General contractor or owner's representation?

The general contractor premium is real. Compared with the sum of separate awards, a GC contract usually comes in 10 to 15 percent higher. That pays for coordination, the contractor's pricing risk, contingencies for the unknown and margin. That is not a reproach; it is the price of a service the owner would otherwise have to provide.

The lump sum does not exclude change orders. It covers the contractually agreed scope. Whatever the specification leaves open is claimable: wording such as “approx.”, “about” or “equivalent”, missing interface definitions, design stages that were not complete at signature. Since 2018, section 650b of the German Civil Code governs the client's right to order changes and the remuneration of changed work; the VOB/B does the same in section 2, paragraphs 5 and 6. Both frameworks secure the contractor's payment for additional work. The change order is therefore not misconduct but a business model that rewards every gap in the contract.

For scale: a study by the Hertie School (Kostka, 2015) evaluated 170 large German projects. The 119 completed ones ended on average 73 percent above the original cost estimate; the study names design deficits and lack of control as the main causes. The figures concern large public projects and cannot be transferred to a private scheme. But they show where the cost arises: not in the tender, but afterwards.

The question “general contractor or architect” sets against each other two things that do not replace one another. The architect designs. In work stage 8 of the HOAI they supervise execution, and specifically the execution of their own design. Where a defect goes back to a design error, it is judged by the person who caused it. The German Federal Court of Justice demands heightened attention in site supervision precisely when construction follows someone else's design.

Then there is the cut of the services. The architect prepares the procurement and assists in it, which are work stages 6 and 7. Negotiating, awarding and owning the contract is the owner's job. These tasks can be delegated, but not to the designer and not to the general contractor: they belong in a staff function beside the owner. That is the role we describe in What does an owner's representative do?

The general contractor is right when the owner has neither the time nor the organisation for twenty contracts, when a single completion date with liquidated damages matters more than the last percentage point of price, and when the design is complete at signature and the specification is tight. Then the premium is the price of peace, and well spent, provided someone checks the contract beforehand and the change orders afterwards.

Separate trades with an owner's representative are right when price counts, when the design is still maturing or construction comes in phases, when the owner does not want the concentrated risk of a single contracting party, and when control would have to be bought in anyway. Under the AHO fee table, project control costs roughly three to four percent of construction cost for schemes of 15 to 20 million euros, more for smaller ones; project leadership is remunerated separately. A full mandate therefore typically sits in the mid single-digit percent range and, as a rule, stays below the GC premium it replaces.

The third way is the combination: a general contractor with an owner's representative. The representative checks the specification before it becomes a contract, negotiates the lump sum against the sum of unit prices, and examines every change order during construction. The schedule certainty of the GC model remains, and the premium for gaps largely disappears.

Assume a residential scheme with construction cost of 8 million euros as the sum of separate awards. A GC contract at the usual premium of 10 to 15 percent would come to between 8.8 and 9.2 million euros. Owner's representation across all phases at a fee of four to six percent, as is usual below the AHO table for schemes of this size, would cost between 320,000 and 480,000 euros. If the assumptions hold, the difference in favour of separate trades with control lies between roughly 320,000 and 880,000 euros.

This is a model calculation with the ranges given above, not a project result. It leaves out two things that decide the individual case: the change orders that arise in both models and that the owner's representative examines in both, and the construction period, which becomes longer and therefore more expensive when separate trades are poorly coordinated. That is exactly why separate trades without control are not an alternative but a risk.

We award contracts for our own projects, with our own capital at risk, and we review a specification for a client the way we review our own. We sit on your side of the table in the negotiation, whether a general contractor or twenty trades are appointed in the end.

As owner's representation in Munich and Bavaria we take on the procurement strategy, the review of general contractor agreements before signature and the examination of change orders during construction. For developers whose own project manager is missing or fully committed, we provide external project management.