General contractor or separate trades?

The general contractor premium is real. Compared with the sum of separate awards, a GC contract in our experience usually comes in 10 to 15 percent higher; the premium varies with market conditions and contract maturity and shows reliably only in comparison with the individual bids. 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 section 650c the adjustment of remuneration; 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 the contractor's contractual right; that is exactly why the contract needs a second review before signature.

The cost arises not in the tender but afterwards: in change orders, construction time and defects after acceptance. That is where the lump sum proves itself, or not.

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, when the financing bank requires a fixed price or the sales side a fixed completion date, when the owner wants to avoid managing warranties against twenty trades, 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. AHO booklet no. 9 puts the project control fee with a general contractor at 87 to 89 percent of the basic fee: control does not disappear with the GC, it shifts to contract, change orders and schedule.

Assume a residential scheme with construction cost of 8 million euros as the sum of separate awards. A GC contract at a premium of 10 to 15 percent, our experience value, 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 the 5th-edition table gives 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.