I used to run my business the way most contractors do: I'd
visit potential clients, review the plans their architects had
drawn, agree to bid against a group of other contractors, and
then spend 10 to 100 hours estimating the work. When the bids
were opened, I would feel discouraged if I wasn't the low
bidder. Or, if I was the low bidder, I'd wonder where I had
made the mistake that allowed my price to be lower than
Having to compete with so many other contractors was bad enough
— but then, when the bids came in, the homeowners often
found that even the lowest bid was way beyond their budget. At
that point they had to make a choice: find a way to come up
with more money, reduce the scope of work and spend money to
redesign the job, or — worst of all — abandon the
To ensure that he gets paid for the time he spends developing
projects, the author requires clients to sign a letter of
intent — essentially a contract for preconstruction
services. If within six months the clients sign a construction
contract, the preconstruction services are free. If not, they
must pay the author an hourly fee for his time.
The bidders and the clients weren't the only ones who paid a
price. The architect, whose job it was to design a project that
could built for the available budget, would end up looking
unprofessional. Since the clients would resent having to pay
for a design that couldn't be built, their relationship with
the architect could turn sour — often past the point of
After many years of working under these conditions, I'd had
enough: I decided to start negotiating contracts. The clients
would select me as their contractor up-front and disclose their
budget. Then the team I had helped to assemble — the
clients; the architect; and me, the general contractor —
would work together to design a project that was as close as
possible to what the clients wanted for the available
Actually, since no price negotiations occur during the process,
the term "negotiated contract" is a bit of a misnomer. The
negotiations have to do with the scope of work. The value of
this approach is that it allows the clients to understand and
consider the cost implications of design decisions as they are
Making the Transition
At first, when people called and asked me to bid on their
projects, I told them I no longer did competitive bidding but
would be happy to estimate their projects if they would agree
to negotiate the contract price with my company and not talk to
Most callers responded by asking me how they could know they
weren't being overcharged if they saw no other bids. About the
only thing I could tell them was that they just had to trust
As you can imagine, this approach did not work very
Offering something different. After repeatedly failing to
convince clients to work with me on this basis, I realized that
I needed to offer something more than simply my abilities as a
craftsman and builder.
To figure out what that something was, I asked myself a
question: What special skills does a general contractor have?
The answer, I decided, was that we contractors know much more
about what things cost than homeowners and architects do. We
also understand construction methods and sequences. So if we
can convince clients to bring us in early enough, we can help
them — and the architect — weigh the cost
implications of design decisions and create realistic
Therefore, about 10 years ago, I started putting out the word
through my marketing activities that I wanted to be involved in
projects as early as possible in the design phase. After a
while, I began getting calls from clients and architects long
before they were ready to start building.
Creating a realistic budget. Today, potential clients are
usually just beginning to think about the design of their
project when they call. I tell them that my company will work
with them during the design phase. If they already have an
architect, we will work with that person; otherwise we can use
our staff architect or recommend another architect.
The most useful service I can provide prior to construction is
to become what I call "the keeper of the budget."
Very early in the design development process, I meet with the
architect and the clients, and together we develop a schematic
floor plan and simple elevations and sections.
We also come up with a series of assumptions about the
structural systems, quality of materials, and finish
selections. I then do a fairly detailed cost breakdown based on
historic cost data from recent similar projects.
This cost breakdown becomes the first reality check for the
design. If the estimate is at or under budget, the design work
can proceed. But if the cost breakdown is over budget, the
design can be revised before any further time and money is
spent on it.
I continue to keep track of the budget all the way through the
design phase. This is important, because every choice that is
made — whether it concerns materials, room
configurations, or anything else — has cost implications.
And it's my job to tell the clients what those implications
To stay on top of cost issues, I sit in on design meetings. Or,
I can arrange to receive regular updates of the plans. I take
this information and use it to update the cost estimate and
make sure that the design is in line with the assumptions we
agreed to early on.
If it's not, I notify the clients that they have departed from
the original assumptions and explain how that will affect the
cost of the project.
Before I'll do any work on a project, the clients must sign a
one-page letter of agreement (see example, previous
The letter states that the work I do for them during the design
phase is free as long as they sign a construction contract with
us within six months.
If the clients don't sign a contract, or if they decide to drop
the project or work with someone else, they must pay me for my
consulting time. The letter indicates an hourly fee as well as
a cap on total fees.
Efficient use of time. Why do I agree to provide this
consulting time for free? Because the alternative is to spend
time bidding five jobs in order to get one — the industry
average for competitive bidding. I'd rather devote that time to
doing something that's very likely to result in a construction
Once I explain how the process works, more than half of the
potential clients I talk to agree to sign the letter of
agreement. With those who don't, I have spent only an hour or
two of my time instead of the many hours I used to spend
competitively bidding their jobs.
Becoming Part of the Team
Most of the architects we work with appreciate what we do; it
takes the pressure off them to provide accurate cost input and
gives them someone to talk to about which structural systems
and construction methods would be best for the job.
One of the greatest benefits of this approach is that it makes
the whole construction process much less adversarial. With
competitive bidding, the incentive is to bid as low as possible
and then, during construction, to find as many ways as possible
to cut costs.
But with a negotiated contract, relationships are cooperative:
Everyone involved can focus on helping the clients get as close
as possible to what they want within the constraints of their
David Leff is the owner of Leff
Construction in Sebastopol, Calif.