Sunday, February 26, 2012

Owner-Builder as Prime or Main Contractor?


Many property owners are not aware of a construction process available to them that can save them thousands of dollars, lots of time, and allow them to achieve ultimate project control.

The term for this process is Owner-Builder and under certain conditions the Owner-Builder is exempt from local regulations.  For example, the California Contractors License Law which allows work on his/her own property pursuant to the following Owner-Builder Declaration found in local Building Permit Applications:

In general, the first option permits the property owner or his/her employees to perform construction work so long as the structure is not intended or offered for sale (Sec. 7044, Business and Professions Code reads: The contractor license law does not apply to an owner of property who builds or improves thereon, and who does such work himself or herself or through his or her own employees, provided that such improvements are not intended or offered for sale. If, however, the building or improvement is sold within one year of completion, the owner-builder will have the burden of proving that he or she did not build or improve for the purpose of sale); and

The second option permits the owner to hire the various licensed specialty contractor(s) directly to construct the project thereby eliminating the need for a General Contractor (Sec. 7044, Business and Professions Code reads:  The Contractors License Law does not apply to an owner of property who builds or improves thereon, and who contracts for such projects with a contractor(s) licensed pursuant to the Contractors License Law).

By contracting directly with licensed specialty contractors the Owner-Builder can:

1.         Save money because the general contractor marks up the specialty subcontractors actual bid price and then adds other fees such as overhead, profit and general conditions.  All of these fees and mark ups can be substantial.  Unless you have a cost plus contract with the general contractor and entitled to see actual subcontract agreements, material receipts and actual labor time sheets you never know how much a project really costs; and

2.         Have direct control over the specialty contractors costs, schedule and work quality because you will see and approve actual invoices, schedule results, and work in place quality before releasing any payments.

By answering YES or NO to the following questions could determine if this Owner-Builder process is right for your next construction or alteration project:

  1. Do you understand the scope of the work necessary to begin and complete your project?
  2. Are you capable of preparing a written scope of work or performance specifications?
  3. Do you have the ability to qualify contractors?
  4. Do you have the time to schedule, coordinate and inspect your project?
  5. Is your project absent of structural alterations or improvements?
  6. Will all activities in your project scope or performance specifications allow for the respective      specialty contractors to supply and install all materials, labor and clean-up without you having to do any leg work?
  7. Are you able and willing to have the necessary building permit documents prepared, submitted and obtained for the project?
  8. Are you willing to assume full financial responsibility for your project?
  9. Are you capable of setting up, reviewing and approving contractor progress and final payment requests?
  10. Do you understand the importance of securing certificates or insurance and lien releases from contractors?

A YES answer to all of these questions probably makes you a good Owner-Builder candidate.

However, those who can't answer YES can still take advantage of this Owner-Builder process.  The owner can still have ultimate control over schedule and costs by hiring a Construction Manager for fee who basically acts as his/her agent.  Some Construction Managers will help set up a project and/or work on an as needed consulting basis.  This gives the owner the best of both worlds because Construction Managers are required to be licensed by the Contractors License Board and Construction Management fees are generally substantially less than a General Contractors combined specialty contractor mark ups plus his/her over head and profit.  Also, the Construction Manager for fee, acting as the owners agent, owes a client a "Fiduciary Duty" (Trust).  Where as, a General Contractor is an independent contractor who is free from the influence, guidance, or control of another or others and does not owe a "Fiduciary Duty".

Using the Owner-Builder process can prove extremely beneficial to Homeowner Associations performing Maintenance and/or Repairs because the following licensed specialty contractors can usually be easily coordinated and their scope of work defined without risk of conflict.

Class
Code   Trade Name

C-33    Painting and Decorating
C-39    Roofing (Subs out C-43 Sheet Metal)
C-13    Fencing
C-27    Landscaping
C-12    Earthwork and paving
C-8      Concrete (Subs out C-51 Reinforcing Steel)
C-53    Swimming Pool
C-29    Masonry (Subs out C-51 Reinforcing Steel)
C-5      Carpentry Contractor

Every construction project is unique and as such must be evaluated, planned, implemented based on the owners budget and scheduling objectives. The Owner-Builder process is one way of achieving these objectives. Also, every jurisdiction has it's own regulations regarding the Owner Builder process. Therefore, it is strongly recommended that you contact your local building department for their respective Owner Builder rules and regulations.

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