The Right Contract at the Right Time
Author: Cyrus Manesh, Ph.D.
Read time: 2:30 min
No matter the specifics, the best contract is one that’s a win-win. The goal is a sustainable and successful relationship that works for all parties.
But nothing’s quite that simple. When contracting with an architect or contractor, there are several issues to consider about how to draw up the best agreement. But the driving force is: “How can risk be decreased for everyone?”
In general, there are two major types of contracts based on the conceptualization status of the project.
Scope of Work Is Clear
This is when you, the client, already know exactly what you want. What you are looking for is expertise to help you understand how long the project is going to take and, above all, what this is going to cost.
For example, when you hire a landscaper to mow your lawn, the size of your property is known and the contractor can, after inspecting the grounds, give you a fixed price based on the scope of the work. This is a “lump-sum” contract, with the risk minimized and benefits maximized for both parties.
In some cases, clients hire an architect having already done much of the conceptualizing of their project. What you need is for your vision to be formalized into working drawings that will be the cornerstone in the bidding process for the project.
Scope of Work Is a “Work in Progress”
When you have a more hazy vision—as is often the case when developing a project from scratch—then agreeing to a flat rate might spell financial disaster for an architect or contractor and frustration for the client.
Take an example from another kind of design process: You have a brilliant idea for a mobile app but you don’t know how to bring it into existence. Maybe you don’t even know how to code, but know that it’d be great if your phone could “this.”
You’re then in a position of needing to convey your idea to designers and programmers, who will then build a series of prototype “revisions” that incorporate modifications based on feedback until, voilà, an app comes into being. But there’s a lot that goes into getting to that “voilà.”
This is a situation where the scope of work will be a moving target. You’ll get the best result when the team is invested in revising your original idea until final, functional results are in place. It’s not getting from Point A to Point B, but from Point A to Point L or M or N.
Expecting design professionals to work on a flat fee through an unknown number of revisions is not realistic.
The Ultimate Goal
Whether flat-rate or hourly—and in some cases a combination to cover different phases of a project—the overriding technical goal is to ensure that there is a well-defined plan made whole in the conceptual world. It’s vital this happens before things start to happen in the real world.
In her book Construction Management JumpStart, Barbara J. Jackson (the director of the Burns School of Real Estate and Construction Management at the University of Denver) argues that the key to delivering a successful project is to start with a really well-defined one. A poorly written scope-of-work agreement will usually result in poor responses by the contractor down the line, since he/she cannot have planned for things that were not clearly delineated during the bidding phase. Construction managers are not big on improvisation; like classical musicians, they need a score to work from.
More than any other factor, well-defined plans and architectural drafts reduce the risk for all parties to an agreement. This is a win-win situation.
What Happens with the Wrong Type of Contract?
A lump-sum contract in the wrong situation can result in the scope-of-work not being clearly defined prior to the construction phase beginning. Two scenarios will lead to this result.
First, your architect provides a limited number of revisions in order to stay within the agreed budget or schedule. In the other words, you don’t receive enough revisions to actually realize your vision.
Or, multiple revisions are produced at the expense of quality, which can lead to a poorly defined proposal going out to bid. Remember, a successful project is a really well-defined one.
In this last scenario, contractors will increase their bids because the quality of the drawings is poor and the scope of what is expected is not fully detailed. Higher bids are a way for the contractor to create a fiscal safety buffer when dealing with unknowns.
Advanced planning, such as fully realized architectural drawings, is considered a “soft” cost. And cutting corners at the earliest stages of project development is where most people get hurt financially because it leads to even greater construction costs on the backend. The acceptance of realistic soft costs as a fixed part of the overall construction budget should be understood. This is the first value proposition that an architect will bring to a project.
For every project, the perfect balance is an ongoing sustainable equilibrium between client and architect that results in superior outcomes at each step of the process: initial scope, realistic schedule, managed costs, and overall quality.
Designing and building any kind of real estate project—including a high-end home—is a sophisticated process. Each endeavor presents different challenges that exist in a different context.
In addition, different phases of each project have to be treated as self-contained processes.
During the early design stages—such as schematic design and design development, when the scope-of-work is still unclear—it is advisable to have the ability to produce more design iterations to better achieve the desired outcome.
In the later stages, when the scope has become clear, then a lump-sum contract can make sense for both parties. At this point, the work is generally more technical and requires less interaction between the client and the construction team.
Humans have been building for thousands of years—that’s centuries of trial and error—while project delivery methods are still being improved under the auspices of professional communities such as the American Institute of Architecture (AIA), which is a great place to get a better understanding of the craft and profession of architecture. The contracts scenarios I’ve covered are considered the “best practices” in the industry, reducing risk for all parties and ultimately helping you to realize your vision.
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