The general contractor is the developer’s primary execution partner during the construction phase of a development project. No other relationship during that phase has more direct influence on whether the project delivers on time, within budget, and at the quality standard the development program requires. The contractor selection process, the contract structure, and the ongoing management of the contractor relationship are among the most consequential operational decisions a developer makes — and they are decisions that, once made, shape project outcomes in ways that are difficult to reverse.
Developers who treat contractor selection as a procurement exercise — identifying the lowest bid among a pool of qualified contractors and awarding accordingly — frequently discover that the cost savings implied by the low bid do not materialize, and that the dynamics of the contractor relationship that follows create execution problems that are more expensive than the initial savings. Contractor selection is a relationship decision as much as a commercial one, and the relationship must be designed to produce alignment between the contractor’s execution incentives and the developer’s project objectives.
Contractor Selection: Evaluating Capability Beyond the Bid
The selection of a general contractor for a commercial development project should begin with a clear assessment of what the project requires — in terms of technical complexity, schedule demands, subcontractor coordination, and the specific experience base that will be needed to execute successfully. A contractor with a strong track record in office construction may not be the right selection for a mixed-use project with a retail ground floor and residential upper stories. A contractor with deep relationships among the relevant subcontractor pool in a specific submarket may be able to deliver a more reliable schedule and cost outcome than a contractor whose subcontractor network is thinner in that geography.
Beyond technical capability and relevant experience, the qualitative dimensions of contractor evaluation matter. The contractor’s approach to schedule management — whether they maintain a detailed, actively updated schedule and use it to drive subcontractor performance, or treat scheduling as a documentation exercise — is a leading indicator of execution discipline. The contractor’s approach to owner communication — whether problems are surfaced promptly and candidly or managed internally until they become unavoidable disclosures — is a leading indicator of how the relationship will function when the project encounters difficulty.
Reference checks with developers who have worked with the contractor on comparable projects are an essential component of contractor evaluation. The questions that matter most are not whether the project was completed, but how the contractor managed cost overruns, schedule pressure, and unexpected field conditions — and whether the developer would use the contractor again under comparable circumstances.
Contract Structure: GMP, Lump Sum, and Cost-Plus
The structure of the construction contract establishes the economic relationship between the developer and the contractor and determines where cost risk sits as the project moves through construction. The three primary contract structures — guaranteed maximum price, lump sum, and cost-plus — allocate that risk differently, and the appropriate choice depends on the stage of design development at the time of contract execution and the specific risk management objectives of the project.
A guaranteed maximum price contract establishes a ceiling on the contractor’s compensation for the scope of work defined in the contract documents. Cost savings below the GMP are typically shared between the contractor and the developer according to a negotiated split — giving the contractor an economic incentive to manage costs below the ceiling. The GMP structure provides the developer with cost certainty above the maximum price line while allowing the contractor to participate in efficiency gains. It requires, however, that the design be sufficiently developed at the time of contract execution to define the scope with enough precision that the GMP represents a genuine ceiling rather than an allowance for undefined work.
A lump sum contract fixes the contractor’s price for a fully defined scope of work. It provides the strongest form of developer-side cost certainty — the contractor bears the risk of cost overruns within the defined scope — but it requires complete construction documents before contract execution and is most appropriate when the project’s design is fully resolved before construction begins. Lump sum contracts carry a premium over GMP or cost-plus arrangements because the contractor is pricing the risk of scope as-defined, and that pricing reflects the uncertainty that remains even with complete documents.
Cost-plus arrangements — in which the developer pays the contractor’s actual costs plus a fixed fee or percentage fee for general conditions and profit — are most appropriate for projects in early design stages where the scope cannot be defined with sufficient precision for a GMP or lump sum. They provide flexibility for scope evolution but require active owner oversight of cost documentation to ensure that the costs being reimbursed are consistent with the project’s budget.
Change Order Management: The Discipline That Protects the Budget
Change orders — modifications to the original contract scope that result in additions to or deductions from the contract price — are the primary mechanism through which construction costs escalate beyond the original contract value. Every development project experiences some level of scope change during construction. Field conditions that differ from what was anticipated in the design, owner-directed changes to the program, and design resolutions that require cost adjustments are all normal features of a construction project. The question is not whether change orders will occur, but whether they will be managed with the discipline required to prevent them from eroding the project’s cost position.
Change order discipline begins with the contract — specifically, with the change order provisions that define what constitutes a change in scope, how proposed changes are priced and documented, and what the approval process requires. A contract with ambiguous scope definitions creates the conditions for change order disputes because the line between work that was included in the original scope and work that constitutes an addition is unclear. Resolving that ambiguity in the contract, before construction begins, reduces the frequency and magnitude of change order disputes during execution.
During construction, every proposed change order should be evaluated against two questions: does it represent work that was genuinely outside the original scope, and is the proposed price for the change consistent with the unit costs embedded in the original contract? A change order that is accurately scoped but priced at rates that are inconsistent with the original contract is a cost transfer from the developer to the contractor — and it should be negotiated accordingly. Active change order review, supported by a cost estimator or owner’s representative with the technical capacity to evaluate contractor pricing, is a standard of project management that pays for itself through the change orders it controls.
Communication Protocols and the Owner-Contractor Relationship
The formal structure of the construction contract governs the legal and commercial relationship between the developer and the contractor. The quality of the day-to-day communication between those parties governs the project’s operational performance. These are different things, and a contract that is well-structured does not guarantee a relationship that functions well in practice.
Effective owner-contractor communication is characterized by regularity, specificity, and candor — on both sides. Weekly project meetings with a defined agenda, documented decisions, and clear action items provide the operational rhythm through which issues are identified and resolved before they affect the schedule or budget. A meeting culture in which problems are surfaced and addressed produces better project outcomes than one in which problems are minimized or deferred.
The owner’s representative — whether that is a development manager employed directly by the developer or a third-party project manager — is the primary interface between the developer’s project objectives and the contractor’s execution. The quality of that representation, and the authority and information access the owner’s representative has to make decisions and resolve issues at the project level, directly affects how efficiently the project moves through the inevitable problem-solving that construction requires.
For Bridge Capital Partners, the contractor relationship is managed as an ongoing operational partnership — not as an adversarial commercial engagement. The alignment of the developer’s and contractor’s interests around project outcomes, established in the contract structure and maintained through the communication practices of the project, is the condition that produces the execution discipline that development projects require.
About Alexander Shalavi
Alexander Shalavi is a Partner at Bridge Capital Partners, a commercial real estate investment and development firm operating across high-growth West Coast and Midwest markets. Shalavi leads development strategy for the firm, with expertise spanning ground-up construction, property repositioning, and full-cycle portfolio management. His work covers the complete project lifecycle — from site acquisition and capital structuring through entitlement, construction oversight, and asset stabilization. Bridge Capital Partners focuses on markets where supply constraints and demand fundamentals support durable long-term returns across market cycles.
