Manage the Home Construction Project

Types of Management

• TYPE: the owner will contract with a builder
  to oversee the entire construction plan.
  
  The builder will subcontract projects and work with
  suppliers to provide the materials and labor.
  
  Consider your level of involvement with the builder.
  Most owners rely on the builder's judgment and experience
  in selecting subcontractors and buying materials.
  
  A high level of participation:
  will include your approval of subcontractors (particularly in reviewing references) and periodic review of the project plan as outlined in the construction plan and schedule.
  
  A minimum level of participation:
  will include an independent inspection after each sub-contract work; i.e., framing, plumbing, electrical, etc.
  
  Never approve or make payment until the inspection has been satisfied as outlined in the construction plan.
  
  
  
  
• TYPE: the owner and builder will jointly oversee and manage the financial aspect of the project.
  
  This includes managing the construction line, paying subcontractors and suppliers, obtaining all lien releases, converting the construction line over to a mortgage loan, and finalizing settlement and closing.
  
  See Financing Management below

Project Management: Owner Managing Project

• Some owners may choose to become their own "contractor",
  
  or in other words, function as the project manager by scheduling home construction projects, hiring subcontractors, buying materials and supplies, and overseeing the entire project from land excavation to landscaping.
  
  Some owners who have other job commitments may opt as a part-time contractor by hiring a supervisor or other builder on a hourly basis. This way they can tap into their network of subcontractors.
  
  As an owner contractor, you will need experience in project management and scheduling. And it wouldn't hurt to learn the terms used among contractors. You need to appear professional to avoid mistakes and being taken advantage.
  
  There are a number of construction books that outline steps in Owner Construction Management. See listing
  
  
  

Some key issues to consider as a self-contractor

• Remind them who is the boss:
  You need to get people to perform the work, at the time you need the work completed, and at a fair price with quality workmanship.
  
  You need to fair, but tough. Always maintain an alternative backup if the work is not being performed as needed.
  
  
  
• Act like a builder:
  Dress, talk, and socialize like a builder. Get to know your subcontractors. Speak on their terms. Remind them that you are the builder who "pays" the bills.
  
  
  
• Keep good records:
  Keeping good records is your most important task. You need a system that tracks purchase orders, invoices, paid receipts and checks, scheduling plans, contracts from subcontractors, worker's compensation records, and the like.
  
  Have ready access to information whenever a dispute arises. And most importantly, protect yourself against liens and any injury liabilities.
  
  
  
• Keep yourself insured:
  What happens if a subcontractor falls and injures themselves? Or more likely, some neighborhood child gets injured while jumping between the rafters some Sunday?
  
  Make sure you carry liability insurance for workers and non-workers alike who have permission and non-permission to work or walk on the premises.
  
  
  
• Provide a workers environment:
  Workers like to work in pleasing environments. Schedule your project so that inside work can be completed with heating and AC provided on days that are cold or hot.
  
  Provide bathroom facilities, a makeshift picnic table, and every so often show up with some cold drinks and snacks. They will thank you for it.
  
  
  
• Prepare for frustrations:
  Construction Rule #1: nothing will go as schedule. Bad weather, delivery delays, material shortages, labor disputes, inspection failures, and one of the most common mishaps, conflict in subcontractor scheduling, can all add to delays and cost overruns.
  
  Good builders learn how to manage change. Your best strategy is to have alternative plans. If a subcontractor fails to show, have a backup subcontractor. If a supplier fails to meet schedule, find a second supplier.
  
  Note that cash talks. Having incentives for prompt deliveries or project completion can minimize unexpected delays.
  
  
  
• Know your priorities:
  Certain projects in the construction plan take priority over others as it relates to quality workmanship and cost.
  
  The foundation must be right the first time. The framing is going to be more important than a squeaky door. Getting the plumbing inspected and working is critical before putting up the drywall.
  
  Take the time to oversee key projects. Be there when they lay the foundation, get a sign off from an independent inspector regardless of schedule, and double check key areas. It will save you time and money down the road.
  
  
  
• Manage change:
  Learn how to manage changes. You could become your worst enemy. Working on the project day-in day-out is tempting to revise the original specifications. This could become expensive over time and delay your project.
  
  See our Change Management discussion below
  
  
  
• Keep things moving:
  It's important to keep your construction close to schedule as possible. Delay after delay can push the construction beyond the financing draw period, prompting the bank to take action if necessary.
  
  Important time components to remember:
  
  
  • schedule the construction so that inside work can be completed during the cold months
    
    
  • get commitments from suppliers on delivery dates and have them inform you days in advance if they expect delays
    
    
  • promptly schedule subcontractors far enough apart so that you can inspect and repair work if needed, make-up for days lost, and give you some extra room in the event the project is falling behind
    
    
  • add some variance in your original construction plan for unforeseen delays due to weather, labor, and delivery problems
    
    
  • keep a tight control on costs — one of the biggest delays is when money runs out
    
    
    
• Inspect before you pay:
  Your most powerful tool is the cash you hold in your hand. Always have an independent inspector review the subcontractor's work before making payment. Once the money leaves your hand, your negotiating strength has weakened.
  
  See our notes on home inspection.
  
  
For more information about contracting your own home, see Book Recommendation list

Change Management

• Changes are part of every construction.
  
  Most of them are minor, such as adding additional wiring to a certain area of the home. Others can be expensive, like knocking out a wall.
  
  It's critical that you manage changes within budget. Also note that structural changes may impact other parts of the house such as frame if you decide to remove a wall.
  
  Recommendation for Effective Change Management:
  
  Get the construction plan as finalized as you can. Take time to review our Home Building Center by room for product specifications and ideas. Getting the construction plan done right will minimize expensive changes and delays.

There are three types of changes to the construction plan.
Set a tolerance level of each type:

1. Plan Changes:
   This is where you make changes to the construction plan prior to subcontracting the work and ordering supplies. This is the least expensive change you can make. You simply revise the construction plan and pay the extra cost for the upgrade.
   
   Note: review the construction plan in detail. Take time to review product ideas and designs. It is a lot cheaper to revise the plan for an upgrade than to having something revised later on. See construction plan
   
   
   
2. Changes Prior to Installation:
   This is where materials have arrived and you decide that you want to upgrade. Your cost will include the return of the original item undamaged and re-ordering the upgrade item.
   
   Note: your subcontractor may charge you additional costs for the upgrade, particularly if it involves extra work. Also note that reordering may impact the construction schedule especially if your reorder takes time and the upgrade is an important piece in the construction schedule.
   
   
   
3. Changes After Installation:
   This is the most expensive change. The material item has been installed and you decide to take it down and replace it with an upgrade.
   
   Note: this is the mostly costly change you can make. And you have placed yourself at the mercy of the subcontractor, who may charge a hefty change price. You can either eat the cost, make the change yourself, or forget about it.

Problem Resolution Management

Common problems you may encounter during construction:

• Sub-contractors are late or don't show:
  
  
  • get time commitments from sub-contractors
  • call them 1-2 days before schedule
  • have other subs ready to go
    
    
• Incorrect work or disagreements:
  
  
  • review the construction plan with sub-contractor and other expert
  • give the sub-contractor detailed specifications for project
  • inform sub-contractors that their work must meet inspection
    
  • carry a cell phone where sub-contractors can contact you if questions
    
    
• Material delivery delays:
  
  
  • order materials well in-advance of schedule
  • confirm delivery dates with suppliers
  • have suppliers notify you days in advance of possible delays
    
  • call for confirmation the day before delivery
  • provide delivery instructions
    
    
• Wrong materials:
  
  
  • double check material ordering
  • use detailed description and part numbers
  • have the supplier review the order with you
    
  • become familiar with the supplier's exchange policy
  • have materials arrive days in advance so that they can be exchanged if necessary
    
    
• Payment disputes:
  
  
  • put payment amount and work description in writing
  • make sure that any changes to the plan is in writing
  • pay with checks so that you have an official copy
    
  • keep all invoices
  • use lien waivers with each payment
    
    
• Bad weather:
  
  
  • schedule construction during good weather months
  • enclose the house quickly
  • lay a cusher run (pebble rock) from the road to the house
    
  • buy plastic covering for materials
  
  
• Theft and vandalism:
  
  
  • enclose the house quickly with locks on doors/windows
  • carry theft insurance
  • visit the site regularly and at different times
    
  • inform the local police for drive-by surveillance
  • don't keep materials laying around loosely
  • place "No Trespassing" signs on house and lot
  • have liability insurance in the event of intruder injury

Cost Management

A good cost estimate home construction should be within 2-3% of the actual cost.

But unexpected costs and upgrades can creep in putting the estimate 10-15% below actual.

You need a plan where you can cut corners if necessary when cost overruns begin to jeopardize your project. Some suggestions include:

1. Save money before construction:
   
   
   • design your construction plan within budget — don't add special frills that you can't afford
     
     
   • add a financial variance — don't plan your construction plan using 100% of your budget, set aside a portion of your budget for variance
     
     
   • shop prices aggressively — get several bids from contractors and shop materials among 1-2 suppliers that offer discount incentives
     
     
   • plan your home to minimize waste — materials come in certain dimensions, plan your rooms so that you maximize all of the material without having to cut it in half
     
     
2. Perform the work yourself:
   
   There are construction jobs that you may take on yourself to reduce costs:
   
   
   • painting
   • wallpaper
   • moldings
   • light fixtures
   • some landscaping
   • clean up
   • others
     
     
3. Get the extras later:
   
   
   • microwave, crown moldings, alarm system, swimming pool, finished bonus room, etc., are all "want-to-have's" but are not needed to occupy your home
     
     
   • you can cut these items from construction plan to save money and then add them later once you have settled in the home
     
     
4. Downgrade:
   

• use regular windows instead of designer windows
• install straight-up stairways instead of oriental stairs
• lay vinyl flooring instead of tile
• others: make a list of acceptable downgrades

Financial Management

A: Construction Cost Breakdown:

• Builders will prepare a cost breakdown of the project that has four cost components:
  
  
  1. Fixed Costs: basically the startup costs such as the land purchase, building fees, architectural fees and the like.
     
     
  2. Bids: portions of your home costs that are from subcontractors and suppliers for plumbing, roofing, foundation, etc. These players will provide estimated cost bids based upon the projected plans and specifications.
     
     
  3. Estimates: this includes the builder's estimates for materials and services to build your home. Such items include lumber, concrete, site excavation, trash removal, etc.
     
     
  4. Allowances: includes the finishing touches of the home such as cabinetry, flooring, lighting, landscaping, etc. The builder will estimate a dollar figure for these items. Anything in excess — or desired upgrades — is the financial responsibility of the buyer.
     
     view a sample residential construction contract and schedule — from www.b4ubuild.com
     
     does your residential construction agreement protect you?
     
     
     
• Lenders require a cost breakdown to approve the amount of construction funding.
  
  A good estimate will be within 1-2% of the actual costs. A poor estimate can be off as much as 5-10%.
  
  Builders generally tack on a fee as a percentage of the total cost or some fixed amount. You will need to negotiate with the builder on fixed price guarantees and warranty provisions.
  
  
  
• Keeping within cost estimates:
  
  It will be tempting to upgrade on features or alter the plans that will increase the cost estimates. It is a good idea to have a plan ready when cost estimates exceed their budgeted amount. This way you can act fast so as not to delay the construction.
  
  Suggested plans may include:
  
  
  1. Cash Reserve: maintain a separate cash reserve or take out a home equity line on your existing home: see our site YourEquity.com for information about home equity lines
     
     Word of caution: the equity in your existing home may be your down payment on your construction loan. Using your equity may increase your costs for the mortgage loan. Analyze your numbers.
     
     
  2. Financing Plan: some lenders may allow a percentage increase of the line for extra costs. But there is a limit to this percentage. Lenders expect the construction plan to remain within costs.
     
     
  3. Change Specifications Plan: be prepared to delay completion of a room or landscaping to keep the construction project on time and within budget. See cost management above.
     
     
  4. Change Building Plan: you may need to redesign your building plan to bring the project down to a more modest design and funding.
     
     
     

B: Payment Retainers:

• the contract will specify payment schedules that generally have 5-6 or more draws during the contract period
  
  a draw will be made at the end of a construction phase to pay for work completed
  
  about 5-7% of the initial bid is enough money to begin the project — builders will then submit invoices for a draw
  
  you should maintain a minimum 10-20% retainer at the final draw — this draw is released upon final inspection of the construction
  
  allow anywhere from 2-4 weeks on the retainer to confirm that everything is in working order — once the money leaves your hands, you will find it difficult to get the required attention
  
  if a lender is doing the financing, have the lender make payments directly to the owner, not the contractor, or have the payments issued in both names
  
  this way you can check invoices and review work orders to confirm that you are not being billed twice or for items not part of the project
  
  
  
• get in writing that the lender must receive or satisfy all lien releases from suppliers and subcontractors
  
  before issuing any payment and that a copy be supplied to you
  
  lenders will often inspect the premise prior to release of a funds — they do not inspect for quality
  
  you may want to hire your own inspector to check the quality of work before signing any phase completion form
  
  upon final payment, make sure you have all final releases of the lien and a copy of the final invoice showing that the contract has been paid in full
  
  upon final payment, have the home thoroughly inspected, make sure you have in hand all final releases of the lien and a copy of the final invoice showing that the contract has been paid in full.