Hiring an Owners Representative for a Major Construction Project

Are you an owner-builder in need of hiring an Owners Representative?  Building a custom home or a major renovation is one of the largest and most expensive projects a homeowner will embark on.  Often, especially in the case of building a custom home, homeowners will manage the project themselves and one of the first things an owner-builder needs to do is come up with a budget for their construction project.  But how much does a project cost to build and where does all that money go?  What is the process of a major construction project?  And should you do it on your own or hire an Owner’s Representative?

Pre-Construction Costs

Let’s look at the cost of construction for a typical residential project.   The process begins with design, architects, engineers, and consultants all needed to bring your idea to life. This is typically called “pre-construction” and 100% of the costs associated with the design of your project are labor.

The company that is hired to create the design will have overhead expenses but what is essentially being paid for his labor.   The deliverables you receive are a design completely unique to your project and will essentially be a graphic representation of what is to be built.

This design cost will typically represent 12-15% of the entire project cost.   So, for a $1M job approximately $150,000 is allocated to engineering and design, all falling in the labor column.

Building Costs

The balance, approximately $850,000 is allocated for construction of which 1/3rd is for management fees, this will vary based on project size and scope, again not all of this goes into the builder’s pocket.   There is overhead which will include project management time, supervision, accountants, and support staff plus normal business overhead which will account for approximately 90% of the direct project cost – allowing for a 10% profit towards company growth and warranty expenses. Therefore, of the $850,000 there is a balance of $570,000 available for the purchase of materials and subcontractors for the construction of the home.

The general rule for a subcontracting business is 1/3rd labor, 1/3rd material, and 1/3rd for Overhead and Profit.  This will vary amongst the trades as some equipment costs will far outweigh the cost for installation but other items such as windows will be a pure material cost with installation in the carpentry line item.

The manufacturing of the windows and delivery to the site will carry roughly the same construction breakdown so we can use the rule as a standard. Other trades such as painting are heavy on labor compared to the cost of the material. Using this basis, of the $570,000 we now see that $190,000 is the actual cost of the materials, or roughly 19% of the balance of the cost is in the act of building.   Building is a verb before it becomes a noun.  This means that roughly 81% of the cost of construction is the verb to create the noun.

“The driving cost is labor and controlling that comes down to process.”

For the full-service architect, a project that drags on for months longer than projected, more time will be required, meetings will continue, job site visits and field reports are required for an extended period and an inefficient completion process can drain the profit right out of a good project.

For the builder process is everything, Means and methods are their responsibility. Something simple as being short one $10 sheet of drywall can easily cost $100 in downtime and the labor to run out and pick it up. Multiply that by thousands of opportunities for mistakes and real money is lost. Again, an inefficient project completion process can be a profit killer. Completion and the “punch-list” are almost 100% labor costs, list to be made, work to be completed, and then checked.

For the client (ahem, YOU), time is truly money, 81% of the project cost is labor, and time is managed by a process. Selecting a less expensive paint will save money but not labor.

If you want to save money you have to gain an understanding of how the scope of work, product selections, and installation process will affect your pricing and timeline for completion.  How long will the activity take, who is managing the build, and how quickly the work is expected to be completed will also contribute to the cost of building your project?  

Most homeowners will shrug, “this is out of my control”, but it is your sole responsibility as the owner of the property to be the decision-maker.  Your Owner’s Representative job is to provide you with the education you need to make the best decisions for your family and to manage the process of construction, so you don’t overspend while ensuring you have the construction project completed with quality workmanship at a competitive price.

“Managing the process is managing over 80% of the construction cost.”

Owners Representative to the Rescue!

If you do not understand how to budget for a custom home build or major renovation, or need help with the sequence of events or process of construction, then hiring a Construction Manager (Owner Representative) is the answer. The Construction Manager acts on the owner’s behalf for project and process oversite and is an experienced professional in all matters of Construction Management. The process is really where your money is being spent and managing the process is essential so if you need to hire an Owners-Representative, I highly recommend you give me (Duane Barney) a call for a free consultation at 203-826-8096

“The homeowner utilizing only an architect’s assistance will manage about 19%-25% of a project cost through material selection, typically the balance goes unmanaged without the assistant of an Owner’s Representative.”