Storage During Construction
Sometimes it will help your cause substantially if you can use a portion of the warehouse, while the contractor is constructing the office space, for receiving new furniture and storing excess inventory. Entrepreneurial landlords may be amenable to this arrangement but not all institutional landlords. The most important concern here is safety and security.
Landlord’s don’t want to be responsible for your company’s person property while they are in possession of the building. It would require a whole new agreement just to draft all the “what if” that allow for the tenant to use the building for storage while the landlord is in possession of the space and the contractor is working. It can often be an unnecessary risk for the landlord and something that can be avoidable thanks to a good moving and storage vendor. If your mover can receive and store furniture until the building is ready, then everybody can rest assured that there will be surprises. It doesn’t benefit the landlord, tenant or contractor to have people unsure of why something is missing from the construction site or back storage area.
If you are going to go ahead and store materials in the building, you want to make sure they are secure and lower value items. Sometimes you can use a portion of the warehouse that is not accessed to the area under construction. Sometimes you can just use the outdoor fenced yard and drop containers. Other times you can put an inexpensive chain link fence around your property within the warehouse. Where there is a will there is a way.
In between the issuance of a building permit, city inspections, and occupancy certificate, is actual construction time. The job superintendent is the person that will make or break this part of the process. The superintendent is responsible for the day to day progress at the job site, the identification of any issues between the job site and the architect’s drawings, and the person responsible for working through issues with the architect.
You should consider hiring a construction manager, whether you are utilizing your contractor or whether the landlord is hiring their contractor when working on sizable construction projects. This construction manager will be the person to supervise the process to ensure your interests are protected. They do this by being intimately aware of the project timing and milestones. They can have proactive discussion with the job superintendent to head off ambiguity and voice your concerns. They can understand what job site challenges there are and help create solutions.
The construction manager calculates their fee based on hourly rate but contractually signs with you on a flat fee basis. That means that whether the job takes longer or shorter, you pay the same amount. This also means that it is in the project manager’s interest to help the job along to be completed on time or ahead of schedule.
Hiring a project manager during relocations can help with relocation projects +10,000 SF. A project manager is the one that coordinates all of your outside vendors. Outside vendors include interior designers, furniture vendors, workplace strategy, IT, telecom, cabling, acoustics, audio/visual, and movers. Project managers, like construction managers, are compensated on a flat fee basis.
The project manager’s job isn’t to oversee construction, but the management of vendors usually overlaps with the contractor and construction manager. Examples of when a project manager will coordinate between vendors and construction personnel have to do with IT cabling, built in furniture installation, acoustic sound dampening, audio and video installations in reception areas, conference rooms, and collaborate areas and more.
Construction managers’ and project managers’ jobs are to save you time, save you money, and manage your risk. Their fee can be offset by the savings that they produce while working on your behalf. The potential for cost overruns, delivery issues, IT downtime, and change orders abound without proper oversight.
Contractor Payment & Cost Overruns
Payment to the contractor is another topic worth discussing. You’ll want to think through how to deal with a construction project cost overrun as they are common. Cost overruns are not usually from a quintessential aggressive change order-oriented evil doing contractor. The most common source of cost overrun are decisions that you make during the constructions process. Most clients tend to realize that things that they forgot, didn’t initially consider or that they feel differently about now that they see the progress of the job. There are inevitably changes that include upgrades, reconfigurations and add-ons.
How you, the landlord, and the contractor handle these items will depend on who is in charge of construction and how you have hired to help you. In general, you are responsible for the majority of changes that take place on the construction site that lead to cost overruns. When this is known upfront, a savvy landlord will make sure that the tenant kicks in their share of the construction expenses first, and the landlord will pay their portion next. The thought process is that the tenant should have skin in the game to align their incentives and that this gesture ensures that the project will be fully funded and completed.
Imagine the worst case for the landlord to understand why. After a lengthy negotiation, the contractor starts work on the job. The landlord pays all of the progress payments throughout their contribution amount, and the tenant doesn’t have the money available to pay their portion of the construction. Now the landlord has an unfinished construction site at their building. Should they leave it how it is and hope the tenant gets their act together? At that point, the tenant would be in default. Should the landlord try to finish the construction to mitigate their loss because you cannot lease a half-built building? Or should the landlord stop right then and there because why put good money after bad? Perhaps the next tenant will need something completely different. Landlords will do everything they can to avoid this outcome.
I have found that the best result for clients is usually created by working with a landlord who is used to providing tenant improvements on a turnkey basis. They concept of turnkey is that the landlord is in charge of design, funding and construction. They deliver you a completed space that you can then move into and be up and running in the least amount of time possible. Landlord’s that have this skill set will be something you can leverage so that you can stay focused on what you do best rather than dipping your toe into the construction industry.