GENERAL CONTRACTOR VS. CONSTRUCTION MANAGER

The size and scope of a renovation project will determine who you hire for the job. If you’re simply replacing a kitchen or a bathroom, you might hire a single company or individual who specializes in that type of renovation to physically perform the entire job by themselves. Similarly, other cosmetic alterations such as painting, flooring, trim or new staircases might be taken care of by a small-shop handyman or carpenter.

You essential pay that individual or small company their fee to do the job – not the cost of the job PLUS a markup for someone to manage it.

Once you start getting into bigger scope projects like finishing basements, putting in rear or second floor additions, you’ll have to consider the various experts that are needed for the project. This of course also applies to building a brand new house or many houses. This is where there are many moving parts, and there needs to be proper management.

Large scale projects can be done in many ways - the more hands-on you are, the more money you save. But remember the time, energy and opportunity costs lost elsewhere.

Large scale projects can be done in many ways - the more hands-on you are, the more money you save. But remember the time, energy and opportunity costs lost elsewhere.

For these bigger projects, what are your options when it comes to getting it built?

Option 1 – Quit your job, learn all the necessary trades, obtain all required licensing, acquire all the right tools and do it yourself! Unless you have $100,000 and 10 years to spare, probably not happening. Scratch that.

Option 2 – Find all the individual trades and manage them all yourself. Not as daunting as Option 1, but still quite involved. You’d need a good understanding of construction and all the individual trades. You would also need to qualify all the trades and know what needs to be done.

This is a certainly a good option for anyone who has some extra time, and willing to put in the effort to go through this as a learning process if they haven’t already.

Unfortunately, to paraphrase Donald Rumsfelt, sometimes you don’t know what you don’t know. Mind blowing – I know.

A scientifically accurate chart of when I started out my major renovation in 2007

A scientifically accurate chart of when I started out my major renovation in 2007

Basically with Option 2, you’re choosing to manage the work, and this brings us back some key questions:

  1. Do you have a lot of extra time to spare?
  2. Do you want to be deeply involved in the project?
  3. Are you making significantly less money than someone who would handle things on your behalf?
  4. Do you want to be extremely sleep deprived and lose all of your friends?

Joking aside, I certainly think there’s nothing more valuable than tackling a major reno head-on as an awesome way to learn.

However, assuming you answered a resounding NO to one of more of the above questions, then it’s worth considering hiring a General Contractor (GC) or a Construction Manager (CM). This leads to the question -

What the heck is the difference between a GC and a CM anyway?

What Is A General Contractor (GC)

A GC should assume responsibility for the full project. This involves the permit process, ordering materials, performing the work, dealing with city inspectors, and managing any additional trades who aren’t part of their company. This method helps to alleviate the stress (in theory), since the homeowner is hands-off, and the GC takes care of the day-to-day. For good GCs, this can cost in the neighborhood of 20-30% of his overhead costs, and for other sub-contracted companies he hires.

What Is A Construction Manager (CM)

A CM does a lot of the same things as a GC. They also help with the permit process, is onsite throughout the project, find and manage individual trades. The homeowner might be a bit more involved with the process. The CM may find the trades, but the homeowner will have a separate agreement with the trades, and the CM will help facilitate this relationship. Generally, rather than a markup, a CM charges a set fee for his work, which works out to roughly half what a GC may charge.

Here’s a handy little chart breaking down the difference and highlighting some pros and cons at a high level.

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As you can see above, there are pros and cons to both, and it really depends on your circumstances. Many people see hiring a single GC and placing all their trust in that company to be risky. If things go awry, that GC and all their trades are gone as well. A CM in the picture, who may hire trades individually, with homeowner control of the trades gives better control.

Sometimes the CM can also facilitate the hiring of a few smaller scale GC’s for a large project. So if it’s a massive project like putting on a second floor or building a new house, you would need to have a very good relationship with that GC if you were to use him for the entire job.

Triangle of Trust

Here's an analogy. In the world of personal finance, there are financial advisors that provide full services including legal and accounting services as well. However, many people see this as risky since systems of checks and balances within may be inadequate.

With three separate individuals (financial advisor, accountant, lawyer) each seeing the work of others help to maintain a high level of honestly and accuracy.

Except in construction, the homeowner would be one of the entities. Some feel there is a missing “Triangle of Trust” with just the homeowner and GC.  

"Triangle of Trust" in a construction project

"Triangle of Trust" in a construction project

Including a CM, and perhaps bringing in individual trades or smaller scale GCs could potentially result in a better outcome, and possibly even save you some money.

Construction is a highly complex, and this complexity gets exponential as the scope of work gets bigger. The key thing to remember is that everything should be clearly laid out in an agreement before any work begins or money changes hands.

Of course, nothing should be paid in full at the beginning. And in fairness to the GC or CM, it shouldn’t be only at the very end either. Payments staggered through various milestones of the project works best, such as 25% increments.

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That’s it at a high level. I hope I didn’t confuse you too much. Good luck out there with your projects!

Notes:

1. General Contractor vs. Project Manager vs. Construction Management Company - Doityourself.com

2. Two Sides of the Same Coin? The Differences Between General Contractors and Construction Managers 

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