Residential vs. Commercial Construction

By Robert Dickson

The question of what are the differences between residential construction and commercial construction is an interesting one as not all companies are the same in how they are structured or how they operate.

Starting with residential construction there appear to be 3 main categories in the industry

1) Small residential – Single dwellings, town house developments

2) Custom residential – Luxury homes, low volume luxury apartments

3) Large scale residential–High volume developments, high rise developments

Small Residential

Key aspects to the small residential space are :

· Smaller builders - Most builders would have come from a trade background and may even be “on the tools”. They are likely to be individually owned or in a partnership.

· A more hands on role - A CA or PM is likely to be doing both roles together with a lot of involvement on site. In some circumstances there may not be a specific site manager with the trades running the site.

· Repeat projects - Single dwellings could be a for a volume type builder and townhouse developments are likely to have limited design variation. One project is likely to use very similar construction methods to the next.

· Low budgets - Small residential is a competitive market and the budgets are tight.

· Time critical - Completion timeframes are critical so that settlement can occur on time.

· Contracts - Not normally an AS type contract. More likely to be an HIA or MBAV contract. The contracts are not likely to be heavily amended.

· Designers - Smaller companies and possibly multi disciplinary e.g. services.

· Client - Likely to be individual investors or a consortium of small individual investors.

Custom Residential

Key aspects to custom residential are :

 · Smaller specialist builders - Most builders would have come from a trade background or a management role in a small building company. Some may even be “on the tools”. In any case the owners are likely to be very hands on especially in relation to quality on site. They are likely to be individually owned or in a partnership. They should be well funded due to the larger value of the projects.

· A more hands on role - A CA or PM is likely to be doing both roles together with a lot of involvement on site. There is likely to be a working site manager on site.

· Custom projects - Designs are ones offs and normally are multi story. They are likely to include a basement. 

· Good budgets - The clients are looking for quality over price. The tender process is likely have been very select and based on reputation/references.

· Not time critical - With clients looking for quality over price the initial programme would have made allowances for trades to finish to a high standard.

· Contracts - May be an AS, HIA or Master Builders construct only type contract. There is likely to be a lawyer involved as the contracts could be in the millions. The contracts are not likely to be heavily amended but thorough.

· Designers - Likely to be well respected bespoke Architect leading the design. It is likely they will have a design team they prefer to use. They are also likely to know the builder.

· Client - Likely to be a wealthy individual who knows what they want. They are likely to change elements of the design during construction.

Large Scale Residential

Key aspects to large scale residential are :

· Organised builders - The builders will be large companies either privately owned or publicly listed. They will use project management software such as Procore or Aconex. 

· Defined roles - A CA or PM will have a defined role within a team. There will be a site manager on site, they are likely to have a team on site e.g. foreman, labourers, OHS officer.

· Repeat designs - The projects are likely to be larger scale with repeat designs. There are likely to be purchaser changes as the dwellings are sold. Some projects will be staged. 

· Budget - Financial performance is critical as margins are normally tight. The builder may use large individual sub-contractors or split packages out tosmaller sub-contractors.

· Time critical - Projects will be time critical so settlements can occur on time. There are likely to be stages to the project. Almost certainly there will upfront sub-division or enabling works.

· Contracts - Likely to be a Design and Construct AS or custom contact heavily amended in favour of the client. There is likely to be a legal team involved.

· Designers - Likely to be larger design firms who are initially selected by the client and novated across to the builder.

· Client - Likely to be a special purpose vehicle set up for the project. The clients are likely to be familiar with the construction process. The client would normally engage a client side Project Manager. They are not likely to change the design during construction unless it benefits them financially e.g. increases sales or speeds up settlement.

Commercial construction has less defined categories than residential however the projects are wide ranging. They may be small commercial projects such as an office fit out to large corporate offices or institutional buildings.

Commercial

Key aspects to commercial construction are :

· Organised builders - The builders will be large companies either privately owned or publicly listed. They will use project management software such as Procore or Aconex. They are likely to have internal specialists such as designers and lawyers.

· Defined roles - A CA or PM will have a defined role within a team. There will be a site manager(s) on site with a team under them. 

· Design - Most likely to be one off designs which are high technical with lots of services involved. They are also likely to involve individual tenant fit outs which are not normally part of the initial building contract. 

· Budget - Budgets should allow for larger well organised sub-contractors.

· Time critical - Projects will be time critical as there is normally an intended opening date or move in date. Time is also critical from the builders perspective as the prelims costs are likely to be high.

· Contracts - May be Construct Only or Design and Construct. Likely to be an amended AS contact in favour of the client. There will be be a legal team involved. 

· Designers - Likely to be larger design firms who are very good at what they do and they may be specialists at a certain type of building e.g. hospitals.

· Client - Likely to be a major company or institution. The client would normally engage a client side Project Manager. They are not likely to change the design during construction unless it relates to the tenants or end user requirements.

It's important to understand the differences between each sector. It’s not so easily to go from a ten year residential career to wanting to work on bespoke commercial. The fundamental practices are the same but the technicality differs. It’s valuable to talk to people in the industry to get the insight. Know your end goal and the type of project you're suited for.


Robert Dickson is member of the Royal Institution of Chartered Surveyors (RICS) and a Director of CARS Construction Consulting who specialise in Project Management Services for all types of clients. With over 20 years experience in the industry Robert has held many roles such as Quantity Surveyor, Senior Contracts Administrator, Contracts Manager and Senior Project Manager. Robert is currently working "client side" for Monash University delivering highly complex lab and research projects. Robert finds this role very challenging and rewarding as the projects improve the learning spaces for students or improved research facilities for innovation and discovery.

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