Moving beyond design-build
While heavy reliance on subcontracting has been the de facto business model for many general contractors in recent decades, self-perform construction shops are nothing new. In the 1960s and 70s, in-house building teams were the norm, said David Gunderson, a 30-year industry veteran who now teaches at Washington State University’s School of Design and Construction.
More recently, rising building costs in hot construction markets like the Bay Area have fueled the pursuit of maximum efficiency in hopes of boosting profit margins. San Francisco’s average construction costs ballooned 4.2 percent last year alone. They are estimated to grow by as much as 5 percent more this year, according to a recent global market survey by real estate consultancy Turner & Townsend.
“Risk and reward go hand in hand,” Gunderson said of general contractors gravitating toward getting their hands dirty. “By taking on more self-perform work, they’re taking on more risk. They have more opportunity to enhance their fees.”
How general contractors sell self-perform offerings also varies. Some, like Webcor, have launched subsidiary companies for construction needs like concrete, doing work for other contractors in addition to their own projects. Even though a general contractor may offer self-perform work in a given trade, they don’t necessarily self-perform that work on every project.
It’s not just evolving business models driving the self-perform trend. Policy changes, too, have helped enable the shift. In all 50 states, Gunderson said, it’s now legal to embark on alternatives to traditional design-build procurement. In California, an example of what Gunderson calls “relationship-based contracting” is the rise of “design-assist” project delivery, where the dynamic can shift to a less adversarial relationship with the owner.
Read full article “Anxiety about high Bay Area building costs fuels a resurgence in ‘self-perform’ work” as featured in San Francisco Business Times CRE Quarterly Focus Q4.