In This Article
Choosing a Design-Build Contractor
Pros & Cons of Design-Build
Hiring Recommendations
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Most residential contractors do a little designing here and there, usually in conjunction with the homeowner, who may bring sketches, photos, and tear-outs from magazines or plan books. This is especially true in remodeling, where design options are largely constrained by pre-existing conditions. Technically, these contractors are providing a design-build service, but do not call themselves design-builders and are not charging separately for the design work (at least not as a line item in their estimate).
On new homes and large, complex remodels, however, many contractors would rather work off someone else’s plans unless they offer “design” as a service. Design-build contractors generally contract and bill separately for the design phase and construction phase. Their training, skill, and style of design will vary as with any other type of building designer. In some larger design-build firms, one or more of the designers may, in fact, be licensed architects.
Some of these “two-phase” contracts allow you to terminate the contract after the design phase allowing you to use the plans with another contractor. This is an important option that you will want in your contract. These contracts may offer a discount if use use the same contractor do the construction.
There are many variations in a company’s approach to design-build bidding and contracts. Many design-build firms work on the basis of a negotiated bid, as they generally do not put out the plans to other contractors to bid. In this system, the contractor generally shares some of their estimating data with you and negotiates a fee (fixed, hourly, or percentage) for the design and construction services they are providing.
This may work well for a sophisticated owner who has a clear sense of what a project should cost. However, it can be problematic for a client who wonders if he is getting a fair price. Whatever pricing system is agreed upon, make sure it is capped by a guaranteed maximum. If you’re not sure if the pricing is fair, consider hiring a construction estimator or licensed real-estate appraiser to price the job. It could be a few hundred dollars well spent.
In the traditional owner-architect-contractor triangle, the architect designs the house and monitors the construction to make sure that the contractor is following the design and not cutting corners. The builder may claim that that some aspects of the design are impractical, unwise, or needlessly expensive, and suggest alternatives to the owner.
If the architect is still involved and has a good relationship with the builder, they usually resolve these sorts of issues, preferably during the bidding phase. In the design-build model, there is no such give-and-take: the owner trusts that the contractor has come up with a good design that is cost-effective and is building to high-quality standards.
CHOOSING A DESIGN-BUILD CONTRACTOR
Since you are hiring both a designer and a contractor, you should ask the same sorts of questions you would ask an architect/designer, plus the questions you would ask of a contractor. In evaluating a company, keep their design side and construction side separate, as you might like one and not the other.
On the design side, you want someone whose taste is compatible with you own. Look at their portfolio and visit some of their projects if possible. Talk to people on their design team about how they work during the design phase, how they work with clients, and how charge for design. Ask if you can get outside bids on the design from other contractors.
On the construction side, ask the same questions you would about a general contractor: about the types of jobs they’ve completed, square foot costs, experience in any specialties of interest to you, how much work is done by subs vs. employees, and so on.
Ask for references and ask former clients about the design phase and the building phase. What went well? Were there problems and surprises along the way? Were there cost overruns and why? In the end, how do like the project? Was the cost reasonable? Since the builder and designer are from the same company – maybe even the same person – finger pointing won’t cut it. If there are problems, the design build firm must take full responsibility.
PROS AND CONS OF DESIGN-BUILD
Pros of using a design-build contractor
- All the same advantages as a general contractor, plus:
- Simplifies the process with one-stop shopping for design and construction
- Potential cost savings compared to hiring an architect for design. Significant cost savings compared to hiring an architect for design and construction administration.
- No disputes between the designer and contractor over design errors or interpretations, or the “right” way to build. Should result in very few change orders or upcharges related to unclear or incomplete plans and specs.
- Potential cost savings due to a more practical approach to design (since the design-builder is more likely to design with an eye toward construction costs).
Cons of using a design-build contractor
- High level of trust in design-build contractor required, as the contractor controls both the design and construction.
- While the design may be more practical and economical, it may lack the creative elements and innovations of an outside designer.
- No competitive bidding, so cost could be inflated.
- No checks and balances with respect to contract negotiations, change orders, and payment requests.
- No third party is checking to make sure that the contractor is building properly and not cutting corners.
The vast majority of residential jobs do not involve an architect, anyway, so some of the disadvantages listed are only relevant if you are comparing a design-build contractor to hiring an architect for the full service of design plus contract administration.
RECOMMENDATIONS FOR HIRING A DESIGN-BUILD CONTRACTOR
If you can find a reputable design-build contractor whose design work you like, you are likely to save money vs. hiring an architect for their full service from preliminary design to construction administration. However, you may have more design freedom and have more control over the specifications (such as finishes, products, fixtures, and mechanical equipment) if you use an outside designer and bring your own plans and specs to the contractor.
Some design-build contractors will allow you to hire them just for design, and allow you to bid the job elsewhere. This approach gives you a lot more leverage over cost controls. At a minimum, make sure your contract separates out the design phase from the construction phase, with separate pricing of the design work. Also make sure you have the option to keep the plans and use them with another contractor if you part ways after the design phase is complete and you have paid for their design services.
Full disclosure: I was a design-build contractor for a number of years and also worked with architects on a number of jobs. On most architectural jobs, I was happy to have the support and extra set of eyes of the architect. I never had a serious conflict with an architect, although on one large renovation job, the architect made a significant measurement error that resulted in a less-than-satisfactory outcome for the client (basically a large, unplanned soffit over the grand stairwell in a Victorian home).
Bottom line: If you find competent, trustworthy, and reasonable people to work with, the job should go smoothly regardless of their specific credentials and the structure of the work relationship.
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Paul Choate, Choate Builders says
Cons of using a design-build contractor?
“High level of trust in design-build contractor required, as the contractor controls both the design and construction.” Shouldn’t you have a high level of trust with ANY contractor you hire?
“While the design may be more practical and economical, it may lack the creative elements and innovations of an outside designer.” Perhaps…then again, the design is based on budget and client taste so this is subjective. The builder/designer should have a portfolio to show which will give a good idea as to his/her creativity, vision, etc.
“No competitive bidding, so cost could be inflated” Quite the opposite…if the company building the project spent weeks/months designing it there is nobody who knows exactly what it will take to build the project.
“No checks and balances with respect to contract negotiations, change orders, and payment requests” A contract is written up. If both parties agree to the terms in the contract I don’t see the problem. And negotiations? What exactly would be negotiated? This isn’t a car dealership lol.
No third party is checking to make sure that the contractor is building properly and not cutting corners. 1) Remember that high level of trust? 2) Building inspector is the 3rd party making sure the project is being built correctly/safely. 3) Cutting coners: There is a contract, a detailed set of plans, a payment schedule, etc…what corners are you referring to?
Ken says
Is Cost-Plus Recommended For Design-Build Home?
As far as the building phase of design-build, what type of payment arrangement is typical? I met with a design-build firm to discuss building a new house. For the home construction phase they said they only work on a cost-plus basis. My understanding was that a company operating in a design-build mode would give customers a fixed bid after finishing the design because they should have a very good handle on costs.
Do you think cost-plus is a reasonable approach for a design-build company?
Also, A negotiated bid seems problematic for clients because most aren’t going to have a very good idea of what a reasonable final, agreed upon price is. The article mentions telling your architect and/or builder what your budget is. I can see why this would be helpful in designing an appropriate project, but I can also see this being a great way to be taken advantage of, even if you’re dealing with relatively ethical individuals. Not many people are going to feel comfortable walking into a car dealership and saying I’ve got $25,000 to spend, what will that get me? You can be pretty sure it’s getting you less now that you’ve announced it. The difference is you’re spending a lot more on a house. How to navigate this dilemma?
Any tips for dealing with this issue? How about hiring a third party who is an expert to lend an opinion maybe?
buildingadvisor says
First, most design-build contractors work on a negotiated-fee basis, which is a fixed bid. As mentioned in the article, this is typically a negotiated bid in the sense that the contractor has designed the house with your budget in mind. A small number of design-build contractors allow you to get competing bids from other contractors. Some allow you to terminate the contract after the design phase and then go elsewhere for the construction phase, in which case you have use the design-build company as a design firm. There is no standard approach – it is really all over the map.
However, it is not common for design-build contractors to work only cost-plus. After designing a project, they should have a very good idea of costs required to build it. I have noticed more and more contractors choosing to work only cost-plus, especially in high-end markets where may be difficult to find anyone to build your project. I think that fixed bidding is perceived as being too risky and too time-consuming for some contractors. Maybe they got burned a few times on fixed bids. They figure they can make almost as much (or more) money using cost-plus, with much less risk. The risk is passed to the owner, which is why I am not a big fan of cost-plus contracts.
Your other questions involve negotiating tactics for negotiated bids.
There is no way to avoid discussing budgets with a design-build contractor or any designer. If you give a designer a wish-list for your dream home with no budget, you will most likely end up with a home costing tens or hundreds of thousands of dollars more than you can afford (or want to spend). This is the fate of many projects that either do not get built or get radically cut back after the bids start coming in. This is a waste of everyone’s time and your money – on designing and then redesigning your new home.
As for tipping your cards on what you able and willing to spend, I don’t think the car analogy is accurate. The big difference is that cars are a commodity product with pretty transparent pricing in today’s internet-based world. Everyone know the invoice price, the dealer’s price, and what the average person is paying in your area for a specific car. So whether the car dealer knows your budget or not, you are in a good position to negotiate a fair deal. Any you can easily get competing bids and/or walk out the door if the car dealer won’t budge. That, by the way, is always the best tactic with a car dealer. They know if you walk out the door, there is a very small chance that you will come back and buy from them.
In hot markets, the seller – the contractor – is in a much stronger bargaining position. They often have more work than they can handle, so are looking for good projects that are good fit for their company, and have a good chance of being reasonably profitable. Moreover, as you point out, they are in a much better position than you to understand pricing.
However, you are not completely helpless here. You should be able to get a rough idea of what you need to spend using the “ballpark” estimating tips in these articles: Preliminary Budgeting and Ballpark Estimates. Getting competing bids from at least three contractors is usually the best way hone your pricing estimate. If all three bids come in substantially higher than your guesttimate, then you will need to adjust your expectations and either increase your budget or scale back your project.
Also, be aware that the initial price you agree to is likely to grow with any type of bid. Some degree of cost-overruns are almost a certainty on any construction project. You can control them, but not eliminate them altogether.
Coming up with your own independent number is also very useful with a negotiated bid. If you are not confident of your abilities in this area, you can certainly pay a third-party to estimate your project. This could be a construction manager, building contractor working as a consultant, or a professional estimator. An architect will sometimes provide a rough estimate, but estimating is often not their strong suit. The number you get from a third party would put you in the ballpark, but not get you to a final price. You can only get that from the contractor who bids and builds your project.
As you point out, there is a lot of trust involved in a negotiated bid. However, there is even more trust involved in a cost-plus bid, where there are many perverse economic incentives to drive up the total cost of the job. The best approach, in my opinion, is to get competing fixed bids, and to choose the “lowest and best” bid, not necessarily the lowest. Negotiated bids can also work fine, as long as you work with a trustworthy contractor. You may not get the absolutely lowest price for the job, but that’s not always the best choice. If someone underbids, intentionally or not, they usually find ways to make up the difference, either by cutting corners or charging for “extras” though excessive use of change orders.
My final piece of advice is to find a contractor you feel you can trust and to check references. At the end of the day, there is no substitute for finding a contractor with integrity. You will never be able to watch everything they do and to check every invoice.
I wish you the best of luck with your new home!.
Read more on Cost-Plus for New Homes
Kiara Damac Hills says
In some larger design-build firms, one or more of the designers may, in fact, be licensed architects.
Marvin says
Can We Get By Without an Architect?
We have an interesting dilemma. We’re house hunting in NJ and found a house that has a unique layout (a double “living room” with one level raised above the other). My wife fell in love with the house. However, our bank appraisal puts the house at $50K less than what they asked and $35K less than what we initially offered. Not willing to throw that extra money in we’re still looking.
What I wanted to know was this: If we find a lot somewhere or a house completely in need of a gut job, would it be possible to build that same house without the need of the architect. I was there during the appraisal and have the measurements of the first floor, although I don’t have the floor to ceiling heights. Also there are plenty of pictures of the interior. Could a competent builder get the job done or do we really need the help of the architect? Our budget is EXTREMELY limited. Nowhere near the $500K and up that I expect some of the people in this thread may have.
buildingadvisor says
If you have a detailed floor plan, with reasonably accurate measurements of the rooms, exterior photos of all sides of the house, and a slew of interior photos, any good design-builder could build you more-or-less the same house on a different lot. A building who does not offer design services could probably put you in touch with a draftsperson who could turn your ideas into a buildable set of plans that could be used for bidding, permitting, and construction.
No doubt you will want to make some adjustments to the plan as it develops – either to better meet your needs and desires, and to better fit in with the new building site. An architect can certainly help you with this process and add value, but you can also guide the process yourself if you have a good sense of the design you want.
As for a “gut job,” it is unlikely you can turn it into the exact house that you bid on. It may require a tear down, which at the end of the day is often more cost effective than trying to salvage a relatively small portion of the original building. Best of luck with finding or building your dream house!
Mike says
Design Fee on Cancelled Project
I have a contract that did not itemize the design. The contractor gave us a rough design map as well as some emails discussing the plan. After he finished part of our project, I decided to cancel the remaining items on the contract. Is the contractor entitled to a design fee on items not started? The contract is not specific about the fees of cancelling. Is this a negotiation process?
buildingadvisor says
If your contract did not list the design fee as a separate item, and did not include any details about cancellation, then you are correct – it is a matter of negotiation.
Many design-build contracts charge a separate fee for design. Some go further and state that you will receive a discount on the design if you use the same contractor for construction (or alternately pay a surcharge if you take the plans and run).
Others are less formal and less clear about these points, which sounds like the case here.
Bottom line: If the contractor provided you with detailed plans, and you intend to use these plans, then it is reasonable that you would pay a reasonable fee for the plans. If the plans are more rough and conceptual, then you should pay less – comparable to what you would pay an architect or other designer for preliminary plans.
A la carte design services are often billed by the hour, so that’s one way to approach the issue – compensate the contractor for the hours put into the design and separate amicably.
If you don’t plan to use the design, it’s more murky. If the contractor made a professional and good-faith effort to address your design needs, but you simply don’t like the result, then (in my opinion) he should be reasonably compensated. If, on the other hand, the design work is shoddy, unprofessional, or otherwise falls short, then you shouldn’t pay much, as the contractor didn’t do the job he was hired to do. Of course, you may not agree on the quality of the design, which has a subjective element.
Hope you’re able to find an amicable solution.
Read more about DESIGN-BUILD BIDS
HR says
Can I Take Design-Build Plans to Another Contractor?
I have a small studio sized guest house next to my house in south Florida that has extensive water damage due to rotted pipes under the bathroom and kitchen. The job will require demolition and rebuild of the bathroom and kitchen, new plumbing, new joists and flooring. I also want to upgrade the electrical to install a new ac system. A design- build contractor charged me $800 for a site plan and a floor plan. After giving me those cad drawings he withdrew from the project.
So I found another contractor. But the second one won’t use the first ones drawings and wants $2500 to do their own construction drawings and electrical/ plumbing plans. They have given me no estimate for the project and they want a deposit for the drawings without any type of written agreement. How do I make sure I don’t spend money on more drawings that may also go to waste if this contractor does not proceed with the job or comes up with a crazy estimate that is too high? I don’t understand how this is supposed to work.
The second contractor with who I am now dealing is a GC only, not a designer but he says he works with an architect who would draw up the plans.
buildingadvisor says
The original fee of $800 for a site plan and floor plan seems pretty reasonable, assuming they did a good job and handed you the CAD drawings (something many designers are unwilling to do). However, it’s not clear that their design contained enough information to get a permit or bid out the job. This sounds like preliminary design work.
If you are happy with the work they did, perhaps you could find another contractor to work with those plans and develop them into a full set of “working drawings” and specifications.
Regarding the second firm, I can’t say from a distance why they refuse to work with the plans from the first firm. There are many possible explanations, including potential liability. No harm in asking what their reasons are. Their fee for full architectural plans does not seem out of line – especially if they are working with an outside licensed architect, who is probably charging over $100 per hour. Some architects base their fees on a percentage of the total cost of the project. Typical fees range from 8% to 15% and tend to be higher for remodeling than new construction. On that basis, $2,500 for a full design including electrical and plumbing is not out of line.
While the design fee sounds reasonable, their request for a deposit without any written agreement is a red flag. You should give any contractor money without first signing a suitable contract. If you are paying a separate design fee, then the contract should make clear what you are getting for your $2,500. At a minimum, you should have the right to walk away with a full set of plans if, for any reason, the second contractor does not end up doing the work.
Most architects will not provide you with the CAD drawings, but will include several sets of blueprints in the basic fee with a reasonable fee for additional sets. If you are paying separate design fee to an architectural firm, you should have the right to use the design with any builder.
Design-build contracts require a high level of trust and good communication between the client and contractor. If you cannot sit down with the second contractor and get clear and satisfactory answers to your questions, and a satisfactory written contract, then you should probably look elsewhere.
You might also want to explore hiring an architect separately for the design and then getting competing bids from independent contractors – sometimes the simplest way to get the work done at the best price.
Best of luck with your project!
Joe says
Who Owns Design-Build Plans?
I selected a design/build contractor and paid an upfront design fee of several thousand dollars. I may not use the the contractor now that I have seen the build contract amount. Do the design plans belong to me or the contractor?
buildingadvisor says
Many design-build contractors contract and bill separately for the design and construction phases of the project. Some let you bid the project with other contractors; some let you easily terminate the contract after the design phase. Others may require contractually that you use their company for both design and construction. What happens if you part ways after the design phase should be spelled out in the contract.
In a well-written contract, there would be a clear description of what happens if the owner and design/build contractor part ways for any reason after the design phase. Ideally, you would be free to take the plans and use them as you like. Technically, you rarely “own” the plans a designer has drawn for you in the sense that you cannot sell or publish the plans (s ), but you do have the right to use them in your building project.
If the contract is silent on what happens to the plans that you have already paid for, then it becomes a matter of negotiation. Since you have paid thousands of dollars as a “design fee”, it is reasonable to expect that you should be free to use the plans as you wish. If the contractor disagrees and you are unable to reach an agreement that would provide you with the plans, even for additional money, then you have three options:
1) Walk away from the plans and the thousands of dollars you have spent on them.
2) Consult a lawyer, threaten a lawsuit, and – if necessary – go to court over the issue.
3) Take the plans (assuming you have a copy) and use them as you like on the commonsense assumption that you have paid for them and they are yours to use.
Personally, I would choose option 3 as it is very unlikely that the contractor will take legal action over use of the plans. Going to court typically costs tens of thousands of dollars and it is unlikely (my opinion) that the contractor would prevail unless the contract specifically states that you cannot use these plans if you terminate. A brief consult with a lawyer (I’m not one) might be a good idea. Remember to ask ahead of time what he will charge you to review the matter.