Your church has grown faster than anyone expected, and you are now ready for the next phase of your building program, the sanctuary expansion. But which type of construction contract will work best for you?

Today there are probably as many types of construction contracts as there are construction projects. Each one is tailored to the specific needs of the owner and to the special requirements of the project.
However, they all fall into three basic categories:

1. Competitive Bid,
2. Negotiated, Cost-Plus, with or without a Guaranteed Maximum Price, and
3. Design-Build.

Any of these types of contracts can be used successfully for your project. But, several factors need to be considered when selecting the one that is best for your project. Is there ample time for the project to be completely designed and then given to several contractors for bidding, or is the project needed as quickly as possible? Do you already have one contractor in mind for the project, or have several contractors expressed an interest in building your project? Do you want to use a separate architectural firm for the design, or would you prefer a single source of responsibility for both the design and construction? Is the cost of construction the most important factor, or is quality of construction equally important? The answers to these questions will determine which type of contract is best for your project. Let’s take a closer look at each of these contract types.

1. Competitive Bid:
This contract is the most widely used, and is the traditional method of selecting a contractor. With this contract a specific "Lump Sum" price is determined through competitive bidding by two or more general contractors. The contractor with the lowest bid price would be awarded the contract. An outside architectural firm will need to be employed by the owner under a separate contract to prepare complete plans and specifications, called the "Bid Documents". The plans will show the scope of work desired, and the specifications will spell out the level of quality desired. To further control construction quality, an "Invited Bid List" of contractors should be prepared by the building committee. You may want the architect to assist you in preparing this list of bidders.

This type contract will generally require more time during the design and pricing stage than the other types would require. You will need to allow ample time for architect selection, preparation of preliminary design drawings, preparation of development design drawings, then preparation of final construction drawings and specifications (the "Bid Documents"). After plans have been finalized and approved by the building committee, the list of bidding contractors should also be approved by the building committee. Then the contractors should be given approximately 2-3 weeks to prepare their construction cost estimates and bid proposals.

If the lowest bid proposal received is within your construction budget, then a "Lump Sum" contract can be awarded, and construction can begin right away. But if the lowest bid proposal is over your budget, then you may have to enter a "Value Engineering" stage, and work with the "Low Bidder" to make deductive cost changes to the scope of work until the project’s cost is within your budget. This may take several more weeks of difficult decision making until you are able to get the project within budget.

2. Negotiated, Cost-Plus with or without a Guaranteed Maximum Price (GMP):
With this type contract, one contractor is selected for the project based their reputation, past experience, and willingness to work as a "team player" with your building committee and the architect. This selection should be made early in the project’s design stage, so that you can take maximum advantage of the contractor’s experience and their access to current prices to help achieve the most economical design for the project.

Just as with the competitive bid contract, an outside architectural firm will have to be contracted with to prepare the plans and specifications. But, during the design phase the selected contractor will be an active member of the "design team", offering cost saving suggestions along the way and at the same time preparing the construction cost estimate. This method will save several weeks of preconstruction time over the competitive bid method. Also, with this method you will know much earlier whether or not the project will be within your budget, thereby reducing, or completely eliminating, any time required for the "value engineering" stage that may be required under the "competitive bid" method. With this contract the "value engineering" is being performed all during the design stage.

A firm dollar amount is agreed upon for the contractor’s "fixed fee". Then the total cost to the church for the project will be the "Cost of the work plus the contractor’s fixed fee". As price protection for the owner, a "Guaranteed Maximum Price" (GMP) is usually agreed upon and stated in the contract. This GMP will act just like the "Lump Sum" price, representing the most money the church will have to pay for the work called for in the contract. A note of caution: The GMP and the "Lump Sum" price only cover the scope of work defined by the plans and specifications. The GMP can be increased with additive change orders just as the "Lump Sum" price can be increased by additive change orders.

This contract is usually written with a "split the savings" clause in it, allowing the owner and the contractor to share in any savings, if the final construction cost is below the guaranteed maximum price (GMP).

3. Design-Build:
This method is the latest method now being used for construction projects. It is also the fastest method for designing and building a project. Under this method a single Design-Build firm is selected and is responsible for both the design and construction of the project. This is known as single source responsibility. Since the final construction cost cannot be determined at this time, the selection of your "Design-Build" firm will again be based on reputation, skill, and integrity. Many general contracting firms are now offering design-build services, by teaming up with architectural firms for the design services.

The design-build contract consists of two parts or phases: (1) the design development and pricing phase, and (2) the final design and construction phase. Under Part I of the contract a small fee is paid to the Design-Builder to cover the cost of preparing enough plans and specifications to define the scope of work well enough for a GMP for construction to be determined. Upon completion of phase one, and once the construction cost is within budget, the project would move on to phase two, under which Part II of the contract is executed, covering both final design preparation and construction. The dollar amount of Part II of the Design-Build contract will be the GMP determined under Part I, and approved by the building committee.

Construction is usually performed on a "Cost-Plus" basis with a GMP, similar to the negotiated contract above. Any savings under the GMP can be shared by both the owner and the Design-Builder, as in the negotiated contract.

Obviously, the type of contract used will determine how your contractor is selected. Even though the type of contract to be used is important, I believe the success of your project depends equally on the choice of your contractor. The wrong contractor with the right contract can still spell disaster. But your choice of contractor may hinge on your type of contract. To have a truly successful project your contractor must be a "team player" and work diligently with the building committee and the architect during the pricing phase to bring the project within budget. Then your contractor must be willing to work just as hard during the construction phase of the project to deliver the level of quality all your fellow church members are expecting the building committee to deliver. With this level of responsibility, it is worth it to develop a selection process worthy of the project.

Written by: John H. Devine, CSI, CCCA
President of JHD Construction, Inc. Tucker, GA