Paying Your Development Team

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The GC is not usually paid before the loan closes. Once the project has closed, the GC is paid on a monthly basis as defined in the contract. Your architect will be paid according to his or her contract, whether that contract is with the school or with the GC. Regardless, the architect will need to be paid for pre-construction phase services which include bid set, plans, and specifications. Legal counsel is usually paid hourly, and it is advisable to get an overall estimate. Regardless of which payment method is used, you and your development team must articulate the desired scope of services and negotiate the fee arrangement at the project’s outset.

Paying your Architect

  • Fixed (Stipulated Sum) Fees: In a fixed-fee structure, an architect quotes a fixed price for the entire project. Fixed-fee payment methods are advantageous because they help control costs, but the charter school board should carry a contingency in the event unforeseen expenses arise. Make sure you understand what services are included in the fee.

Paying your General Contractor

General contractors are usually paid via stipulated sum or cost plus guaranteed maximum price. Banks typically prefer that the fee be capped when the construction contract has been finalized and prior to closing of the construction loan.

  • Stipulated Sum Contract: This is a fixed-price approach. The contractor specifies an amount he or she will charge for the entire project based on design and materials specifications in the final construction documents. Value engineering must occur before the contract is executed. Changes to the contract are made using a “change order,” which increases or decreases the final contract amount (see Chapter 4 for more on this topic).  
  • Cost Plus with a Guaranteed Maximum Price (GMP): This is the preferred method to pay your GC. It provides more flexibility since the contract has built-in allowances for value engineering design. For example, the contract may quote a GMP that has a 10% contractual allowance built into the total price. If the contractor can identify cost savings during the construction process, those savings are split (on a predetermined basis) between the charter school and the GC. Conversely, if the GC errs and incurs additional costs, those costs are borne by the contractor.  

Legal Disclaimer:

Nothing in this material should be construed as investment, financial, brokerage, or legal advice. Moreover, the facts and circumstances relating to your particular project may result in material changes in the processes, outcomes, and expenses described herein. Consult with your own professional advisors, including your financial advisors, accountants, and attorneys, before attempting to consummate any transaction described in this material.