Construction Management Contracts.

Construction Management Contracts: An In-Depth Overview

Construction Management (CM) Contracts are a type of agreement used in the construction industry where the owner hires a construction manager to oversee and manage the construction process. Unlike traditional contracts, where a general contractor takes on full responsibility for completing the project, a construction management contract involves the construction manager acting as an agent or advisor to the owner, often coordinating multiple trade contractors and ensuring that the project is completed on time, within budget, and to the required quality standards.

Key Types of Construction Management Contracts

Construction Management at Risk (CMAR)

In a CMAR contract, the construction manager acts as the general contractor, assuming the risk for construction, including cost overruns. The construction manager guarantees the project will be completed within a specified budget (often a Guaranteed Maximum Price or GMP). If costs exceed this price, the construction manager is responsible for covering the excess, unless changes are made to the project scope.

Construction Management Agency (CMA)

In this arrangement, the construction manager serves purely as an agent for the owner, providing advice and overseeing the construction process but not taking on the financial risk. The owner contracts directly with trade contractors and vendors, with the construction manager coordinating their activities. The CM acts in the owner’s best interest, providing expertise and ensuring that the project runs smoothly.

Construction Management Multi-Prime (CMMP)

This variation of construction management involves the owner entering into separate contracts with multiple prime contractors. The construction manager coordinates these contracts, ensuring that the various contractors work together effectively. This approach can provide more control and flexibility for the owner but requires careful coordination and management.

Key Features of Construction Management Contracts

Early Involvement of the Construction Manager

The construction manager is typically involved from the early stages of the project, often during the design phase. This early involvement allows the construction manager to provide input on constructability, cost estimation, scheduling, and other critical aspects, leading to better planning and more accurate budgeting.

Open Book Policy

Many CM contracts operate on an open book basis, where the construction manager provides the owner with full access to cost data, including bids, invoices, and other financial information. This transparency helps build trust and allows the owner to make informed decisions throughout the project.

Flexible Contract Structures

Construction management contracts are highly flexible and can be tailored to suit the specific needs of the project. The roles and responsibilities of the construction manager, the level of risk they assume, and the contractual relationships between the owner, construction manager, and contractors can all be adjusted to meet project requirements.

Collaboration with Design Teams

The construction manager often works closely with architects and engineers during the design phase to ensure that the project is feasible, cost-effective, and can be delivered within the desired timeframe. This collaboration helps avoid potential issues during construction and ensures that the project is designed with practical considerations in mind.

Cost Control and Value Engineering

A key role of the construction manager is to control costs and manage the budget throughout the project. This often involves value engineering, where the construction manager identifies cost-saving opportunities without compromising quality or functionality.

Schedule Management

The construction manager is responsible for developing and maintaining the project schedule, coordinating the activities of all contractors and vendors to ensure that the project stays on track. This includes identifying potential delays and implementing strategies to mitigate them.

Advantages of Construction Management Contracts

Improved Project Control and Flexibility

The owner retains greater control over the project, with the ability to make changes to design, scope, or materials as the project progresses. The construction manager provides expert advice to help the owner make informed decisions.

Enhanced Collaboration and Communication

Early involvement of the construction manager and close collaboration with the design team lead to better communication and coordination. This helps identify and address potential issues early, reducing the likelihood of costly changes or delays during construction.

Transparency and Trust

The open book nature of many CM contracts fosters transparency, allowing the owner to see exactly where their money is going and how decisions are made. This builds trust between the owner and the construction manager, leading to a more collaborative and less adversarial relationship.

Risk Management

Depending on the type of CM contract, the construction manager may assume significant risk (as in CMAR) or act purely as an advisor (as in CMA), providing flexibility in how risks are allocated. This allows the owner to choose a contract structure that aligns with their risk tolerance and project goals.

Cost Savings through Value Engineering

The construction manager’s expertise in value engineering can lead to significant cost savings, as they identify and implement more cost-effective solutions without compromising quality or project goals.

Efficient Schedule Management

The construction manager’s focus on schedule management helps ensure that the project is completed on time, minimizing delays and associated costs.

Disadvantages of Construction Management Contracts

Potential for Higher Initial Costs

The involvement of a construction manager adds an additional layer of management to the project, which can result in higher initial costs, particularly if the construction manager charges a fee based on a percentage of the project cost.

Complexity in Coordination

Particularly in CMA and CMMP contracts, the need to coordinate multiple contractors and vendors can add complexity to the project, requiring careful management and communication to avoid conflicts or delays.

Risk of Conflicts

In CMAR contracts, where the construction manager assumes financial risk, there can be conflicts of interest if the construction manager’s desire to stay within budget conflicts with the owner’s goals for quality or scope.

Increased Administrative Burden

The need for detailed record-keeping, cost tracking, and schedule management can increase the administrative burden on both the owner and the construction manager, requiring dedicated resources to manage these tasks effectively.

Dependency on the Construction Manager’s Expertise

The success of a construction management contract depends heavily on the expertise and performance of the construction manager. If the construction manager lacks the necessary experience or skills, the project may suffer from poor coordination, cost overruns, or delays.

Typical Applications of Construction Management Contracts

Large and Complex Projects: CM contracts are often used for large, complex projects where the owner needs expert guidance and oversight, such as in the construction of hospitals, universities, or major infrastructure projects.
Projects with Tight Schedules: When time is a critical factor, CM contracts can help ensure that the project stays on track, as the construction manager focuses on schedule management and coordinates the activities of all parties involved.
Projects Requiring Flexibility: CM contracts are ideal for projects where the owner anticipates changes in scope or design, as the flexible nature of these contracts allows for adjustments throughout the project lifecycle.
Public Sector Projects: Government and public sector projects often use CM contracts to ensure transparency, control costs, and manage the complexities of working with multiple stakeholders and regulatory requirements.
Commercial and Industrial Projects: Large commercial and industrial projects, such as office buildings, manufacturing facilities, or distribution centers, benefit from the cost control, scheduling, and coordination provided by construction management contracts.

Examples of Construction Management Contracts

University Campus Expansion

A university hires a construction manager under a CMA contract to oversee the expansion of its campus, including the construction of new academic buildings, dormitories, and sports facilities. The construction manager works closely with the university’s facilities team and the design architects to ensure that the project stays within budget and is completed on time, coordinating the activities of multiple trade contractors.

Hospital Construction

A healthcare provider engages a construction manager under a CMAR contract to build a new hospital. The construction manager works with the design team during the planning phase to optimize the design for cost and constructability, then takes on the responsibility of managing the construction process and ensuring that the project is delivered within the agreed GMP.

Public Transportation Project

A city government uses a CMMP contract for the construction of a new light rail system. The construction manager coordinates the work of multiple prime contractors, including those responsible for track laying, station construction, and electrical systems. The construction manager ensures that all contractors are working in harmony and that the project is completed within the city’s budget and schedule requirements.

Managing Construction Management Contracts

Pre-Contract Considerations:

Selection of the Construction Manager: Choosing the right construction manager is critical to the success of a CM contract. The owner should select a construction manager with a strong track record, relevant experience, and a collaborative approach.
Clear Definition of Roles and Responsibilities: The contract should clearly define the roles and responsibilities of the construction manager, the owner, and any other parties involved. This helps prevent misunderstandings and ensures that everyone knows their role in the project.
Establishing Communication Protocols: Effective communication is key to the success of a CM contract. The project team should establish clear communication protocols, including regular meetings, reporting requirements, and decision-making processes.

During the Project:

Ongoing Coordination and Oversight: The construction manager must continuously coordinate the activities of all contractors and vendors, ensuring that the project stays on track and that any issues are addressed promptly.
Cost and Schedule Management: The construction manager should closely monitor the project’s budget and schedule, providing regular updates to the owner and making adjustments as necessary to keep the project within the agreed parameters.
Risk Management: The construction manager should proactively identify and manage risks, implementing strategies to mitigate potential issues and avoid delays or cost overruns.

Post-Completion:

Project Closeout: The construction manager is responsible for overseeing the project closeout process, ensuring that all work is completed to the required standards, and that all necessary documentation is provided to the owner.
Final Cost Reconciliation: For CMAR contracts, the construction manager should reconcile final costs against the GMP, ensuring that any cost savings are returned to the owner and that any overruns are accounted for.
Lessons Learned: After the project is completed, the construction manager should conduct a lessons learned session with the project team to identify successes and areas for improvement. This helps build institutional knowledge and improves the performance of future projects.

Conclusion

Construction Management Contracts offer a flexible and collaborative approach to managing construction projects, with the construction manager playing a central role in ensuring that the project is completed successfully. Whether through CMAR, CMA, or CMMP contracts, the construction management approach allows for better control, improved communication, and more effective risk management. While these contracts can add complexity and require careful coordination, their benefits in terms of cost savings, schedule management, and quality outcomes make them an attractive option for many types of construction projects. By choosing the right construction management contract and working closely with an experienced construction manager, owners can ensure that their projects are delivered on time, within budget, and to the highest standards of quality.