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How are Canadian developers managing escalating material costs, supply chain issues and rising labour costs?
As of Q3 2021, construction materials increased by 37.6% from 2017 levels (9.4%/year) according to Canada’s Statscan.gc.ca. Last year, labour costs increased 4.46% and are expected to rise again in 2022.
As a developer, one of the biggest challenges is building a budget that takes into account inflation and uncertainty on procuring certain materials and supplies. The other issue is knowing with certainty that your building will be ready when you need it done.
This article will share some of the best practices you (as a developer) can take when building. These practices hold true whether you are working with a GC, or if you are self-performing.
Where is the Real Risk in a New Development?
The traditional way of building is too risky today.
Let’s look at one of our recent projects, Bearspaw Club House, as an example. The project started with an architect to generate drawings. Unfortunately, without the early input from an experienced general contractor with experience building this complex projects, the architect’s design (the building) looked great, but was impractical to build.
In the end, the project with the original builder went significantly over budget, went into receivership, and was delayed by more than 18 months.
This scenario is not uncommon, even for seasoned developers. Without having a deep understanding of all the consultants and drawings, small issues compound over time.
When we took over this project, we were able to get the building back on track and completed on a tight budget.
What could the original builder have done differently?
In our experience, there is a better way to build!
How do you leverage a general contractor to help you avoid mistakes and save money?
Unless you have a member on your team who can dedicate a considerable amount of time to go through the drawings in detail, it’s difficult to catch potential issues.
Problems usually arise from something small in the drawings. It can be a simple thing like spec’ing material that has a 12 month lead time, or potentially doesn’t comply with the new Building Code. In either case, it’s not caught until construction starts and now the GC (be it a commercial general contractor, or a residential general contractor) is scrambling to find a substitute. A change order is issued, and the developer (you) are on the hook to swallow the additional cost.
Everyone points fingers because no one caught it early, in pre-construction.
Involving your contractor from the start creates a sense of accountability and responsibility for the entire project. As the developer, when you include your GC at pre-construction, it gives them time to review the consultant’s work and ensure they can be built according to your budget.
This is not something that is done in a day or week. In our experience, it takes a considerable amount of time and energy to properly vet the drawings. But, doing this work up front, can eliminate 90-95% of the mistakes that typically occur later on in the project.
90-95% of the mistakes! We say this based on our own experience.
Why doesn’t every licensed general contractor offer these pre-construction services to their clients if it's this important?
First, pre-construction is not a profit center for general contractors.
It’s time-intensive, and often requires an experienced contractor who understands all aspects of building. This is hard to find!
Next, there is the potential for some consultants to feel they are being called out for their mistakes. This is where the GC needs to ensure open lines of communication and transparency to avoid people getting overly protective of their work.
In theory, everyone is working towards the same goal:
Build a great property on time and on budget.
In practice - there is a tendency to CYA (cover your a$$) if the team is not communicating and working together. Remember you are always working with people.
So, how do you get your general contractor to confirm they have the complete skillset to build your project with certainty?
Keep reading to find out the key qualities your GC should have, if you want your project completed on time and on budget.
Avoid The Traditional Route of Construction
$2M - that’s how much Mickelson Golf could have lost if they followed the traditional route of construction.
Luckily, we got involved right from the start and not only did we save this developer a great deal of money, but we also got them on the fast track to the finish line. This translated into opening the doors 6 months in advance (and in this industry, hitting the golf season ON TIME is critical).
So, how did we do that?
Read on to find out the key factors we put on the table when working with this developer and many others like them.
*It is worth noting that the traditional route leaves room for mistakes from day 1.
In most cases, here is how the cycle goes:
This old way worked ok in the past when there was more certainty on costs, market demand and access to labour and materials.
Today, it’s too risky to start designing a project without having your licensed general contractor involved at the front end. With Covid, supply issues and labour shortages, it is more difficult to get accurate estimates on costs and timing. This makes the traditional way even more unpredictable and not a strategy that we recommend.
This is NOT how we do things at Kalamoir.
“The Kalamoir Approach” on General Contractor Services: Build With Certainty - Guaranteed
We focus on four aspects that need to work together so your project is delivered on time and within budget. First, we’d like to reinforce this:
A successful project starts with collaboration and planning from the outset, between the developer and the team.
We’ll say it again: it starts with having the right people working together from the outset.
In an industry where change is inevitable and innovation is constant, all parts involved need to work closely together. The only constant is that people are designing and building these projects.
Having efficient technology, an environmental building code, and material costs in place will still not avoid any setbacks that might happen.
Problems are guaranteed to arise when consultants and developers are working in silos. This is where the gaps in critical information sharing occur.
And, in development, this happens every day and often multiple times.
For example, let’s say there’s a small issue in a structural drawing. On its own, it would be ok, but, with the tenant requiring 2 -5 Tonne RTU’s (roof top units), you require extra bracing. This detail is not communicated from the architect to the structural engineer and now, you’ve got a roof installed and you realize you need extra penetration and bracing to support the additional load.
A solution is feasible, but it comes with great cost! You (the developer) are stuck with a $25,000 Change Order.
The issue could have been caught with the general contractor reviewing the Tenant Improvement designs inside the leases - but without this intervention, it was missed, causing a chain reaction between several consultants to fix the problem.
This tiny mistake now stalls your project, costing both time and money.
To make matters worse, if tenants are counting on opening their business or moving in on a certain date, this has far-reaching impacts and penalties to both tenant and developer/landlord.
As a developer ourselves, we understand the consequences of a project delay and how small issues can snowball into expensive problems.
This is why having the right licensed general contractor involved from the beginning can make the difference between a project completed on time and budget, versus one with considerable delays and change orders.
It is exactly how the “Kalamoir Approach” works.
If you’ve been asking yourself what does a general contractor do more specifically, in the picture below we included a simple outline:
Our approach doesn’t just save you time, but also a whole deal of money.
The 4-Key-Factors to Look For When Hiring a General Contractor That Will Save You Time AND Money
What does a general contractor do that could save you millions? To put it simply, he is the one person in your team that cements the relationship between everybody involved in your project and makes sure mistakes are avoided from Day 1.
The top general contractors in the country know that, without having access to the plans from the beginning, the project has the potential to start off on the wrong foot.
The solution is straightforward: your commercial general contractor has to be an integral part of the building project before you do anything else.
Not a lot of people in the construction industry are talking about this aspect. But, the truth is, when a building contractor is part of the team from the beginning, they can help you avoid mistakes which means coming up with solutions early and saving you money later.
Take Dr. Andrei Metelista for example. He brought us in to finish a complex medical building project that had gone off the rails. When we took over, his project was already over budget several million dollars and delayed by nearly 12 months!
We were able to take control of the project and got it finished on a tight budget, allowing Dr Metelista to open his practice and keep his tenants that he had feared were going to walk out because of the original delays.
“The contractor that had started the project was unable to complete it, so Kalamoir was asked to step into a project and complete it after numerous delays and overruns. Despite this, Kalamoir was able to complete the project at a much lower cost than the previous contractor and with exceptional efficiency given the circumstances. Kalamoir resolved many issues that had been left behind by the previous contractor and were thorough and conscientious. We were able to begin critical business operations which otherwise would not have been possible given the project’s state.”
Most developers can’t go back to the bank or into their savings and cover up a million-dollar mistake! So, when you are looking for either a commercial general contractor or a residential general contractor, the factors are the same.
Below, you can find an in-depth description of these highly-important traits. Make sure you check them all off the list before signing a contract with a general construction company.
1: One Person Needs to Take Ownership and Responsibility for the Project (outside of the developer)
It helps to think about the construction team as an NFL team. You have a manager, a coach, a defensive coordinator, offensive coordinator, trainers, quarterback, kickers, receivers, tackles, d-lineman etc. Everyone on the team is there to win.
However, there is one person who is responsible for putting everyone together—the owner. But the owner is not the one doing the day-to-day operations. The owner has a manager that is responsible for finding the best coach, the players and so on.
The manager then takes full responsibility for the team and the outcome.
If you look at the best teams in the NFL, they have managers who typically bring along with them their ‘staff’—the people who are responsible for executing the strategy.
In construction, the developer is the NFL Owner. But, in most cases, the developer is not the one reviewing the construction drawings for weeks to catch mistakes. You may not have 20 years of construction experience or, maybe you’re just too busy managing 4 developments and everything else involved in building (leasing, financing, managing stake-holders, the architect, the City etc.).
As a developer, you do rely on the team you hired. But, unlike NFL, where there is a clear hierarchy, oftentimes, the Architect is responsible for gathering a team of consultants to come together. Then, once the drawings have been approved by the City, they are sent to general contractors who are in charge of pricing and bringing the drawings to life - that is, essentially, the actual construction phase.
But, since mistakes often start back in the drawings, the architect (aka the General Manager) won’t know. Just like in an NFL game, the GM is not on the field. They don’t know what is going on in every play.
This is where the coach comes in. The coach is the person executing the game plan with the players. One should ask the question - who is drawing up these plays? The coach or the GM?
Well, in many cases, it’s the coach’s job to create the plays to execute based on the foundation the GM sets out. This is why, in construction, if you can bring the Architect and consultants together with the general contractor early, you can avoid incomplete or flawed drawings.
It’s as simple as bringing the whole team to the table from the start.
2: General Contractors Should Streamline the Process
There’s a reason the construction industry burns people out and attrition is so high.
Stress.
If you’ve built before, you know the level of stress for somebody providing general contractor services and sub-trades take on daily. But the question is “why”?
The answer often is “due to poor upfront planning”.
So let’s say a drywaller shows up, but the electrician is still working. The drywaller only has one week budgeted and another job waiting - so they start working. Now the electrician and drywaller are tripping over each other and fighting. The GC (through the Site Supervisor or Project Manager) is now trying to make peace.
Sub-trades know this and often price in a buffer when working on projects where they know there is a high potential for scheduling issues. It’s near impossible to have a fully smooth build.
But, if you have issues that crop up every day, over time, the best Site Supervisors and Project Managers either leave or demand more money. They need to be compensated for the extra stress and issues they deal with. And you couldn’t blame them for that.
This is largely avoidable if you can prevent 95% of the issues, just by taking the time upfront to remedy drawings between consultants.
If the Answer is So Simple, Why don’t Other General Contractors Get Involved From the Start?
This sounds nice in practice. But, how does it go down in the real world?
f the solution is evident and simple—why doesn’t every building contractor get involved early on in the pre-construction stage?
There are many reasons for that, some include the consultants not liking to have someone pour over their work and point out mistakes. But, in our experience, it comes down to ROI.
Return on Investment.
The ROI for a general construction company to be involved with pre-construction is low. It can take 100-200 hours to properly understand a set of construction drawings, depending on the project.
So, for example, if the pre-construction agreement is $10,000, that’s $100/hour. This may sound like a lot, but the skill level required to do this is high and hard to scale.
Now, if you only focus on the $100/hr (which many general contractors do), they shy away from this low paying, hard work.
This brings us to the third aspect to look after when choosing your general contractor, which is:
3: You Should See Early Results (Or Not Pay!)
At Kalamoir we like to take a different approach.
Involve us early in the Preconstruction and we Guarantee we will give you a 2 to 1 ROI on the initial investment to have us do this preconstruction work - or you don't pay.
We take on all the risk on the front end.
Why?
Simple. We know if we demonstrate value at the beginning of the relationship with you, then you’ll likely want to use us to do the work. There is no obligation to work with us after pre-construction - but in our experience, we have a 100% success rate after completing the pre-construction work.
We invest our time and energy upfront to show you how we can add value. In doing so, we earn your trust.
In our years of using this approach, we have never had anyone ask for a refund. And, most importantly, we have completed every job with clients and with less than 4% changes (on more than $55M in projects and counting).
This is exactly why we put the following reason on our list too:
4: Look for Positive Past Client Experiences
It’s fair to say right from the start that a general contractor’s job is not to please everyone.
Some people involved will not be happy about meeting deadlines or providing last-minute solutions. However, if the general contractor you’ve been laying your eyes on has poor positive reviews, this is a major red flag.
In Spring 2021 we were called in by Calgary Housing Company's project manager, Mr Reza Fazeli, to complete the Pine Hill Retaining Wall Project. We started working right ahead to take advantage of the good weather. But it wasn’t long before we hit a wall - quite literally.
Here is what Mr. Fazeli said:
"... shortly after commencing the work, the project hit a setback with regards to a high-pressure gas line utility which was intersecting the wall. The Kalamoir team WORKED COLLABORATIVELY with the CHC, the Consultant, and the utility to find an engineered workaround for avoiding the gas utility, and causing the least increase to cost to the project by avoiding a long and expensive delay of having the utility relocate the gas line."
This might sound like a broken record, but if you’ve been reading to this point, you most probably know that this would have never happened if you had general contractor services engaged right from the start.
We truly believe that once you find a general contractor who fits all the above criteria, your building project will run smoothly, on time and within your budget.
Want Us to Help You with Your Building Project?
If our approach to building resonates with you or you’re interested in speaking to us, please schedule a call. We are happy to discuss your project and we will tell you upfront if we have the team that can execute. Not every project is a right fit.
To get in touch with our team, you can either schedule a call or send an email to shanemelanson@kalamoir.ca