Commercial Construction Companies: The Ultimate Guide
December 11, 2018
This Assets America® Guide explains how to find the best commercial construction companies and contractors. This is an important topic, because there are considerable challenges facing those managing commercial construction projects, from establishing the timeline to setting the budget. However, no task is more important than selecting a contractor. Pick the right tone, and you can expect a low-stress project and a pleasing result. Choose poorly, and the result can be a disaster.
Commercial Construction Companies
Commercial construction companies, also called commercial contractors, specialize in commercial construction of office buildings, retail shopping centers, hotels, multifamily properties, restaurants and many other commercial structures. However, they do not build residential houses. Commercial contractors handle all the tasks associated with building the property, and can also assume responsibility for logistical activity. You choose a commercial construction company on factors that include bid (pricing), reputation and availability.
Attributes of a Good Commercial Construction Company
Experience is the top predictor of success when it comes to commercial construction projects. A good commercial construction company has a track record of success in a wide range of projects, an excellent reputation with past clients, and the internal infrastructure to support good communication with all relevant stake holders. You’ll notice that a good commercial construction company has all the proper credentials and licenses, along with the solid know-how to help you achieve your goals. Finally, you want a commercial construction company that is enthusiastic about pleasing the client and producing the best possible outcomes.
Keys to Selecting Good Commercial Construction Companies
Assets America® arranges financing for commercial construction projects starting at $5 million and beyond. We are pleased to offer these helpful tips for selecting the best commercial construction companies.
Research Commercial Contractor Candidates
As mentioned, you want an experienced commercial construction company with an excellent record of achievement. Your architect might be able to recommend candidates as a good starting point. You need to perform due diligence on the candidates that will be responsible for building your project. This includes having all the right licenses, a stable management team, a record free of lawsuits and bankruptcies, and references who give the contractor high marks. Good commercial construction companies can point to many examples of projects completed on time and within budget.
Select Commercial Construction Companies to Fit Your Budget
The best way to select the commercial construction company for your project is to assemble and distribute a request for proposal (RFP). The RFP should contain all the pertinent information for the project, including a pro forma budget and timeline. Wait for bids to come back and compare them with your budget. Ensure the response contains all the requested components, and look for any alternatives or upgrades offered. There is little point in considering a contractor that proffers a bid that is substantially beyond your budget. You want a commercial construction company that will work within your budgetary constraints and not cause additional financial difficulties. If you can’t identify a contractor that can operate within your budget, you might want to re-evaluate your assumptions and possibly revise your RFP.
Evaluate Payment Terms
When commercial construction companies respond to RFPs, they typically include a breakdown of costs within a structure of milestones. The contractor will bill a milestone once finishing the associated work. Your independent architect or engineer should verify that the contractor has correctly completed the milestone. This is the time to demand any corrections or rework, before you release payment. Your contract might include a provision for holdbacks, which are a percentage of billings you do not pay immediately. You can use the extra time to ascertain whether or not any problems or issues exist with the work performed. A commercial construction company willing to submit to holdbacks is more likely to work smoothly with you. Such a construction company acknowledges your right to expect the contractor to complete the work timely, efficiently and properly.
Verify Licenses and Insurance
All commercial construction companies will state that they are fully licensed, but you can’t just take these assurances at face value. Here is where the old expression “trust but verify” comes into play. It is best to request the contractor to email you a copy of their licenses. You should then verify the validity of those licenses with the proper authorities. Has a license expired? Has a governing body revoked a license?
Also, verify that the contractor has the proper types and amounts of insurance, including liability insurance, to protect itself (and you) from damages arising from lawsuits. To the extent that a commercial construction company works with subcontractors, ensure that the contractor enforces subcontractor insurance requirements. This insurance should include, at the very minimum, $1 million in general liability coverage, workers comp insurance (or signed waivers), and a signed subcontractor agreement. Everyone you hire, directly or indirectly, should be 100% legal and completely covered for accidents and other incidents. Some jurisdictions require bonding, an important plus when contractors compete with each other.
Evaluate Contractor Abilities
You want assurance that the commercial construction companies you work with can meet all your needs. Sure, they’ve got to be able to complete all the manual work associated with construction. But commercial construction companies must do other things, including filing for permits, ordering and handling construction supplies, complying with all zoning restrictions, obtaining the proper subcontractors, and many more.
You’ll also want to check whether the company has had legal entanglements such as breach of contract or labor infractions. Has it gotten into trouble by using inferior steel or concrete, or perhaps a client sued it for overcharges? Another red flag is any tax liens on the company. Do any of the company’s principal owners and managers have serious criminal backgrounds, such as racketeering, bribery or income tax evasion? If you can’t trust the contractor you hire, you can have no confidence that it will meet your needs and the needs of the project.
Confirm Communication Requirements
As the project manager, you have your own preferred style of communication. It might be some mix of monthly, weekly or daily updates delivered in writing, orally, on the phone, or in-person. If your tendency is to micromanage, your contractor should be willing to accommodate (if not appreciate) your persistent watchful-eye. If you require formal reports, have the contractor show you samples of reports it issued on past projects. Verify that the reports seem coherent, thorough and complete. A history of chaotic progress reports bespeaks an out-of-control contractor that you should do your best to avoid.
What Do Commercial Construction Companies Look for in Potential Clients?
Let’s flip the script and view the manager-contractor relationship from the perspective of the commercial construction company. Depending on market conditions, the best commercial contractors might be in position to pick and choose its clients. Here are some factors that will enhance your status as a potential client.
Have Your Financing Nailed Down
A contractor will not want to waste time on a potential client that doesn’t have solid financing for the project. You should therefore time your RFPs to reflect the fact you have the loan commitments you need to proceed with the project. It’s not fair to the contractor to misrepresent your financial resources. Borrowing from Assets America® is a great way to arrange construction loans, as we work with a broad network of lenders and alternative funding sources.
You might have to submit to an audit from commercial construction companies to prove you have the required funding. Some commercial construction companies might even question the financial assumptions you incorporate into your RFP and reject projects that do not seem to make financial sense. We at Assets America® help you refine your financial assumptions so that they reflect reality. You truly benefit by working with us, as you can see from the commercial construction deals closed by Assets America®.
Reputation and Track Record
A commercial contractor won’t waste time on a manager that has an extensive record of contention and failure. You may have to surround yourself with a winning team to overcome past failures. You can understand a contractor’s reticence if you have a reputation for problematic payment or contentious oversight. The contractor might also want to avoid any managers who have shady backgrounds or undesirable connections. You should expect commercial construction companies to perform their own due diligence on you, especially for projects starting at $5 million.
Agreeing on Terms
Naturally, both project manager and commercial contractor prefer a contract that offers them superior protections. A realistic contractor will understand why the potential client insists on certain requirements, but might draw the line at clients who take an abusive approach. For example, a contractor might agree to a 10% holdback, but balk at a request for a 25% holdback. Another source of friction might be a contract that specifies use of substandard supplies. For example, a commercial contractor might object to a mandated brand of bathroom fixtures that have a poor reputation for reliability. The same can be true for suppliers of concrete, steel, lumber and wallboard.
Rely on Assets America® for All Your Commercial Borrowing Requirements
Assets America® can be your very best choice when you need commercial real estate loans or commercial & industrial loans starting at $5 million. We have the experience to finance your project and additionally, we may be able to offer guidance in selecting, analyzing and choosing well-known and available commercial contractors.
Video: How to Select a Commercial General Contractor Part 1