24 Aug 2017
Often a problem not only calls but screams for a solution. The field of Construction Management (CM) rose out of such a need. In an industry where lack of transparency is a frequent complaint, a view into real construction costs is beneficial to Owners, investors and the public. Construction Management provides such a view. You can’t put a value on public trust – so this is a win for the construction industry as a whole.
In our Construction Management series you will learn best practices for handling contingencies at every stage of a construction project, including contract selection, pre-award processes, contract changes, delays and disruptions, loss and expense analysis.
Why Use Construction Management
Engaging a Construction Manager offers a form of management that provides increased transparency and can speed construction completion.
There are major two forms of Construction Management, “Agency” and “At Risk”. The Agency role sees the CM as a consultant to the Owner, advising on the construction process. The At Risk alternative has the CM playing an active part during the design phases, but also taking on construction delivery risk, through a Guaranteed Maximum Price (GMP). Both types of CM engagement have their consultant role paid in a lump sum or as cost plus, and not by percentage of entire project, while the GMP element is an agreed, not-to-exceed price.
Construction Management is a much less adversarial approach to the construction process relationship between Owners and construction firms. In essence, the CM does not have a ‘dog in the fight’ during the design phase and can more easily advocate for the Owner. Employing a CM works well when you need to be on site and have a hard deadline to close. You can begin the process of bidding packages of work without a full design, developing packages of work as design progresses and thus accelerating the entire construction process. There are greater opportunities for Owners to make changes along the way, especially to those packages which have not been bid out, a significant benefit for Owners. However, with that benefit comes the potential for delays and cost over-runs, should too many changes be made.
Key knowledge for the well-trained CM includes a complete understanding of the contract selection process and contract terminology, as well as scopes of work for various packages of work. Effective CMs have expertise in change management strategies and the steps needed to mitigate construction delays and disruption. A thorough understanding of cost & expense procedures and causes is also required.
Pros and Cons of Using Construction Management
Choosing the correct procurement route is vital to the success of any project. Construction Management can be an excellent choice, but doesn’t fit every situation. The first step is to determine how knowledgeable the Owner is about construction. That will drive many steps in the process. A CM can help an Owner who isn’t in the business of construction, and for whom construction is simply a means to an end. However, when choosing to go down the path of CM as Agent, the Owner should be aware that the out-turn cost will not be known for some time. CM At Risk reduces that time scale, but at a cost. The Owner may choose to engage an independent Cost Manager or Quantity Surveyor to produce and refine the budget as design progresses.
Time until construction starts, quality of work and appetite for risk should also be considered in the procurement decision.
To position yourself as a CM, make sure the Owner knows the pros and cons of using a CM in the procurement process. Using CM:
- Allows input on construction techniques and the likely construction schedule before any construction work is tendered, segmented by trade as a response to schematic designs
- Allows construction to begin before a full design is developed using tendering packages for incremental parts of the project
- Allows changes to be made to packages which have not yet started on site
- Allows the Owner full input and transparency on tendering and change management
- Enables Owner to buy packages competitively and maintain a non-adversarial Owner relationship since CM is independent.
- Allows the Final Account to be signed off as work packages are completed, rather than at the end of a project, as with traditional Lump Sum agreements.
There are also some cons to using CM:
- Cost of construction is not fully known until the work has been completed
- Changes can affect work which has been previously constructed
- Scope gaps between packages require additional Owner funding
- Damage by one trade to another trade’s work requires additional Owner funding
- Schedule may be impacted if CM does not allow sufficient time for design/tendering/lead-in
- Schedule may also be affected if earlier trades delay later trades
- Claims for delay and changes must be negotiated with each Trade Contractor rather than through one Main Contractor
- Owner needs to have a team which understands construction and has the ability to manage change
- Trade Contracts are with the Owner, not the CM
A lot of of these cons are negated through the use of CM At Risk, since the CM is essentially a General Contractor at that point.
There is considerably more to working for a Construction Management organization or as an Owner, and choosing to use Construction Management as your optimum procurement route requires thorough consideration. This article is designed to provide only a flavor of CM.
Authored by Lionel Dore, MRICS, PQS, Director, BTY Group
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