By Ritchie Clapson CEng MIStructE, propertyCEO

Property Development is a broad church, and there are plenty of pews for those happy to sit in the small-scale section. If you are among those stepping up from simple refurbishment projects to take on a small-scale development, you won’t be hiring a jobbing builder, you’ll be working with a main Contractor who will be responsible for all trades on site. This makes life simpler for you as the developer, but only if you choose a contractor that is a good fit for you and your project.

The first step is to run a Tender. This is where you create a specification for your job. And you may want to consider whether to run a strip-out tender first, ahead of the main tender.

If you’re converting a commercial building into residential flats, the contractor’s first job will be to strip out the structure, and this could expose some additional work. If you’ve already appointed your contractor for the complete works, they can charge you for this additional work without fear of competition from other developers. But, if you run a strip-out tender first, then you have an option to switch if your strip-out contractor’s quote for the main works is too expensive.

New developers can be surprised by the huge range of prices they often receive from contractors when they run a tender. This is because some contractors have a lot of work, so they don’t really need your project, and if they respond, they’ll build in some chunky profits. At the other end of the scale, there is the contractor who’s short of work and puts in a lean quote. When opting for a cheaper quote, be aware of the extras and overs. You may find that your competitively-priced contractor tries to fit the cheapest, nastiest materials that only just meet the tender requirement, leaving you to pay for upgrades. Be clear and precise about what you want in your tender. Name the exact make and model of doors etc that you want to be fitted. You can also stipulate “or of similar quality and specification, to client’s approval” as contractors may be able to obtain a similar product at a lower price, which will ultimately benefit you.

You’ll also need to be thinking about the financial situation of each contractor you approach. Check out their latest accounts by going onto the government’s Companies House website to see the scale of their business, how profitable is it, and do they have enough cash in the bank to avoid cash flow issues.

Compare the value of your project (the estimated construction costs) with the contractor’s turnover from the latest available year in their accounts. If your contract would be a mere drop in their ocean, you need to ask yourself how important a customer you’ll be to them. You want to be significant enough to a contractor that you have some clout if you ask them to step up to the plate, but not so important that they lack the resources to be able to move the needle if you need them to. Look for contractors where your tender is worth between 10% and 25% of their annual turnover.

Location is another consideration to bear in mind. Firstly, is the contractor based reasonably close to your project geographically? While contractors can travel, there’s a cost element involved that you need to bear in mind. Would you be better finding another contractor who’s right on the doorstep? Secondly, some contractors are based in (or may target) more affluent areas, and their higher prices reflect this. If your project is located in such an area, you might want to consider appointing a contractor from slightly further afield. That way, you dodge the higher local prices, albeit you may have to fork out slightly more to account for your contractor’s travel costs.

Finally, make sure you ask to see past projects and an existing development. Is the site tidy, or does it look like a bombsite? Is it bustling with activity, or is there very little going on? Do the workmen appear happy with their lot or grimly waiting for clocking off time? See if you can have a chat with some sub-contractors and see what feedback you get from them.

These tips should help you to get a great contractor on board, but remember, no development project ever goes completely smoothly, and when you encounter the inevitable hiccup, you want to have a good relationship with your contractor so you can come up with solutions that suit both of you.

ABOUT THE AUTHOR

Ritchie Clapson CEng MIStructE is a veteran property developer of almost 40 years and co-founder of propertyCEO, a nationwide property development and training company that helps people create a successful property development business in their spare time. It makes use of students’ existing life skills while teaching them the property, business, and mindset knowledge they need to undertake small scale developments successfully, with the emphasis on utilising existing permitted development rights to minimize risk and maximize returns.

https://www.facebook.com/propertyceotraining/

https://www.instagram.com/propertyceotraining/

https://www.linkedin.com/company/propertyceo

Photo by Alex from Pexels