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Construction Management Services

Construction Management refers to a professional construction services discipline that applies to the planning, design, and building steps of the construction process. An owner must recognize and solve countless issues when planning a project, these include:

• time constraints
• cost constraints
• pre-construction needs
• flexibility
• adaptability, and
• overseeing the many parts moving simultaneously

While owners typically possess expertise in multiple disciplines, they may be novices at managing and planning construction projects. Professional construction managers can provide the supplementary expertise tailored to the complexities and specificities of the project, allowing for a far more efficient building process, saving owners time and money.

Construction management generally comes in two forms, agency construction management, and construction management-at-risk. In agency construction management, the owner uses the construction manager as the principal agent tasked to advise or manage a project from start to finish, regardless of the method used. In construction management-at-risk (CMAR), a construction manager advises and consults through the pre-construction and design phases, but changes to the legal equivalent of a general contraction once the price has been established and the construction phase begins. The compensation for construction managers tends to be salary times a set multiplier plus direct expenses, billing rates, and cost plus a fixed fee agreed upon by the owner and the construction manager.

Defining Construction Management

The owner must recognize the many important issues when planning a project:

Time Constraints
How quickly must the project commence/conclude? How may the schedule change based on uncontrollable influences? Will the ability to produce funding affect the timetable of the project?

Cost Constraints
How will the project be funded? How does this financing affect the schedule, type of contract, and other facets of the project?

Pre-Construction Needs
How much time and help does the owner need to define and plan the project? How do quality and safety compare to cost and scope of work?

Flexibility and Adaptability
How much can the project change if it encounters issues? How defined will the project be prior to breaking ground? How much will others outside of the owner influence design and construction? How much will construction affect daily operations?

Overseeing Moving Parts
How complex is the design process for the project? What operations must be completed prior to others beginning? Will crews have room to work efficiently and safely?

Featured Construction Management Projects

The Players

While many organizations and methods have been used on different projects, they essentially all contain similar major players:

The Owner
A private or public organization or individual for whom the project will be completed.

The Construction Manager (CM)
A professional construction services discipline that applies to the planning, design, and building steps of the construction process. The CM organizes the combined project, develops a production plan, monitors progress and scheduling, and provides expert advice to the owner.

Designers
Designers provide design services and support the project effort. While they contract their services with the owner, the CM monitors them and expects reports from them regarding progress, scheduling, and keeping to the budget.

Other Consultants
Anyone who provides specialization like real estate acquisition firms, engineering firms, and environmental consultants that report back to the CM throughout the project.

Project Needs

Regardless of the project organization or methods used, coordination of all the moving parts requires specific expertise. The owner and their staff may have the organizational, financial, and planning expertise necessary for a project, but to successfully finish virtually any project, many other skills become applicable including:

• Project scope development
• Land Acquisition
• Permitting
• Design
• Estimating
• Contract Administration
• Inspection
• Quality Control
• Risk Management, and
• Dispute Resolution

Construction Managers provide the expertise and comprehensive management and controls necessary to complete a project on time and on schedule, while providing a cost-effective approach to handling the construction process, thus allowing the owner to focus on their business.

Contracting Formats and Project Delivery Methods

Contracting Format
A contracting format, an arrangement for the dispersion of project risk, can be prepared based on cost or performance risk. Cost risk references the risk of completing a project within a set budget limit. This risk dispersion can be done by setting budgets for individual sections of a project or limiting the money paid out. Performance risk measures the ability to finish a job on time and to the quality specified in the contract. Performance risk can be far more easily distributed by specific and technical terms being added to the contract. Contracting formats require a specific scope of statement and explicit details for an accurate economic judgment to be made.

Frequently, companies use sealed bids or fixed contracts so to shift the cost risk onto the contractor. To be fair and reasonable, these contracts must be for a rigid, completed design to minimize flexibility and the possibility of change. The private sector sometimes uses more flexible risk-sharing options such as: negotiated fixed price, guaranteed maximum price, cost plus fixed or variable fee, time and material, unit price, and pre-purchasing. Performance risk shifts can be worked into contract language. We call these performance shifts design-build contracts when they apply to the entire project. Since performance is subjective, these contract types easily result in disputes between the owner and CM.

Project Delivery Methods

A project delivery method is a system created to guide construction from conception to completion. Each project delivery method can include multiple contracting formats and must define the scope of work as part of their projected process. Due to financial and time constraints, multiple project delivery methods have developed to fit client needs. The main methods include:

Design-Build
The owner uses one contract to procure the designer and contractor to complete a project. Learn more about the design-build construction process here>>>

Design-Bid-Build
The owner collects sealed bids, fixed-price contracts to choose a designer and contractor to complete a project. This ensures a low, reasonable price, however, it does nothing to assure the quality of work.

Multiple Primes
The owner uses separate contracts for general construction, mechanical, engineering, electrical, etc.

Developer Manager
The contractor will find or build a facility to fill the needs of the owner, who will commit to leasing it.

These methods force the owner to place the fate of their project in the contractor’s hands, whose interest may differ from the owner based on contractual risk assessment. Simply put, the greater the risk, the greater the necessity for control, and loss of control creates a fear of a negative outcome. The key to success lies in putting the risk in the hands of those who are best qualified to handle it.

How Can Construction Management Benefit You?

Construction management gives the owner the expertise necessary to deal with the responsibility and delivery of projects, allowing the owner to feel confident that their dream will become a reality. A CM plays the role of trusted advisor, while also taking on a substantial amount of the risk in most agreements. This role can prove most important in the design-build process because no real natural check on the design-builder exists.

Two Forms of Construction Management

Agency Construction Manager
The CM advises and manages the project throughout all steps for the client.

CM-At-Risk
In this case, the CM advises and manages the project prior to construction, then becomes the equivalent of a general contractor once construction commences.

Construction Manager’s Job Description

A CM should be hired to relieve stress for the client while providing all necessary expertise to successfully complete the project. The CM should have the ability to provide insight regarding:

• Best use of capital
• Better control of the project
• Optimal scheduling to best suit daily operations
• Avoidance of mistakes, delays, and lawsuits
• Improve the quality of design and work
• Options for financing projects and material acquisition

An important note: Adding a CM to a large project does not take away the client’s control over the project, but rather it augments the client’s ability to produce a timely, successful project without any potential conflict of interest. The CM simply represents the expertise and a larger amount of confidence that the project will go according to plan.

Choosing The Right Construction Manager

You first must decide whether a project truly needs a CM to succeed. A CM becomes necessary when the projects have a component of complexity, whether that be due to their size, scheduling issues, or specificity. If CM seems to be required, an objective evaluation must be made based on the firm’s qualifications, expertise, and past successes with projects of similar nature.

Initial Information to Consider
The client must create a short, detailed outline of the project, including general size, purpose, and parameters to express the expertise and skills that will be necessary if selected as the CM. The client’s expectations of the scope of work, schedule, and budget should be in the outline. The budget will not be finalized until the selected CM can evaluate the feasibility of the proposed schedule and costs.

As can be expected, the client should seek a CM with the ability to adapt to ever-changing circumstances and make decisions that will reduce costs and best keep to the initial schedule. The costliest disruptions come from a CM’s inability to make important decisions in a timely manner. For this reason, it would seem best to delegate the power of handling change orders, dispute settlements, and contract changes to a qualified individual or small group, so to expedite the process and keep a project on schedule.

CM Selection Committee
A client should form a selection committee early in the selection process so that these individuals can collect the data necessary for choosing the best possible fit for the CM of your project. The committee must compare approaches, skill levels, and track records of multiple similar CM firms. Everyone selected for the committee will need to know how the selection process will be performed, and at least one member should understand the design and construction process. If the client does not have anyone knowledgeable of these two processes, it may make sense to hire a consultant for some period, so long as they continue to keep the committee free of any conflict of interest.

Selecting a Qualified CM

The process of selecting a CM essentially follows three steps: a request for qualifications, a request for a proposal, and a price/fee proposal.

The Request for Qualifications

The Request for Qualifications collects the general qualifications of a firm, it usually includes the following types of information:

• Firm name, address, and contact info
• Comprehensive list of services offered
• Names of principals
• Numbers of staff members attributed to each discipline
• Description of previous completed work and contact info of the project owner
• Average annual volume and capacity
• A backlog of projects yet to commence
• Record of quality, schedule, fees, safety, and awards

With the submittal of this information, the committee will deliberate and reduce the number of applicants to the two or three that have a real chance of getting the job.

The Request for Proposal
The CMs that make it through the qualifications step next submit a technical proposal in response to the issued request for proposal. A CM writes a technical proposal specifically for a project. The Request for Proposal should contain a description of the project, project budget, major constraints, unusual services required, and information on compensation. The potential CMs will respond to this request by answering questions regarding their approach to their project (organization, process, tools, techniques, and staff), their experiences with similar projects, and resumes of the important staff members that will be assigned full-time to the project. CMs will appreciate the RFP including the criteria and weight system for evaluating proposals. A page limit, not including graphs or datasheets, may be suggested to limit the presentations to a manageable size. Be sure to look for clarity and consistency when reading through the proposal, while not legally binding this document can be considered when creating expectations.

Evaluation
Evaluation of technical proposals can be exhausting and time-consuming, making it even more important that the committee has a set, methodical system for evaluating each one. Each committee member should assign a numerical value to each presentation so that an average can be taken and compared to the other presentations. Sometimes more than one potential CM will seem like a proper choice, so face-to-face interviews or oral presentations may be necessary to make the final choice. Questions and issues should be planned before and adjusted slightly to the individual interviews, so as to keep the themes standardized from one interview to the next.

Price
The issue of the price should not be considered when ranking a CM based on their qualifications. Some owners may request a cost proposal as a part of the Request for Proposal. This may help save time negotiating an agreement after a CM has been chosen, however, the price will often become the largest factor in a client’s choice. Qualifications of personnel and expertise will largely affect the cost of services.

Negotiation
Once a CM has been deemed most qualified, the client will request them to provide a proposed scope of services. The CM will provide this in writing. Decisions made at this point will greatly affect the success or failure of the project. Defining necessary tasks and how much labor will be needed to complete them can prove to be a good way to begin formulating a budget. Things addressed in the written scope of services are:

• Develop a project scope statement
• Develop a procurement strategy
• Develop an estimated project schedule and budget
• Acquire consultants, designers, contractors, and suppliers
• Testing, quality control, startup cost, and turnover

This scope of services must include tangible methods for measuring performance and completeness. The client and CM should negotiate a final scope of services, allowing them to reach an agreement on price and schedule.

Possible Payment Options

Construction Management firms generally recognize four methods of compensation for their services:

Salary Times Multiplier Plus Direct Expenses
A standard approach based on CM’s salaries times a multiplier. The multiplier derives from the sum of the CM’s indirect salary costs (i.e. FICA, unemployment insurance, salary benefits) and overhead costs (general and administrative costs) divided by the total salaries paid. This enables the CM to recoup all costs, from there the two parties agree on a profit rate that gets applied to the product of the direct salaries times the multiplier. Direct project costs get paid separately.

Billing Rates
Another use of salary times multiplier. These rates represent the average salaries for the specified range of employee skills, experience, and education. An amount of money is added based on the CM’s overhead and profit multiplier and the resultant sum is used for all individuals in that classification.

Cost Plus Fixed Fee
This arrangement fixes the amount of profit that the CM will be paid to a lump sum. These arrangements designate what increments the fee will be paid. The client pays the CM actual salaries times a multiplier to cover all overhead costs and the lump sum as a profit.

Fee as a Percent of Construction Cost
This method of payment would not be recommended, because it has no relation to the effort required.