How to Negotiate & Understand Construction Contracts
- 1). Hire an architect as your project manager if you want to follow a hard-bid model. This is when the architect designs the project, then runs the construction as well.
- 2). Hire a general contractor to run the project if you want to follow the design-build method. This construction contract has the contractor running it, but in a less authoritarian fashion than the architect would. It's more of a team effort than the hard bid.
- 3). Ensure that the project will stay on budget or close to it. One way to do this is to give a lump sum to your project manager, whether the project ultimately costs that much or not. If he goes under budget, he makes a profit; if he goes over, he loses money. Another way is to agree to pay him a percentage of the project's total cost, but to also give him an overhead ceiling for that cost.
- 4). Set up a competitive bid process once you have established which kind of contract you are going to use. This will pit contractors against one another, bringing your costs down.
- 5). Negotiate any finer points, like administration costs and bonuses for quick work once you've chosen your contracting team.
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