How do I calculate the true cost of using the landlord’s preferred GC versus my own

The three delivery structures you are actually choosing between

Most tenants think the decision is binary — landlord's GC or mine. It isn't. There are three distinct delivery structures hiding behind that question, and each one moves cost, risk, and control to a different party. Naming them correctly is the first step in any honest comparison, because the landlord's preferred GC shows up in all three but plays a different role in each.

Turnkey (landlord-built). The landlord delivers the finished space to an agreed specification using their own general contractor, and you sign off on a plan and a finish schedule. You do not see the bid, you do not hold the contract, and you do not manage the trades. The cost is embedded in your rent — the landlord amortizes construction over the lease term at their internal return rate, which functions like an interest rate on borrowed capital you never negotiated. Turnkey is fastest and lowest-effort, and it is almost always the most expensive per square foot, because you are paying construction cost plus landlord profit plus the time value of the landlord's capital. The upside is real: no cost overrun exposure, no lien risk, no permit management, and no need to hire anyone. For a small tenant taking a modest suite on a short term, turnkey often wins on the only metric that matters — total cash out the door before you open.

Allowance (tenant-built with landlord money). The landlord gives you a tenant improvement allowance expressed in dollars per rentable square foot, and you build the space yourself. This is where the preferred-GC question actually bites, because the landlord almost always retains approval rights over your contractor. You hold the construction contract, you manage the schedule, and you eat overruns above the allowance. You also capture savings if you come in under — though many work letters quietly say unused allowance reverts to the landlord rather than converting to free rent, which erases your incentive to economize. Read that sentence before anything else in the work letter.

As-is (tenant takes the space raw). No allowance, no landlord construction, usually deeply discounted rent or a long free-rent period in exchange. You fund everything. This is the structure where bringing your own GC produces the largest absolute savings, because there is no landlord markup layered anywhere and no allowance-reversion clause to worry about. It is also the structure with the most exposure: if your GC underestimates the mechanical work, nobody is backstopping you.

The comparison you need is not "landlord GC versus mine." It is "turnkey total occupancy cost versus allowance-built total occupancy cost versus as-is total occupancy cost" — with the GC choice as a variable inside the second and third options. A tenant who runs only the narrow GC comparison frequently discovers, too late, that the real money was in whether to take the allowance at all.

Why the landlord's preferred GC is cheaper and more expensive at the same time

The preferred GC is not preferred at random. That contractor has usually worked the building for years, which produces genuine, quantifiable advantages you would be foolish to dismiss.

They already know where the electrical riser runs, which elevator takes drywall, what the base building fire alarm panel is and who programs it, and which inspector in that jurisdiction wants what. Their insurance certificates are already on file with the property manager, naming the correct entities. They know that "building standard" ceiling tile means one specific product, not a category. Every one of these facts is a line item your outside GC will have to discover, usually by paying a consultant or by eating a change order when the discovery comes late. Building familiarity is worth real money — often more than tenants credit.

Against that: the preferred GC knows they are the default. A contractor bidding against nobody prices differently than a contractor bidding against two competitors, and this is not a moral failing, it is how competitive markets work. The specific mechanism is usually not an inflated base bid — that would be too visible. It is a lean base bid with thin allowances for the items most likely to change: millwork, lighting fixtures, flooring transitions, data cabling. Those become change orders, and change orders carry the GC's full overhead and profit with no competitive pressure whatsoever. A tenant who compares only base bids is comparing the part of the number the contractor designed to be compared.

There is also the question of whose interests the preferred GC serves when they conflict. If your schedule and the landlord's leasing schedule diverge — say the landlord wants the corridor finished for a tour and you want your server room energized — the contractor with a decade of repeat work from the landlord and one job from you will resolve that tension predictably. That is not corruption; it is rational allocation of attention. But it is a cost you bear.

Ask the landlord directly whether they receive any fee, override, or benefit tied to the GC's selection, and get the answer in writing. Some landlords charge a construction management or coordination fee that is waived for their GC and charged on yours — that asymmetry is the tell. In many jurisdictions commercial lease practice expects disclosure of such arrangements, and even where nothing compels it, asking on the record changes the conversation.

How to choose: a decision path you can actually follow

The choice depends on four inputs: deal size, your internal capacity to manage construction, the building's technical complexity, and how much schedule slack you have. Run them in that order.

Start with deal size. Below roughly a few thousand square feet, the fixed costs of running your own construction — architect, permit expediter, project manager, insurance endorsements — do not amortize. A 2,000 square foot suite with a modest allowance is almost always a turnkey or landlord-GC job, because saving eight percent on a small base is worth less than the weeks of your own time it consumes. Above roughly ten thousand square feet, the arithmetic reverses hard: the same fixed costs spread across a much larger base, and competitive bidding on the trade packages produces savings that dwarf them.

Next, capacity. Do you have someone — internal or a hired owner's rep — who can read a schedule, run an OAC meeting weekly, review pay applications, and say no to a change order? If the honest answer is no, do not take on a tenant-built job regardless of size. An unmanaged tenant-built project reliably costs more than a managed turnkey, because change orders go unchallenged and the schedule drifts.

Then complexity. A straightforward open-plan office with a break room and two conference rooms is a commodity buildout that any competent GC can price. A space with supplemental cooling for a server closet, a grease interceptor, a demising wall through an existing sprinkler grid, or ADA-triggering restroom work is a building-specific job where the incumbent's knowledge has outsized value. The more the work touches base building systems, the more the preferred GC's familiarity is worth paying for.

Finally, slack. If your current lease expires in five months, you are buying speed, and the preferred GC sells speed. If you have twelve months, you can afford a full bid cycle.

The output of this path is not a contractor. It is a decision about which cost model to run — and if you land anywhere except the far-left branch, you run the three-column model next.

The three-column model and the numbers that go in it

Column one is the landlord's preferred GC. Start with the written base bid. Add a change-order contingency — the honest range on a commodity office buildout is five to ten percent of hard cost, and on a complex or fast-tracked job ten to fifteen percent. Set that contingency higher, not lower, when the bid arrived quickly and the allowance schedule looks thin. Then add anything the bid excludes: furniture, cabling, security, signage, and moving are routinely carved out and routinely forgotten.

Column two is your own GC. Start with their base bid, then add every cost your contractor does not already carry that the incumbent does. An additional insured endorsement naming the landlord and property manager is typically a modest one-time carrier fee. Builder's risk coverage runs as a small percentage of contract value. A performance and payment bond, if the work letter requires one, is a meaningful percentage of contract value and rises for smaller or less-established contractors. If your GC's general liability limits sit below the building's minimum, they need a difference-in-limits policy, which is not cheap. Then add the landlord's construction management or coordination fee — frequently a percentage of contract value, and frequently waived for the preferred GC and charged to yours. Add after-hours and freight elevator charges if your work letter meters them. Add the consultant time your GC will bill to learn the building standard your competitor already knows.

Column three is the schedule, converted to money. This is the column tenants skip and later regret. Take the difference in delivery date between the two GCs and multiply the number of months by your monthly rent obligation. If your free-rent period is a fixed number of months, a slower GC burns abatement you would otherwise have banked as operating runway. If your abatement is capped as a fixed dollar amount, a faster GC leaves unused capacity — and some work letters let you convert unused abatement into additional TI dollars, which is a straight transfer to your build budget. Ask which structure you have; the answer changes the math materially.

Add the columns and compare adjusted totals. The number that decides is base bid plus contingency plus excluded scope plus insurance and fees, minus any schedule value. A tenant GC bid that is eight percent under the incumbent routinely evaporates once coordination fees, bonding, and six extra weeks of rent are added — and just as routinely holds up on a large enough job that the fixed costs amortize.

One more figure worth demanding regardless of who builds: the GC's overhead and profit as a stated percentage of direct cost, disclosed in the bid rather than buried. Ask for it explicitly, in writing, from every bidder. A contractor who will not state it is telling you something.

Contract language, the work letter, and the handoff that ends the job

The work letter is where the money is decided, not the bid. It sits inside your lease or as an exhibit to it, and it defines the allowance, the approval process, the schedule, and who pays for what. Redline it before signing, because after signing you have no leverage.

The clauses that matter most:

Contractor approval timing. "Approval not to be unreasonably withheld" is meaningless without a clock. Replace it with a hard deadline — landlord approves or rejects your proposed GC within five business days, and silence equals approval. Without that, an unenthusiastic landlord can kill your outside GC by simply taking six weeks to respond.

The right to bid. Negotiate for the right to solicit bids from three qualified, licensed, insured general contractors, one of which may be the landlord's preferred GC, with the landlord obligated to accept the lowest qualified bid. "Qualified" is the word doing the work — it protects the landlord from a lowball outfit with no bonding capacity and protects you from an arbitrary rejection.

Coordination fees. Insist the landlord's construction management fee be waived, or applied identically, whichever GC builds. Asymmetric fees are the cleanest evidence that the preferred GC is a revenue channel rather than a recommendation.

Working hours and access. If the preferred GC gets after-hours freight elevator access at no charge, your GC gets the same. Otherwise you are paying overtime premiums the incumbent does not.

Allowance disbursement and retainage. Confirm how the allowance is paid — progress draws against AIA-style pay applications with lien waivers, or a single reimbursement at completion. Reimbursement-at-completion means you float the entire buildout, which is a working capital problem nobody warns you about. Confirm retainage percentage and confirm it is the same for your GC as for theirs.

Unused allowance. Get it in writing that unused allowance converts to rent credit or additional scope rather than reverting to the landlord. This single clause determines whether you have any incentive to save money.

Substantial completion and possession. Define substantial completion by a specific standard — typically a certificate of occupancy or its local equivalent plus a punch list that does not prevent beneficial use. Rent commencement should key to that date, not to a calendar date the landlord picked when the lease was drafted.

The handoff at the end is where tenants lose money quietly. Before releasing final retainage, collect unconditional final lien waivers from the GC and every subcontractor and material supplier of consequence — an unpaid sub can file a mechanic's lien against the property, and your lease almost certainly makes that your problem with a short cure period. Collect the closeout package too: as-built drawings, air balance report, equipment manuals, warranty documentation, and control system credentials. When the landlord's preferred GC builds, that package flows to the property manager by habit and you may never see it. When your GC builds, demand it in the contract, because five years later when the rooftop unit fails you will want to know what it is.

Adjacent decisions that move more money than the GC choice

Three related levers frequently outweigh the contractor question, and tenants who fight hard over the GC while ignoring these are optimizing the wrong variable.

Allowance versus rent. Landlord capital is not free. A larger TI allowance is generally recovered through higher base rent over the term, at an implied rate set by the landlord. Ask your broker to compute the effective rate embedded in the trade — if the landlord will give you an extra amount per square foot in allowance in exchange for a rent bump, that is a loan, and you should compare its implied cost to what your bank charges. Sometimes taking less allowance and lower rent, funding the delta yourself, is materially cheaper over a ten-year term.

Independent cost estimation. Before accepting any bid, commission a third-party estimate from a construction consultant or independent estimator. For a modest fee you get a line-item breakdown at fair market pricing for your specific market, and it converts an argument about fairness into an argument about numbers. This is the single highest-return spend in the entire process, and it works whether the landlord's GC or yours holds the contract.

Hybrid delivery. Many landlords will accept a split: their GC handles core and shell and anything touching base building systems, while your contractor or a specialty vendor handles finishes, millwork, furniture systems, and low-voltage. You capture competitive pricing on the discretionary scope, the landlord keeps control of the systems that affect the asset, and the interface risk is manageable if the work letter defines the boundary clearly. Ask for it explicitly — most landlords never offer it, and many will agree.

Also weigh the labor market. In union-dense commercial markets, the preferred GC is almost always union-signatory, and introducing a non-union contractor into an occupied building can produce jurisdictional friction that costs more in schedule than you saved on the bid. That is a local question with a local answer; ask your broker and your architect before assuming a lower bid is a lower cost.

Related questions

Does using my own GC void anything in the lease?

No, but it can trigger conditions — additional insured requirements, bonding, coordination fees, and landlord approval rights. It does not void the lease. Check whether it changes allowance disbursement terms or retainage percentage, which is where the practical penalty usually hides.

Who is liable if my GC damages the base building?

Your GC's general liability policy, backed by yours, with the landlord named as additional insured. The lease indemnity almost always flows to the tenant. This is exactly why the landlord demands the endorsement, and why your bid comparison must include the cost of obtaining it.

Can I get the landlord to pay for an independent estimator?

Sometimes, if you ask during lease negotiation rather than after. Frame it as reducing dispute risk for both parties. If the landlord declines, pay for it yourself — the fee is small relative to what a line-item market comparison typically surfaces.

What if the preferred GC's bid comes in over the allowance?

You pay the overage, unless the work letter says otherwise. Negotiate a guaranteed maximum price with a shared savings clause before construction starts, so the contractor has a reason to control cost rather than a reason to generate change orders.

FAQ

What if the landlord refuses to allow any contractor but theirs?

Price the monopoly into the deal instead of fighting it. Ask for a larger allowance, a longer free-rent period, or a guaranteed maximum price contract with a shared savings clause. If the landlord controls the contractor, the landlord should carry more of the cost risk — say that plainly during negotiation.

How do I tell whether the preferred GC's bid is inflated?

Commission an independent line-item estimate at market pricing for your area, and separately demand the bid disclose overhead and profit as a stated percentage of direct cost. Two numbers, one comparison. If the bid sits well above the independent estimate, you have specific leverage rather than a vague complaint.

Should I use my own GC for only part of the work?

Often yes. Hybrid delivery — landlord's GC for core, shell, and base building systems, your contractor for finishes, millwork, and low-voltage — captures competitive pricing where it is easiest to capture and keeps the landlord comfortable where risk is highest. Define the scope boundary precisely in the work letter.

How much contingency should I carry?

Five to ten percent of hard cost on a straightforward commodity office buildout, ten to fifteen percent on complex, phased, or fast-tracked work. Carry more if the bid excludes long-lead mechanical equipment or if the design is not fully complete when construction starts.

Does the GC choice affect my tenant improvement allowance?

Frequently. Allowances are usually paid to the contractor rather than to you, and some landlords apply higher retainage or slower draw schedules to an outside GC. Negotiate identical disbursement and retainage terms regardless of who builds, and get the parity in writing.

What happens to unused allowance if I come in under budget?

It depends entirely on the work letter. Some leases convert unused allowance to rent credit or additional scope; many let it revert to the landlord. Confirm which before signing, because a reversion clause removes every incentive you had to build efficiently.

Sources

• https://www.boma.org — Building Owners and Managers Association, standards for commercial lease and building operations
• https://www.aiacontracts.com — American Institute of Architects contract documents, including A101 and A201
• https://www.ifma.org — International Facility Management Association, facility and project management practice
• https://www.sba.gov — U.S. Small Business Administration, commercial lease and leasing guidance for small businesses
• https://www.cmaanet.org — Construction Management Association of America, cost estimating and change management standards
• https://www.nar.realtor — National Association of Realtors, commercial real estate resources
• https://www.osha.gov — Occupational Safety and Health Administration, construction site requirements
• https://www.agc.org — Associated General Contractors of America, industry contracting practice

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