Are conflicts of interest inherent to
Residential Design/Builder Approach? 

Article by John Salat. Published by American Institute of Architects; Orange County Chapter

Owners pursuing design services for remodel or new residential construction projects will seek either an Architect or General Contractor (GC). But the real question, "Is it a conflict of interest for solo party GC orchestrating both roles of a project." Owner's true representation may be lost without neutral party existence. The third party "architect" can be the owner's best friend from start to finish. 

The most common cliche for would-be homeowner is, "I'll talk it over with the contractor...get contractors estimates...get contractors blueprint floor plans..." Of course it sounds simple and easy, but should ones most important investment be at risk without more careful consideration? Surveys have proven that people are more likely to make impulse decisions on major investments than minor purchases. 

A formed plan "who's in charge" will define the players for owner representation. Conventionally speaking , the Architect designs it, Contractor builds it, and Owner pays for it. Yet, when a GC solos services, conflicts of interest could generate with his prospective clients. There are some exceptions for turnkey relations in use of sub-trades and few institutional projects, but not necessary in residential. 

Obviously, times are quite different from the original days of craftsman carpenters when design- build model was prevalent. But in today's marketplace, the professional industry recognizes potential conflicts and frowns on turnkey operations. Several states have strong forbiddance or barriers for designer-builders practices because the complexity of "whose managing the money".

The consumer however may choose any methods of contractual relations as long as tone understands true design-build options. The contractor may not directly call himself to design-build, yet his motto substitutes other languages. For example "Our services from concept through completion" The layman may be tempted with GC bargaining table and open themselves up to a possible nightmare. Signing a construction contract without professional assistance is like walking into dark alley with your pocket bulging full of cash. Here are a few hypothetical examples for conflicts when a contractor provides design-build services: 

Conflict of Interest #1: A contractor cannot justify fees without 100% complete construction drawings. So why would anyone shop for construction fees if they don't have drawings? Often the owner thinks that such claims are valid because it gratifies them with an immediate measuring stick. Often what happens is that contractors prey on these people in use of sales tactics to secure agreements. Contractors will convince their customers with quick drawing schemes and pricing locks associated with cheap fees. Unfortunately, these low contractor fees will not protect owners from long term relations. Materials and labor cost are likely to escalate due to ambiguous plans and contracts, leaving the client a holding bag of changed orders. 

Solution: Up-front, an architect can level with the client on probable construction cost with no strings attached. The reason is that architects only sell design services and not the execution of construction normally associated with a GC. An architectural relationship is much more relaxed and reserves the time for design and aesthetic concerns which encompassing minute details to a complete final drawing package. 

Traditionally, the architect's role is to update owners with rough construction estimates during the various design phases of work. This information acts as a beacon to keep the owner on track with the original budget. To further clarify actual cost, only final blueprint drawings act as a contract that become the instrument for quantifying materials and defining quality. No builder should quote exact fees without understanding the concept of final products. So don't get captured into GCs' promises from testimonials and erroneous figures. Remember construction estimate fees are tentative and conversational until the tight drawings and specifications are drafted. In true owners representation, the architect can prepare a full drawing package and orchestrate prospective contractors through a bidding process. 

Conflict of Interest #2: In design, the contractor may select materials, means, and methods based on convenient resources. Often the contractor's familiarity with his own skills and material surplus may limit the imagination for incorporating other more creative elements into the project. The specificationns and details may slant towards the contractors interest and not owners. Often contractor's drawings can be ambiguous, thereby justifying additional costs for upgrading quality, materials or performance. 

Solution: Architects are aesthetically articulate in design and trained in technical communication for the expression of the drawings. These skills will likely prevent a collision for substandard or shoddy work. For example, a GC approach to an add-on may conflict with existing elements unrelated to the surrounding design. If the contractor sees a simpler way of building, he will streamline his efforts. Of course, good design need not compromise aesthetics, especially when such refined details typically constitute a small percentage of the total project cost. 

Conflict of Interest #3: With a single contractor, only one bid is received. The owner has no shopping ability to work from a menu in the competitive labor force. 

Solution: Obtain at least three bids priced from the same drawing package. This allows for comparative pricing yielding savings to the owner. To protect the Owner, an architect can review the GC's, and his subcontractor's bids and scrutinize their credibility. 

Conflict of Interest #4: Contractor writing an Owner/Contractor agreement is an abuse of power. The design-build contract can twist standard contract forms favoring their protective interest. 

Solution: Have a third party involved writing the contract which could be an architect or legal representative. AIA Owner/Contractor forms have been refined over many years to prove as a sound record regarding roles between parties. 

Conflict of Interest #5: During construction who will represent the owner for change orders (all projects have them), but without true owner representation, it is a conflict of interest for the contractor to represent both sides. 

Solution: Typically, architects review the contractor's request for payments including change orders. This representation will help balance the cash flow and scrutinize any overpayments during the progress of work. In large commercial work, some developers and property managers depend full time on owner representation to prevent these kinds of mishaps. 

Conflict of Interest #6: In event of GC/Owner disputes, who's representing the owner for litigation? When differences occur, the partial interest of a contractor cannot fully represent the Owner. It is like relying on the opposing party to handle your own legal arguments. 

Solution: The Architect can act as a quasi-legal representative by making all field decisions final. If further arguments occur, it can be forwarded to arbitration. It is a lot less expensive to have an architect arbitrating disputes than a full time lawyer. 

Conflict of interest #7: If an in-house licensed architect is under the same roof of a GC, does this make it OK? 

Solution: Though a licensed professional is part of the team, this again couldbe a conflict with two powers working together as one beast. Issues and deals may be handled internally between forces where one wonders who's really minding the fort and really looking out for the owner. At some institutional/commercial levels, large design-build firms have strong alliances with government lobbying and have won and lost wars within various regions for accepting design-build relations. Currently, in most jurisdictions lobbying efforts are continuing for re-engineering terms and better owner/contractor relations. Even though their has been some reserved circumstances for design-build relationships in large scale commercial projects, ethically the small homebuilder may want to keep out of the domain. 

So, how can we make sound decisions in seeking design services with our end-product called home? The best insurance is having true professional owner representation from design through project closeout. An architect can help shop for the lowest competent Contractor and be a legitimate representative during all phases of the project. This guidance ensures getting the highest quality of both products and services for the buck. Most of all, having an architect will reduce the headaches of costly litigation. You don't want a contractor controlling a project by charging for this and that at one's whim. 

The architect's drawings become the best ammunition for keeping expectations tight and visions true. Even if you have a contractor in mind, still utilize an architect to tighten-up loose ends. By utilizing a third party representative, you might save time and money in the end. 

Despite the horror stories mentioned above, there are many instances supporting contractors integrity and loyalty to their clients. But why create additional potential for problems? Our advice is to approach an architect before a contractor. Usually the initial consultation is free, and architects are willing to be of assistance. Whether you talk to one or several architects, get the professional help up-front and allow the power of owner representation serve you during the construction of your dreams. . 

Article by John Salat 

Owner of John A. Salat Architects Orange County, California 
John is a licensed California Architect with 25 years experience

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