their quote. Do not just go on the lowest quote on paper. As you interview the GCs about their quotes you may find that the lowest seeming quote is actually more expensive. This is because some items may be priced as add-ons. The quote may include assumptions or exclude elements of the project. For instance, one quote may assume that guest room doors can be painted while another may propose to replace doors as needed (and adds charges for them) and another quote may include pricing to replace all doors. When your comparison of the contracts uncovers items like this, your role is to discuss it with all three contractors and understand why they quoted the way they did. To carry the example further, you may learn that new doors are a brand requirement or will be necessary to put house the new locks you plan to use. In that case, you would ask all the contractors to adjust their quotes in order to replace all the doors. You can do this work, or you can have your architect or construction manager do the detailed work and review it with you.
During the interview, the GC should present a logistics plan and schedule. Time is money. Understanding the delivery dates promised and what critical assumptions have to take place in order to meet those dates will help with your other commitments and your budget.
Price is an important consideration. But, within a reasonable range of pricing, cheapest is not always the best choice. It is crucial to select people and a firm that you trust, understands your needs, and can deliver a successful result.
Contractor Tip: When all the bids come in – most will be within a fairly close range on a percentage basis. Any bid that is significantly lower or higher than the rest… BEWARE!
Common elements to ask for in an RFP are:
- Bid process instructions
- Contract terms
- Proposal requirements
- Scope of work
- Past work performance
- Schedule – start/finish dates and time management plan
- Plan and requirement for payment (billing requirements, inspections/proof of completion, time to process payment) done at the time the contract is awarded
- References (past client and bank references)
- Prices for labor, materials, oversight
- Detailed cost information for each aspect of the project
- A commitment to meet brand standards from the designer and architect
- Equipment owned versus leased
- Flexibility – plans for adjustments from the original scope
- Necessary documentation; certifications, permits, licenses, credentials, insurance/bonds
- Warranties on materials and workmanship
- Cost savings ideas or value engineering ideas that can save the project money (always a plus!)
When you have the completed bids, lay them out side by side and consider the background information you gathered as well as the bid itself. Review your assessment with your architect and construction manager.
Construction Management
Construction management is a professional service that provides planning, coordination, and execution of the project. It can encompass management of the project’s schedule, cost, quality, safety, scope, and function. Construction managers coordinate for the owner, with architects, engineers, designers, inspectors, and the general contractor who manages subcontractors.
The CM represents the owner’s interests to deliver the project on time, at or under budget, and to the owner’s expected standard of quality, scope, and function.
CMs are qualified through education and experience to determine the sequence of construction operations, develop a detailed schedule and budget, plan project safety and security and manage risk. Their job is to assure that:
- The scope of work covers all the work and materials that will be required to successfully complete the project (project planning)
- The project is well “value engineered” so that every element of the project is systematically analyzed and you pay for materials and methods that are most cost-effective without sacrificing functionality.
- Contractors, sub-contractors, vendors and everyone else involved in the project works together smoothly, are all qualified and work safely (safety management). Schedules are coordinated so that the right materials and right personnel are on site together at the right time (scheduling)
- Work is performed according to contract and delivered to specification (contract administration)
- Budgets are met and billing and payments are properly controlled (cost management). Front loading of invoices should be avoided so project continues to financially move smoothly.
- Any changes in plans (change orders) are necessary and are additions to the scope of work (quality management)
For a large project, a construction manager can save you money and time. They will also improve your odds of opening on time and on-budget. Remember, they bring the expertise if you are not a construction expert.
Hotels are specialty real estate and your construction manager should be a specialist in hotels. Ideally, they will have experience with your type of hotel. The knowledge and expense of a construction manager who specializes in massive casino resorts is different than that for a construction manager for a Holiday Inn Express. As with any professional, you should interview several construction managers and accept proposals for their work. Because they will be your point of contact for many aspects of your project, select a provider that you like and that gets along well with your architect and contractor. You should be comfortable asking questions, relying on their ethics, and with their technical expertise.
There are two approaches to construction management.
- CMAR (construction management at risk or CM@risk) is an arrangement in which you hire a manager, usually a contractor with technical and financial capabilities appropriate to the project. The manager assists with construction scheduling, project budgets, cash flow analysis, discussion and recommendations about means and methods, value engineering, serving as engineer of record, and cost projections. In this delivery approach, the manager acts as your consultant in the pre-development phase of the project and then establish a guaranteed maximum price (GMP) based on bids. They will give you a GMP including construction, their fee and profit margin, subcontractor bids and contingency. This passes some of your risk to the CM.
- Without a CMAR, the owner or their representative handles the construction bidding themselves and still may solicit a GMP. A construction manager may still be engaged to work for the project, but may not take on the risk for the entire project.
Punch list
At the completion of construction, you will prepare a punch list. This is a list of all the open items the contractor must finish prior to receiving final payment. You and your construction manager, architect, general manager and/or contractor will develop the punch list by walking through every room that was touched by construction and making a list of anything incomplete from a missing lamp to open wires to scratches, dents and paint that need repair or touch up. A systems check is included to make sure that all plumbing and electrical works, etc. When every requirement has been met, the architect will issue a certificate of substantial completion. This represents the official completion of the project for the contractor.
Although the project will be complete, good contractors stand by their work. If a small correction is needed after completion, they should take care of it. They should give you a date by which the correction will be made so you can keep track. You should keep a record of these requests, make sure they are completed, and make sure they are within reason.
Change Orders
A change order is an amendment to a construction contract. Change orders exist because construction is dynamic and complex, so some challenges can’t be anticipated. Your architects, designers, contractors and construction manager will plan for contingencies. And they will work together to identify any missing necessary elements of the project. But stuff happens. There may be burst pipes. The brand may change a specification. The local building department may implement a change in code. The building may require an unexpected repair once the walls are opened. For whatever reason, there will be changes during construction. Change orders document those changes and assure smooth communication.
Your initial construction contract should have a “changes in the work” clause to anticipate change orders. When a change is required, it is crucial to document it with a change order. This specifies exactly what will be done and what the charge will be. If you think that changes are some magical favor because the contractor likes you, and you don’t document them, you will face a large and unexpected bill at the end of the project. Change orders keep everybody honest and help a project run smoothly.
Most change orders increase your costs and have the potential to impact your schedule. But you will also have change orders that reduce your costs when materials, labor or equipment rentals are not needed.
- A lump sum change order is when a change in the scope of work can be quantified and a firm price presented.
- A zero-cost change order documents a change in scope when there is no change in price but it is appropriate to document a change in the work to be done to keep everyone in contract compliance and confirm any schedule impact.
- Time and material change orders are used when the full cost cannot be determined. In this case, the contractor documents time, labor rates and material for the adjustment. You can include factors requiring a time and material change order in your initial contract so the process and rates of pay are defined in advance.
- Unitary cost change orders are used when the contractor knows what the cost per unit will be but not how many will be needed.
You and your contractor will be working together. Properly handling change orders is a courtesy, a legal requirement, and smart for both of you.
- Change orders must be justified and “fact specific”. They depend on the contract, other change orders, drawings, specifications, etc. Basically, you only accept a change order and only pay extra for something that is not in the contract.
- Contractors who proceed with extra work without securing a written change order put themselves at risk, but they also put you at risk. This deprives you of necessary control over the project. It is important to require change orders and to process them promptly.
- A change order with your contractor does not necessarily change the contract with sub-contractors; change orders involving subcontractors may need to go to the subcontractor.
You can manage change orders yourself. Alternatively, construction managers work for you to keep change orders in order and under control.
