Producing an OCE for an initial Development Appraisal or to determine Site Residual Value In this article, we looked at how effective cost management...Read more +
Residential Property Development Self Delivery
The Pros and Cons of Self-Delivery
When you are planning your residential property development you will need to consider how the project will be delivered.
- Will you engage a contractor to take care of everything for you whilst you just sign off on the payments?
- Or will you manage it yourself?
- Perhaps the biggest question is, how do you decide which is the best option for you?
This is a conversation I have with many property developers. So, I have written this article to help you understand the pros and cons of self-delivery. To be sure not to cause confusion, let’s start by explaining the two concepts.
What is a Main Contractor?
Appointed under a traditional building contract, the main contractor is responsible for the end to end delivery of your residential property development project which has already been designed by your appointed consultant team. Depending on the size and complexity of the project, that contractor may directly employ the necessary people or may need to engage sub-contractors for some aspects.
The main contractor will have tendered for the work taking account of the cost of their supply chain giving you a fixed price for the development.
Alternatively, you may appoint a main contractor for the Design & Build of the project
What does self-delivery really mean?
To be clear, I’m not talking about getting out and laying bricks yourself. I am talking about managing the various aspects of the residential property development project yourself as opposed to appointing a main contractor as described above.
As appealing as it might sound to hand it over to a contractor then sit back and wait for the finished property to be handed over, retaining control offers significant benefits. As long as you know what to expect!
Typically, unless you are very experienced in the management and contract administration of development projects, self-delivery would take the form of Construction Management as the delivery method.
What is construction management?
When you choose to use Construction Management to deliver your development project, unless you are very experienced, you will usually appoint a consultant to act on your behalf whilst reporting directly to you.
Drawing on their industry experience, their role is to manage the different stages of the project, providing advice and guidance to help you make the best decisions to achieve your project goals.
The benefits of construction management
Construction management means you are in control of the project – from the speed of progress to the selection of trade, how variations are handled through to how the budget is managed.
Let’s take a closer look at some of the benefits.
Procurement and management of trade contractors
If you are using a construction manager, they should support you through the tendering process and give you their professional opinion.
Ultimately the appointment of different trade contractors is your decision. This means that if you wish to use a specific company for certain elements of the project, you can.
By being in direct control of the trade contractors, you can directly challenge them on their performance, adherence to the project programme and you are in full control of the quality standards you are prepared to accept.
Overheads, profit and buying gains
When you engage a main contractor, the fee includes their overheads and profits. However, construction management means that your project overheads are restricted to the trade contractors and your professional team.
This means that you directly benefit from the buying gains. Effectively this often means that construction management offers a more economical way to deliver your project.
If decisions need to be made about changes and variations, you can make those decisions quickly and efficiently. You don’t have to renegotiate the programme or fee with a main contractor which can cause delays and unexpected costs.
Your destiny is your own hands
The procurement of trade packages means that you can influence the speed of the development. Running different procurement packages concurrently reduces delays enabling you to achieve a return on your investment sooner rather than later. For example, you can be ready to get started on site more quickly by procuring the groundworks package whilst the design work is being finalised.
The other side of construction management
Of course, you do need to balance the benefits with the potential disadvantages of choosing to deliver your project yourself.
Retention of risk
You retain responsibility for all risks associated with project ‘unknowns’ and design development. Ultimately if you overlook something significant that fundamentally affects the project, you shoulder the result of that outcome – which may be financial or may even put the viability of the entire project at risk. This is particularly relevant if you are relatively inexperienced as a property developer and aren’t sure what to look for.
I mentioned earlier that construction management can offer a more economical way to deliver your development project. However, it is important to recognise the opposite may also be true. Whereas a main contractor would draw on their experience to arrive at a fixed price for your project, if the programme slips or their costs rise, they (generally) pick up the bill by taking a hit to their profit margin.
A quick internet search will show you that a potential risk of using construction management is reduced quality of the completed development. Quality could slip if you don’t have the skills to check the workmanship of your trade contractors, or if you fall into the trap of chasing bigger financial returns in exchange for the cheapest product or service.
Why engage a construction manager?
Many of the risks associated with self-delivering a property development project can be mitigated by appointing an experienced and professional construction manager.
Construction managers bridge the gap in your skillset and ensure that you achieve the desired outcomes from your completed project. Working closely with your appointed cost consultant and designer, your construction manager manages the development programme and procurement to maximise the benefits whilst proactively managing trade contractors and supply chain.
Construction management, delivered by an expert consultant, offers considerable benefits over choosing a main contractor. This is particularly true of very complex or specialised projects as you have the flexibility to bring in a superior mix of skills and experience at the appropriate point in the project.
What’s more, if you have a project that has faltered as a result of a main contractor going bust, construction management offers an alternative route to appointing another main contractor and can help to reduce your potential financial loss. In fact, construction management can get you back on site quickly ensuring you minimise disruption. You can read more about this here.
How Evolution5 can help you
Evolution5 are experts in construction management offering a pragmatic approach to your residential property development project to help you achieve your ultimate property development goals. Our construction managers have a background in contracting which means that they have real-life experience of delivering a project on-site. With this knowledge, they provide robust management of your project giving strong challenge when necessary, balanced with our approach to collaborative working.