Insights

The Value of Open Book Contracting – Is It Right for Your Project?

The “design-bid-build” method has been the industry norm for many years. However, is it always the right approach for every construction project? Below, the team at MacKenzie Contracting compares traditional bidding methods with Open Book contracting so you can determine the right method for completing your project.

 

The “Design–Bid–Build” Method

 

Most clients approach construction projects through a process called “design–bid–build”, and the main reason for this approach is to establish competition between general contractors, resulting in the owner receiving the lowest price possible. Although this process looks good on paper, it normally sets the project up for change orders and delays that result with higher costs in the end. 

 

No set of plans or specifications are perfect, and can often be missing information that is needed in order to provide a thorough bid. Insufficient details can open the door for potential change orders after the award of the project. 

 

What are Open Book Contracts and How Do They Work?

 

Another approach to consider when preparing for an upcoming construction project is “Open Book” contracting. With an experienced General Contractor or Construction Manager, completing a project with an Open Book approach can offer several benefits.

 

The process typically begins with establishing the Contractor’s Fee and General Conditions up front once a General Contractor or Construction Manager firm is engaged. The Owner, the design team, and the contractor discuss the project in detail, which creates a “Team” atmosphere with everyone working towards a common goal.

 

The contractor will begin the process of putting together a conceptual budget for the project based on initial design concepts or a list of the owner’s requirements. Once the budget is assembled and it fits the owner’s concept of the project, the design team will get to work on the construction documents.

 

When the construction documents are completed, the contractor will secure competitive bids from 4-5 subcontractors and vendors for each item or division of work. This is where the “Open Book” process begins to take shape.

 

The contractor will provide a spreadsheet with the bid results and recommendations for the most complete scope of work and competitive price for the division of work. This creates price transparency, allowing the Owner to see where the costs have come in against the budget.

 

Having all subcontractor bids evaluated by the contractor and compared to the contract documents ensures that the scope of work is complete and eliminates the potential for change orders. 

 

What are the Benefits of an Open Book Contract?

 

  • A Collaborative Approach: Open Book Contracts creates a partnership between the Owner, the contractor, and the design team.
  • Increased Accuracy: Open Book Contracts allow for the evaluation of the design and constructability during the early stages of the budget, not after the construction documents have been released.
  • Earlier Project Completion: The project timeline can be reduced by allowing certain bid packages to be awarded early in the process. For instance, in a new building, allow the foundations to begin while the façade materials are being decided. The contractor can also identify long lead delivery items and order the materials in a timely manner to ensure delivery for installation within the project schedule.
  • Lower Costs: Because the contractor establishes a GMP (Guaranteed Maximum Price) that is inclusive of all project costs, this will allow full tracking of all project costs. Potential cost savings are also identified through value engineering.
  • No Surprises: Because the project is thoroughly evaluated by the contractor, change orders are less likely to be added to the project. While it is nearly impossible to avoid all potential for change orders, an Open Book Contract mitigates this risk as much as possible. 

 

Contact MacKenzie Contracting to Begin the Open Book Contracting Process

 

If you are looking to begin your next commercial contracting project, consider an Open Book Contract. Increased visibility and a greater element of trust between owner and contractor are just two of the significant benefits of an Open Book Contract. MacKenzie Contracting has years of experience managing Open Book Contracts and our team ensures every dollar that isn’t spent goes back to the client. To learn more, contact MacKenzie Contracting today.