Be Your Own General Contractor When Possible
He can choose the ones he likes. If he uses a GC, the GC goes out and gets the bids. The GC gets to pick and choose the contractors because he has total responsibility for the construction. He hires the subcontractors and pays them from the monies received from Trump. Every GC will always build in a profit margin and a reserve for contingencies on the possibility that the subcontractors won’t come in at the prices he has in mind or some unseen problem will occur during the course of construction. The quandry is, you will never know if the reserve (the contingency) is too much or too little until the job is completed. If the reserve was too high, you overpaid.
If it was too low, the GC’s profit disintegrates. If it virtually disappears, the GC may either run into financial trouble or elect not to finish the job. This will undoubtedly result in considerable aggravation, if not litigation, for you. The GC may come back to you and say something like: “Look, I projected my steel to cost $20,000, but steel prices went up and it came in at $31,000.” Ordinarily, you might want to reply, “Well, that’s your problem, not mine.” But if you have a GC in financial trouble, you’re not going to get the job finished on time or with the same level of craftsmanship you expect. He’s going to figure out some way to control his losses. To avoid major pitfalls, Trump considers a CM as the better way to go. The CM usually has good contacts with all the trades and usually knows the best ones to do most of the work.
Therefore, he might say to Trump, “I have three electrical contractors that I’ve worked with before and are qualified to bid on the electrical work for the building.” If Trump gives the CM the go ahead, the acceptable contractors submit their bids. The CM may recommend which bid to accept, and it doesn’t necessarily have to be the lowest one. The CM does this with all the trades, so he creates a trade breakdown (i.e., a spreadsheet listing all of the trades that will perform each aspect of work on the building). Then Trump will go through all these trades and will either, “approve, or disapprove” often saying, “Yes, I’ve used this guy before, he’s good.” Or, Trump may personally get involved, as he usually does, and speak to the contractors directly and negotiate the pricing. Once the trades are in place, the CM is responsible for seeing that everything goes according to schedule. The role of the CM is the same regardless of the size of the building or the cost of construction or renovation. It should be noted that a GC may be hired on a “cost plus” basis. That means that the GC will solicit bids from contractors, negotiate them for you, and supervise the construction.
You will sign all of the contacts with the various trades and will be responsible for all payments. The GC’s profit is computed as a certain percentage of the costs (typically 1% to 4% depending on the size of the project—the larger the project the lower the percentage)..
